My last column in July espoused selling stocks and playing poker. This column advocates the opposite. Enough stocks have dropped significantly to low valuations and with decent fundamentals to trigger new buying in my portfolio. But before you get all lathered up and label me a raging bull, let me explain.

I use a formal low-P/E investment discipline that permits buying stocks only in companies that are down and cheap. When the buy list is laden with undervalued stocks in average companies that have suffered meaningful declines, I build up the long side of my book. When the list is meager, I tend to take profits.

In July, the list was skimpy, and I reduced equity exposure. However, today it's replete with good companies at low valuations. Therefore, I am buying. In the investment business we call this a "bottoms-up" process.

I am not a rip-snorting bull. Large fundamental issues concern me enough that I avoid any significant margined long position. Interest rates continue to rise, real estate is tapering, cost pressures continue to increase, and consumption (and hence economic activity) appears due for a rest. And stock market valuations in general, while much better than at the beginning of this year, are hardly cheap.

But I simply cannot ignore what my new purchase list is suggesting. And that is to add stocks to my portfolio. Which stocks?

Some of the old favorites have pulled back enough to become excellent values, ConocoPhillips ( COP) for example. At Thursday's close of $60.90, the shares trade for about 6 times this year's earnings, with excellent exposure to higher commodity prices and refining margins.

While the company may be 10 times "normal" profits (if we ever get "normal" oil/gas prices correct again), that's still way too cheap in a 16 P/E market! I believe the stock is discounting oil in the $35-$38 range. Conoco is still one of the best growth stories in the sector when comparing its strong revenue/profit growth with its compelling valuation. My price target is at least 30% higher. If I could own only one oil stock...

Pulte Homes ( PHM) is another oldie but goodie. The shares have corrected strongly, closing Thursday at $35.93 as the sector has done every year. At 6 times profits, it's simply too cheap not to own. Now I know many will scream that the housing bust is coming. "Many" have been wrong for quite a while. If the economy holds together and the housing sector just fades, the shares should appreciate meaningfully. In a flat housing market, the stock could trade up 50%.

Pulte's serious competitive advantage is its exposure to the "active adult" market, with its Del Webb division. This is simply the best demographic story in the housing market today, bar none. If there is a real estate bust of epic proportions, homebuilders and market indices have equal downside due to valuation discrepancies.

Cinram, which trades on the Toronto Exchange, and which closed Thursday at $22.82, is my final reiteration. This leading-market-share provider and distributor of media products, such as CDs and DVDs, operates in global duopoly and generates huge free cash flow. I expect excellent earnings from Cinram as the DVD business reaccelerates and the high-definition upgrade starts next year.

At 7 times cash earnings and with a free cash flow yield approaching 20%, the shares have significant upside. Should investors continue to ignore this fine story, the company probably will convert its structure to an income trust and spew cash to its owners. Under the proper conditions, this stock could double.

Terex ( TEX) is a new name to the portfolio. This leading maker of specialty construction equipment is just beginning a significant restructuring and turnaround process. Currently, the shares trade for 8.5 times my estimate for 2006. Strong and improving conditions exist for its major product lines, including aerial work platforms, cranes, mining shovels, cherry pickers and road-building equipment. Massive hurricane reconstruction efforts for the next few years shouldn't hurt either. When the company hits its stated operating margin target of 10%, profits should be 100% higher than in 2005. The shares, which closed at $50.25 Thursday, should be a lot higher too.

Eastman Chemical ( EMN) is another new idea. Shares in this leading maker of specialty chemicals, plastics and fibers have been hit on the basis of spiking raw-material costs, closing Thursday at $49.40. I believe the company will negotiate rising input costs without a major hit to profits. And should energy prices ever sink, the stock would become very appealing conceptually. At 9 times 2006 estimates and yielding 3.5%, the stock is materially undervalued. The shares traded north of $70 in 1996. We would not be surprised to see new highs in the stock next year.

Finally, Home Depot ( HD) registers as a new long position in the portfolio. What needs to be said about this category-killing home-improvement retailer? The company continues to grind out double-digit revenue and profit growth, while generating copious amounts of free cash and repurchasing shares. At 13.5 times 2006 estimates, this is hardly the cheapest name in the portfolio. However, on a fundamental basis, Home Depot is probably one of the best in the book. Shares closed at $39.39 Thursday.

As you can tell from the names, companies with economic sensitivity have high exposure to the "down and cheap" list. I think that's a good thing. The economy will muddle along, aided by strong growth abroad. The Fed will stop raising interest rates soon. I hear the current jawboning and believe it's a smokescreen. The Fed is simply talking up risk premiums before it eases up on the rate hikes. Can't have things get out of hand after that language in the press release, can we?

It's funny how Easy Al and I see things so differently. Eighteen months ago he saw deflation risk, and I saw inflation. Today, the Fed rambles on incessantly about inflation risks, and I see the end of the pricing power stage. It's not quite here yet, but enough capacity is coming on line in enough areas of the economy to temper rising prices. When the Fed acknowledges that and issues its "pause" statement, I expect stocks, especially economically sensitive ones, to rally nicely.

So I am taking my chips off the poker table and reinvesting my cash into that big casino on Wall Street, as some would say. Only I believe that investing is not a game of chance but one of skill and discipline. And now, that discipline says to buy deep value stocks. Carefully, but buy nonetheless.
At the time of publication, Marcin was long ConocoPhillips, Pulte Homes, Cinram, Terex, Eastman Chemical and Home Depot, although positions may change at any time.

Robert Marcin is the founder of Defiance Asset Management, a private investment management firm. Client accounts managed by Defiance Asset Management often buy and sell securities that are the subject of writings by Marcin, both before and after the writings are posted. Under no circumstances does this column represent a recommendation to buy or sell stocks. This column is intended to provide insight into the financial services industry and is not a solicitation of any kind. Neither Marcin nor Defiance Asset Management can provide investment advice or respond to individual requests for recommendations. However, Marcin appreciates your feedback; click here to send him an email. Marcin is not required to update or held responsible for updating any portion of this column in response to events that may transpire subsequent to its original publication date.