Dreman Value Management, was also a buyer of Lubrizol -- back in March 2009, when shares traded at $34. "I guess Warren Buffett thinks it's a value at $135. Great, he can have it at $135," Roach says. "He's got his methodology, but from our standpoint, we were thinking to ourselves that it was cheap across all metrics back at $34 in 2009."
Roach, like most investors, isn't armed with the same $40 billion elephant gun that Buffett and Berkshire Hathaway ( BRK.B) brandish. Fewer investors are willing to buy an entire company at a 30% premium like Buffett did with Lubrizol. Instead, after a two-year bull market that has seen the S&P 500 nearly double, value investors have become even more selective as stock pickers in their pursuit of true value. Value investors tend to buy shares of companies with low price-to-earnings ratios, among other gauges. Growth investors tend to look for those with above-average earnings growth. Valuations aren't anywhere near the lows of two years ago. It has been more difficult for value investors to pick and choose since August, when the Federal Reserve began offering hints of a second round of quantitative easing, known as QE2 in the markets. After the QE2 news hit, U.S. indices have been on an escalator ride up, offering value investors few pullbacks on which to capitalize. "We were like kids in a candy store in March of 2009," Roach says. "You threw a dart and you were up 100% a year later. We had more ideas than we had cash. Now it's a true stock pickers' market. We're going to look at 10 to 15 stocks and we'll find one name. Nothing is screaming 'buy.' Clearly, more intensive work needs to be done on these names to be sure you're truly getting that value. But they're certainly out there." Roach notes that over the last year, stocks with high price-to-earnings ratios did just as well as those with low multiples. "But in 2011, you're starting to see that divergence where what you pay for those assets starts to really matter." Over the past year, small- and mid-cap growth funds have easily outpaced their value counterparts, according to data collected by Morningstar. In addition, large-cap growth fund returns beat those of large value funds. Since Jan. 1, though, mid-cap and large-cap value funds have been among the best performers as a series of devastating global events have investors turning more defensive. Political uprisings in the Middle East caused a spike in oil prices in February, which first showed cracks in the bull market. The crisis in Japan following Friday's 9.0-magnitude earthquake has precipitated a greater selloff. The S&P 500, which had climbed 28% from Sept. 1 through Feb. 18, is down 5% since. The human toll is tragic, and investors seem to see nothing but bleakness. "It's a horrendous time for that country," says John Buckingham, chief investment officer with Al Frank Asset Management, referring to Japan's crisis. "Businesses will go on in Japan. Ultimately, there will be rebuilding, and things will get to 'normal.' It's precisely correct to say there are still opportunities out there." The biggest pitfall in value investing is a so-called value trap, when a company whose shares have tumbled is mistaken for a value stock but is actually in deep trouble. To help investors, four value-fund managers including Roach and Buckingham offer some of their best picks in their portfolios, detailed on the following pages.