Scoffing at the idea that the market is bottoming out is Bernie Schaeffer, editor of Option Advisor and head of Schaeffer's Investment Research. Nevertheless, he isn't blind to a few opportunities being created by the depressed market. He has bought shares in Ryland Group (RYL ), a California builder, and in Research in Motion (RIMM ), a maker of wireless handhelds with e-mail capability, such as the BlackBerry.

Both stocks are out of favor and way off their highs. But Schaeffer is impressed with their positive fundamentals and tech strength--and he likes the negative sentiment toward them.

Options traders and shorts are bearish on Ryland, with 3.8 million shares--or nearly 15% of the outstanding stock--involved in short-selling. But robust earnings growth continues, says Schaeffer, despite worries that housing has peaked. Earnings jumped 61% in the latest quarter, he notes. The stock, which rocketed from 19 on Sept. 19, 2001, to 58 on May 6, is now at 41, trading at 6.8 times analysts' concensus estimates of 2003 earnings of $5.99 a share. Analysts figure Ryland will earn $5.33 in 2002.

RIMM, currently 14, traded as high as 175 in 2000 during the tech craze; it now has short-interest of 13 million shares, or 15% of shares outstanding. The stock trades at just three times revenues, vs. many large-cap techs that sell at 5 to 10 times sales, notes Schaeffer. The stock rallied from 10 to 15 in early July, after RIMM reported that it beat fiscal-first-quarter estimates and that gross margins rose from 38% to 43.5%. RIMM is expected to be in the red through 2003, but Schaeffer figures it will be in the black by early 2004. "Massive short covering will initially drive up the stocks when things turn up," says Schaeffer.

By Gene G. Marcial

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