NEW YORK ( TheStreet) -- Earnings season kicks of this week to the apprehension of investors who are still unsure of where this market is headed: the delicate economic recovery and ongoing concerns about jobs have kept the markets on edge.

UBS analysts say they're expecting "very weak" guidance this earnings season, which will likely serve as another overhang on the market.

Regardless, the staleness of the markets hasn't fazed portfolio managers, many of whom recommend seeking out quality, undervalued stocks selling at a discount in these current conditions. As Eric Marshall, portfolio manager at Hodges Capital, tells TheStreet, "it's a lot easier to find undervalued stocks these days due to the dramatic market pullback as investors fear the economy running out of gas."

Read on for Marshall's undervalued stock plays -- and those of his fellow portfolio managers.

United Technologies (UTX)


Mean Analyst Recommendation:
15 Strong Buys, 4 Holds

Stock Price/Earnings Ratio vs. Industry's: 83.16%

Market Cap: $63.58 billion

Trailing Twelve-Month Revenue: $52.76 billion

Morningstar Fair Value Estimate: $71

The Case for United Technologies: "United Technologies is not getting the credit it deserves for a really good underlying base of business. It's being punished unmercifully," says Sarah Hunt, a portfolio manager at Alpine Mutual Funds. "It's a great company and it's been trading down with a lot of other industrials. People are too worried about Europe."

Morningstar Thesis (Excerpt): United Technologies has an impressive portfolio. UTC (United Technologies Corporation) owns pioneer firms such as Otis elevators, Carrier air conditioners, Pratt & Whitney jet engines, and Sikorsky helicopters, which spawned or redefined their industries. These firms' product leadership has produced powerful market entrenchment. We believe sustained productivity improvements and substantial exposure to fast-growing emerging markets will enable this wide-moat firm to churn out returns on invested capital exceeding 15% and consistently create shareholder value.

Risks Described by Morningstar: United Technologies derives around 59% of its sales from international markets, which subjects the firm to significant currency risk. Another key risk is the firm's exposure to the cyclicality of the construction and aerospace segments.

Fossil (FOSL)


Mean Analyst Recommendation:
5 Strong Buys, 3 Holds

Stock Price/Earnings Ratio vs. Industry's: 99.51%

Market Cap: $2.61 billion

Trailing Twelve-Month Revenue: $1.62 billion

Brean Murray Carret Price Target: $49

The Case for Fossil: "The perception and reality of Fossil may be different right now and creating some opportunity for some investors," Eric Marshall, a portfolio manager at Hodges Capital says. "There is a positive trend going into the watch business -- the hottest watch cycles we've seen in a while. The market thinks this is an inventory replenishment for Fossil, but positive underlying trends like new watch designs with new materials like ceramic watches" are driving its results."

Brean Murray Carret Report (Excerpt): While we do not deny international markets are a material risk for players such as Fossil ... we believe investors have to temper the foreign exchange issues with the potential for higher margins and materially stronger growth prospects than the more mature domestic markets.

Risks Described by Brean Murray Carret: The company's customer base remains somewhat fashion oriented -- a fashion miss could result in poor results; the company is heavily dependent upon the continued strength of its Fossil Brand; the company's core customer continues to be affected by general economic trends.

Telefonica (TEF)


Stock Price/Earnings Ratio vs. Industry's: 45.27%

Market Cap: $95.01 billion

Trailing Twelve-Month Revenue: $81.4 billion

Morningstar Fair Value Estimate: $84

The Case for Telefonica: "Telefonica is one of the most undervalued stocks that we recommend," said Albert Meyer, Portfolio Manager, Mirzam Capital Appreciation Fund. "It's one of the largest telecom companies in the world and has sold off quite dramatically, but I think the selling is overdone."

"They generated $8.8 billion in free cash flow in 2009. They're very liquid -- no doubt their dividend will be paid. If the yield comes down and the exchange rate improves the stock could be over $100. But I'm just pointing out that one of the largest telecom companies has sold off quite substantially and now has a very attractive yield."

Morningstar Thesis (Excerpt): Despite Spain's economic woes, Telefonica remains well-positioned vs. the other European incumbent telephone operators thanks to its geographic diversification. Telefonica remains the dominant phone company in Spain. Its very large market share in fixed-line and mobile telephony as well as broadband allows it to generate one of the highest EBITDA (earnings before interest, taxes, depreciation and amortization) margins in Europe.

Risks Described by Morningstar: The firm has been on a buying spree and risks overpaying for an acquisition or overleveraging its balance sheet. Competition is increasing in all of Telefonica's markets, which could impede the firm's ability to boost its margins. Unlike most of continental Europe, Spain has a competitive cable TV industry that competes in high-speed Internet access and, increasingly, telephony.

>>Search for Highest Dividends by Rate or Yield

-- Reported by Andrea Tse in New York

Get more stock ideas and investing advice on our sister site, Stockpickr.com.

Follow Andrea Tse on Twitter and become a fan on Facebook.
Copyright 2010 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.