Sept. 4 (Bloomberg) -- U.S. investors are returning from
summer vacation to the cheapest stock market in almost 12 years,
and some of the biggest fund managers say they're ready to load
up on shares of technology, energy and industrial companies.
Software makers in the Standard & Poor's 500 Index are
valued at an average 20.8 times estimated profit, the lowest
since at least 1995, according to data compiled by Bloomberg.
Industrial companies trade at 18.4 times earnings, lower than
their average of 23.4 this decade. Oilfield-services provider BJ
Services Co. last month was the cheapest in almost six years.
While the benchmark for American equity tumbled 9.4 percent
between July 19 and Aug. 15 on concern the worst housing slump in
16 years would slow economic growth, the index gained in August
for the first time since May. President George W. Bush and
Federal Reserve Chairman Ben S. Bernanke reassured investors last
week that they would prevent losses in credit markets from ending
the six year expansion.
``The market's probably seen the worst of it,'' said Fritz
Meyer, the Denver-based senior investment officer for AIM
Investments, which oversees $160 billion. ``The Fed ultimately
will ride to the rescue.''
Stocks are ``on sale'' and managers are ``finding
opportunity everywhere,'' Meyer said. The S&P 500's average
price-to-earnings ratio of 16.8 for August was the lowest since
November 1995, according to monthly data compiled by Bloomberg.

Market Rebound

The slump, the steepest since March 2003, wiped out $1.41
trillion in market value. The S&P 500 rebounded 4.8 percent after
the Fed on Aug. 17 unexpectedly lowered the interest it charges
banks and the index ended the month 1.3 percent higher.
Bernanke, speaking Aug. 31 at the Kansas City Fed's annual
symposium in Jackson Hole, Wyoming, said central bankers will
``act as needed'' to buoy the economy hampered by the abrupt rise
in the cost of credit resulting from defaults in subprime
mortgages. Bush said the same day that he will let the Federal
Housing Administration, which insures mortgages for low- and
middle-income borrowers, guarantee loans for delinquent
borrowers, allowing them to avoid foreclosure and refinance at
more favorable rates.
The index ended the week at 1473.99, up 3.9 percent in 2007.
It may reach 1,600 this year should the Fed cut the benchmark
overnight lending rate between banks at its remaining three
meetings in 2007, said David Darst, New York-based chief
investment strategist for Morgan Stanley Global Wealth
Management. Fed funds futures contracts show traders expect the
central bank to lower its target rate for overnight loans between
banks at least once to 5 percent from 5.25 percent at its next
meeting on Sept. 18.

Cheap Growth

The slump in stocks was ``driven by psychology rather than
by fundamentals or valuations,'' said Darst, who oversees $728
billion. ``The bull market can continue.''
Morgan Stanley is optimistic about shares of energy
producers such as Houston-based Weatherford International Ltd.,
the world's fourth-largest oilfield-services provider by market
value, Darst said. He also likes Redmond, Washington-based
Microsoft Corp., the world's largest software maker, and San
Jose, California-based Cisco Systems Inc., the biggest provider
of computer-networking equipment, because of their overseas
profits.
Microsoft, which got 39 percent of its sales from outside
the U.S. in the year ended in June, trades at 16.6 times
estimated profit. Cisco is valued at 20.5 times forecast earnings
and received 45 percent of its revenue from abroad in the year
ended in July 2006.
Houston-based BJ Services on Aug. 6 traded at 8.79 times
profit, the cheapest since October 2001. International sales
provided 40 percent of revenue for the world's sixth-largest
oilfield-services provider in the year ended September 2006.

`Falling Knives'

Estimated profits at companies in the S&P 500 represent a
yield of 6.46 percent of share prices, or 1.93 percentage points
more than the yield on 10-year Treasuries, Bloomberg data show.
All 10 industry groups in the S&P 500 are valued at a
discount to their historical average over the last 10 years,
according to data compiled by Bloomberg. Technology shares cost
74 percent less than the average, the cheapest of the 10 groups.
Valuations for many stocks aren't attractive enough to go
``bottom-fishing,'' said Patricia Edwards, who helps manage $11.9
billion at Wentworth, Hauser & Violich in Seattle. The slump
caused by defaults on mortgages to people with poor or limited
credit has hurt the profit outlook for companies such as
homebuilders and financial firms.
``Catching falling knives is a dangerous art and not one I
have perfected,'' said Edwards, the firm's managing director.
``They're only cheap if the earnings hold up, and there's not a
lot of confidence with the E portion of their P/E ratios.''

IMF Estimates

Fort Worth, Texas-based D.R. Horton Inc., the second-largest
U.S. homebuilder, has tumbled 43 percent this year and traded at
1.96 times earnings on Aug. 28, the lowest since at least 1992.
The S&P 500 Diversified Financials Index last month was valued at
10.6 times earnings, the cheapest since at least 1995, according
to Bloomberg data.
Jeffrey Kleintop of LPL Financial Services recommends buying
industrial and technology companies that are more dependent on
the international economy than on U.S. consumers.
The Washington-based International Monetary Fund trimmed its
2007 economic growth forecast for the U.S. in July to 2 percent
from 2.2 percent, while increasing its estimate for the global
economy to 5.2 percent from 4.9 percent.
Technology shares have climbed 5.9 percent since the S&P 500
started to recover on Aug. 15, while a gauge of industrial
companies including General Electric Co. has added 5 percent.
Fairfield, Connecticut-based GE, which last year got 46 percent
of its sales from outside the U.S., rose 5.3 percent.
``The storm has passed its peak,'' said Kleintop, who helps
oversee $165 billion as chief market strategist at LPL in Boston.
Technology and industrial shares are ``going to be the leaders as
we emerge and retrace our way back to new highs.''

--With reporting by Lynn Thomasson, Michael Tsang and Michael
Patterson in New York. Editor: Nagi (lsz)