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BOSTON (TheStreet) -- Investors have been told by analysts that the stock-market rout is creating attractive values. But JPMorgan U.S. equity strategist Thomas Lee, one of the most bullish analysts on Wall Street, says stocks aren't quite there yet.

Lee, in a research note today, says 53% of stocks have a price-to-earnings ratio, one of the key metrics of valuation, of less than 12 times forward earnings. By comparison, during market low in March 2009, 67% of stocks were that cheap.

"Investors have pointed to their reluctance to look at P/E valuations given concerns on earnings visibility," Lee writes in Friday's report, referring to skepticism over the accuracy of analysts' forecasts for corporate earnings. "But valuations ultimately mark lows -- stocks get cheap enough that buyers are enticed."

There has been a stampede out of equities as investors seek to reduce risk to the European debt crisis, with equities down 5% over the past two trading sessions. Investors are also fearful of a global recession and have pushed Treasury yields to less than the rate of inflation, meaning they're losing money. Still, stocks are trading close to a three-year low.

"Think about that," Lee writes. "Investors need to be mindful that valuation levels are getting close to those not seen since the March 2009 lows. The market is cheaper than it was during the height of the U.S. financial crisis. This is a strong argument that the sell-off we are seeing, while significant, is not consistent with equities having significant downside" in the months ahead.

For investors willing to jump back into equities, where should they turn? Lee and his team at JPMorgan reviewed the two previous major crashes -- after Asia markets tumbled in 1998 during the

Long-Term Capital Management

implosion and after the failure of

Lehman Brothers

in 2008 -- to find sectors and stocks that fared best.

Lee says the two outcomes couldn't be more different. After the low in 1998, the S&P 500 rose 40% over six months. After Lehman's collapse in September 2008, the S&P 500 fell 40%. "One was a test of the financial system (Asia/Russia debt crisis/LTCM in '98) while the other was a failure of the system -- Lehman," Lee writes.

Five market sectors that outperformed in the periods after the Asia crisis and Lehman failure were

consumer services








technology hardware


"The reason we look for industries that did well in both periods is that the market's behavior was so varied in the two different episodes," Lee writes. "In 1998, those groups that fell the most during the sell-off into the low bounced the hardest. But in 2008, those groups that fell the hardest into the event (Lehman) also kept declining. The fact these groups have been outperforming since July 2011 also suggests such outperformance is not necessarily an anomaly."

In terms of style, stocks that fell into the categories of pure growth, high P/E, high price-to-book, high enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA), and those most loved by analysts also tended to outperform.

Lee and JPMorgan created a stock screen to identify those that fall into all five of the style buckets and industries, which spit out 26 stocks that he says could outperform if the current market downturn is similar to the post-Asia or post-Lehman events:

-- Written by Robert Holmes in Boston


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