Study the Numbers

 | May 03, 2013 | 3:42 PM EDT
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Do you go for the so-called overvalued consumer packaged goods and drug stocks that are selling off, or do you grab some cyclicals?

I think you have to recognize that some of these cyclical stocks are so low and beaten-up that it means nothing that they are up a dollar and change today. Do you really think after losing 5%, 6% or 7% overnight  that stocks such as Chicago Bridge & Iron (CBI) and Timken (TKR) are overvalued? Do you really fear DuPont (DFT) being up $0.53 or General Electric (GE) up $0.29? I don't think you should.

But far more interesting to me are the regional banks that have done nothing as they wait for an uptick in lending. Job growth means there's lending going on and that's extraordinary for the likes of names such as BB&T (BBT), First Horizon (FHN) SunTrust Banks (STI) or KeyCorp (KEY).

The autos haven't run too much if Europe's indeed turning. And the home plays that haven't run as much of late, PulteGroup (PHM) and Toll Brothers (TOL), seem pretty darned compelling.

The key, I think is to recognize that you don't need to buy the stocks of underperforming companies. Plenty of companies such as DuPont "did" the number and haven't been fully rewarded. Consider, for example, Weyerhaeuser (WY). Upside surprises in lumber. and housing. But the company would not let estimates get away from them. But, in the end, sometimes you can't hide how well you are really doing. This is why WY, ahead of next Friday's analyst meeting, could be a terrific place to be.

But let me give you one of my absolute favorite trades right now: Royal Bank of Scotland (RBS). It reported a quarter that was pretty darned good, with a very good return on equity and an excellent wealth and international banking business. The worry here is that the government's now going to start selling aggressively as it is 81% owned by the U.K. taxpayers.

To me, that sounds like the next American International Group (AIG). You see that one? You want to get into that name in when the government starts unloading, which is unnaturally depressing the prices.

Don't take your key from "the action." Go study the numbers. It was much better than many expected and I think it will be the under owned worldwide financial that will be adored when the government's out of the picture.

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