Just about now, investors may feel as if they're the good guys in an improbable Western movie scene.
The outlaws have them backed up against a wall, so they turn to their leader with a desperate plea: "How are we going to get out of this mess?"
Investors actually are posing that question to their financial advisers. And just like John Wayne might, some advisers say they have a plan - buy distressed stocks.
That may include risky issues such as Lucent Technologies Inc. (LU), AT&T Corp. (T) and Tyco International Ltd. (TYC) - with the hope that they'll give portfolios a big bang when the markets rise again.
"It's what we are doing with our clients," says Michael Boone, a certified financial planner who runs MWBoone & Associates, a Bellevue, Wash., firm with $100 million under advisement.
"What's gone down the most right now are some of the big, beaten-up names that are probably a good buy right here, and I think they can be a portfolio rescue program."
Depending on how gutsy the client is, Mr. Boone has been selling defensive stocks such as Washington Mutual Inc. (WM) in Seattle to buy shares in troubled media empire AOL Time Warner Inc. (AOL) in New York; telecom survivor Tellabs Inc. (TLAB) in Naperville, Ill.; Sanmina-SCI Corp. (SANM) in San Jose, Calif., a technology contract manufacturer; and controversy-laden Tyco International Ltd. (TYC) in Pembroke, Bermuda.
"If what you're trying to do is make big money when the market comes back, then you need to be in the stocks that are more volatile," Mr. Boone says. "Look at stocks that are quality companies, that are good names, that don't have a lot of debt and have fallen hugely."
Gerald Seizert, chief executive officer of Seizert Hershey & Co., a registered investment adviser in Bloomfield Hills, Mich., can't stress enough the importance of investing in companies that, though depressed, have sound valuations and bulletproof balance sheets.
As long-term plays, Mr. Seizert likes names such as UNUMProvident in Chattanooga, Tenn. (UNM), Bank of America Corp. in Charlotte, N.C. (BAC) and Merck & Co. in Whitehouse Station, N.J. (MRK).
Mr. Seizert, whose firm manages $550 million, isn't completely averse to risk, however.
"I think an interesting strategy might be [to] dabble in a basket of low-priced stocks where they've done their homework, and then look for attractive entry points in the solid companies that have continued to generate positive earnings in spite of the slowdown," he says.
His "dabble" candidates - which he would limit to 10% of buys - include Lucent in New York, CIENA Corp. (CIEN) in Linthicum, Md., and AT&T in Basking Ridge, N.J.
Cringing at the thought, Brian Barish, president of Cambiar Investors, an institutional value shop in Denver, says looking for a quick fix is "very dangerous."
"A lot of money that was lost" to investing during the technology bubble "has gone to money heaven," says Mr. Barish, whose firm also manages the Cambiar Opportunity Fund, which has $29 million in assets. "It isn't coming back, and you just have to accept that" and move on, he says.
"If you want to play a small amount of money in the `put-it-all-on-28-red' mode, there are some companies [that], operationally, are fine, but they have some big hair or whatever on them that is a risk," Mr. Barish says. "But if you can wait a couple years down the road, you can make some money on it."
Among his picks are FleetBoston Financial Corp. (FBF), which was hurt by exposure to Argentina and Brazil, beaten-up insurance companies such as Travelers Property Casualty Corp. (TAPa) in Hartford, Conn., and asbestos-litigation targets such as Halliburton Co. (HAL) in Dallas and Sealed Air Corp. (SEE) in Saddle Brook, N.J.
Several portfolio managers agree that there are opportunities to buy solid companies whose returns could rise from current levels.
"The caveat here is, you've got to be patient and not get too upset by what happens in the next six months," says David Dreman, chairman and chief investment officer of Dreman Value Management LLC in Jersey City, N.J.
Mr. Dreman, portfolio manager of the $3.7 billion Scudder Dreman High Return Fund, would choose Philip Morris Companies Inc. (MO) in New York, R.J. Reynolds Tobacco Holdings Inc. (RJR) in Winston-Salem, N.C., Bristol-Myers Squibb Co. (BMY) in New York and FleetBoston.
"You don't have to take that much risk and still get doubles and possibly a triple with these stocks," in a few years, says Mr. Dreman.
Karl Romero, a certified fund specialist, CFP and registered principal in Santa Ana, Calif., who manages $100 million in assets for LPL Financial Services, says his client-rescue strategy doesn't entail buying equities, yet. Out of the market for the past four months, Mr. Romero has been buying heavily into Ginnie Mae funds, high-grade bond funds and investment-grade preferreds with call dates six to 12 months out.
"There are a lot of good buys in that area, where we can get 10% to 12% on a short-term basis," says Mr. Romero, whose broker-dealer has headquarters in Boston and San Diego. Once he thinks the market has bottomed, he will consider equities.
"You've seen 14 or 15 sucker rallies already. We had one after 9/11. Anytime the Dow Jones goes up 1,000 points in a week, you know it's going to get its legs chopped off," Mr. Romero says. "This is a strategy to stop the hemorrhaging, preserve the existing capital and get a fairly decent rate of return until the market settles down."
And, just maybe, one that will lasso the losses.