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Managers See Buys in Choppy Markets, Including Gilead, LinkedIn

NEW YORK (TheStreet) -- Fund managers point to rich opportunity in choppy markets, even for those bearish on market direction.

With the S&P 500 flat for the year to date while the Nasdaq and Dow Jones are lower, many professional investors argue a correction is long overdue. But rather than playing a full defensive hand, they are still buying on dips in select stocks.


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Capital Advisors managing director Channing Smith described the current earnings season as critical to market direction and is generally sticking to blue-chip names such as Unilever  (UN), Verizon (VZ), McDonalds (MCD) and Coca-Cola (KO).

"We are so overdue a correction -- the question is, what is going to be the catalyst?" he said in a phone interview. "It's almost ingrained that the market will rebound from the slightest pullback and we've whistled past various geopolitical risks."

Smith said the manager was more defensive due to pricier valuations rather than the earnings outlook or mixed economic data. But he recently added Gilead Sciences (GILD) to the manager's portfolio when the stock traded around $66.50. The company, which Smith describes as having "true earnings power," has since moved to around $69 after falling more than 17% since February as biotechs were sold off.

Federated Investors portfolio manager Lawrence Creatura says volatile equity markets present a buying opportunity. The value manager recently added to its holding of old-style tech stocks (as opposed to social media names) and also invests in some biotech companies.

"We buy into names that have already suffered and if [broad falls this year] were to get worse, we would deploy more capital," he said in a phone interview. "In moments of confusion and chaos, mispricing occurs."

Warren Financial Services chief investment officer Randy Warren sees mild pullbacks since the start of the year as healthy adjustments amid an ongoing bullmarket

He points to the buying opportunity in stocks such as Facebook (FB) but describes LinkedIn (LNKD) as a better deal for investors. "This market is giving people a chance to get into the high fliers and growth names," Warren said in a phone interview.

Russell Investments' North American strategist Doug Gordon echoes Smith's concern on market valuations. He says high equity market valuations mean the longer-term return outlook is subdued but expects mid to upper single-digit gains for shares in 2014.

"Recent market volatility indicates growing uncertainty around whether macroeconomic data is strong enough to validate equity market price and bond market yield levels," he told clients.

Gordon noted U.S. equity markets had a price to earnings ratio of more than 20 times and a price-to-book value around 2.7 times -- similar to levels last seen in late 2007.

-- By Jane Searle in New York 

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