Sizing Up This Bull Market

Even as the stock market continues to push higher, investors remain doubtful.

Nearly half of investors are still bearish, while 28% count themselves among the bulls, according to the American Association of Individual Investors. With the Dow Jones industrial average over 9000 and the Standard & Poor's 500-stock index breaking 1000 for the first time since November, we asked three market watchers if this bull has legs, and where they see opportunities today.

JOE MILANOManager, T. Rowe Price New America Growth Fund

The market is ready to rise over the next 12 to 18 months, says Milano, with stocks near the end of a "stabilization phase" that started in March when investors realized the world was not going to end due to the credit crisis.

Milano expects improving economic fundamentals and earnings to help boost stocks. He's splitting his portfolio between stocks that will benefit from a recovery, like video game publisher Electronic Arts (ERTS) and toolmaker Fastenal (FAST), and more defensive plays that will prosper even if the economy falters. Those picks include pharmacy benefit managers Express Scripts (ESRX) and Medco Health Solutions (MHS), as well as Cerner (CERN), which sells information technology systems for hospitals and doctors' offices.

In the financial sector, there's too much uncertainty for Milano's liking, and strengthened regulation may mean many companies will have to abandon formerly profitable business models. He does, however, like market index provider MSCI (MXB), which he notes doesn't operate like a bank or brokerage firm and has been overly punished by investors.

JUSTIN WALTERSCo-founder, Bespoke Investment Group

The ride will be bumpy, but the stock market will move 10% to 20% higher over the next six months, says Walters. He bases that in part on the S&P 500's 200-day moving average—the average of the market's closing price over the past 200 sessions, recalculated daily by discarding the oldest close and including the most recent.

The average fell for 571 straight days, the second-longest losing streak ever, but in July began rising. There have only been five instances of the 200-day average declining for at least 450 days, says Walters. In all five, the market was significantly higher a year later. In four of the five it was higher even six months later. Walters also points out that many indicators, including the National Association of Home Builders Housing Market Index, are back where they were before Lehman Brothers went bankrupt. "That was a key inflection point," he says. Yet the S&P 500 is about 250 points, or 20%, below where it was the day before the bankruptcy. Walters favors stocks like Sears Holding (SHLD) in the consumer discretionary sector and tech companies including Intel (INTC) and OpenTable (OPEN).

JAMES STACKPresident, InvesTech Research

Stack calls this market "the most unloved bull market in history." All the major indexes have hit new recovery highs, including the Dow Jones Transportation Average, which tends to lag the others. And the ratio of up stocks to down stocks on any given day continues to be positive. When the Dow Jones industrial average broke 9000 on July 23, five times as many stocks finished in the green as closed in the red. No one industry leads—on July 23, 9 of 10 sectors finished up over 2%.

Stack, who expects another good six to nine months for stocks, has moved 97% into equities since the Mar. 9 bottom in the market. And for now, that's where he's staying.

    Before it's here, it's on the Bloomberg Terminal.