While most investors are fretting the markets recent contraction, you can be quite confident that "my pal Warren" has a smile on his face, as does Peter Lynch, Ken Heebner, Bill Miller, Bruce Berkowitz, and any number of fellow value investors that know now may be a time of opportunity. That is because they have the experience and understanding to pounce when they have a chance to buy things cheap.

This is the fourth installment of my series to discover just that: cheap stocks. If you would like to get on board from the beginning then review the initial post which screened for stocks with lower than market average P/E ratios, see Serious Money: Market Looks Cheap to Me -- 35 Stocks. In the second installment, I looked at yield and PEG ratios: Serious Money: Still Cheap Market -- 35 Stocks + Yields & Growth. Then I moved on to the the P/S and P/CF metrics in Serious Money: Cheapest Stocks Yet -- From 35 to 26, cutting nine stocks.

Jamie Dimon, CEO of JPMorgan Chase (JPM), and Emilio Botin, Chairman of Banco Santander (STD) of Madrid, exchanged emails on how best to collaborate in the event of forthcoming bank failures. But the key here is that the exchange happened in June of 2008.

Afterward, Dimon and Botin met to discuss bidding on failing U.S. banks. Keep in mind that this was before the financial crisis gathered steam in fall of 2009. And keep in mind that this was before the TARP monies were provided to the big banks. This was before the collapse of Lehman Brothers, Washington Mutual (which JPMorgan bought), Merrill Lynch, Bear Stearns and so on.

Is the market overpriced? Maybe it is cheap, or perhaps it is fairly valued. This is the third in a series examining the issue. Still, it has been my contention that it does not make any difference because no matter how the market is valued as a whole, there are plenty of cheap stocks out there to accommodate a large amount of capital allocation even this deep into a bull run.

If you would like to follow along from the beginning, the initial post screened stocks for lower than market average P/E ratios: Serious Money: Market Looks Cheap to Me -- 35 Stocks. In the second installment, I looked at yield and PEG ratios: Serious Money: Still Cheap Market -- 35 Stocks + Yields & Growth.

Today was helped in part by housing data for December showing gains on the existing home sales front, but was mostly a sentiment reversal. The S&P closing back above 1,085 yesterday created the hope that a floor was being put in and the stocks followed some strength in Europe to post larger gains.

Here were today's unofficial closing bell levels:

Dow 10,297.00 +111.47 (1.09%)
S&P 500 1,103.11 +13.93 (1.28%)
Nasdaq 2,189.68 +18.48 (0.85%)

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Let's try and reduce the gambling by examining the facts and ignoring what the bulls and bears are chatting up at the moment. We started the process by screening for lower than market average P/E ratios, see: Serious Money: Market Looks Cheap to Me -- 35 Stocks.

Two more important criteria influence today's review: the yield, a favorite of "my pal Warren"; and the price-to-earnings-to-growth (PEG) a focus of Peter Lynch, the retired fund manager extraordinaire of Fidelity's Magellan Fund.

We frequently receive comments that the market is overpriced. Recently one of our active readers commented that the market P/E was 30, which it's not. The actual rate (S&P forecast) has been even higher at times due to the volatile market.

The average should trend closer to the long term P/E of 15.7 in the next few years. However, I have reviewed companies often covered on our site and come up with a list of 35 stocks that have price-to-earning ratios below the long-term average already. I think there are dozens of bargains regardless of the status of the overall market.

While we wait for details on the president's plan to break up the banks, I wonder why the banks can't decide to break themselves up?

Wouldn't it be so much better to break up themselves than wait for President Obama to do it for them? Investment banks specialize in mergers and acquisitions and the converse spin-offs. Mergers and acquisitions are big business for Wall Street and they happen all the time. In fact, that's how many of the banks got so big.

With a market cap of about $4 billion, WebMD Health Corp. (WBMD) shows that there is a big market for online health content. Keep in mind that nearly 70% of all adults in the US used the Net to get health care information (for 2009).

So, to capitalize on the financial opportunities, Everyday Health also wants to become a public company (the filing came this week).

Banks have seen a hectic couple of days' of trading, thanks to a bevy of news. I thought it may be good to take a look at some earnings results from a few of the banks, and what it could mean for the economy going forward.

First, let's look at the earnings:

• JPMorgan Chase (JPM): earnings of 74 cents per share; expectations for 60 cents per share
• Citigroup (C): a loss of six cents per share; expectations for a loss of 33 cents per share
• Goldman Sachs (GS): earnings of $8.20 per share; expectations for earnings of $5.20

Analyst Upgrades

• Citigroup upgraded JPMorgan (JPM) to buy from hold on valuation as it finds the risk/reward on shares attractive following yesterday's sell-off. Citi keeps a $48 price target on the stock.
• Oppenheimer upgraded International Game Tech (IGT) to outperform from perform as it believes fundamentals for slot suppliers will improve over the next two years. The firm has a $29 price target on the stock.
• SunTrust believes Perry Ellis (PERY) is now positioned to deliver stronger margins and significant reductions in charge-backs. Shares were upgraded to buy from neutral.
• Nordstrom (JWN) was upgraded to neutral from underperform at BofA/Merrill.
• Tyson Foods (TSN) was upgraded to buy from hold at BB&T.
• Consol Energy (CNX) was upgraded to buy from neutral at Goldman.

U.S. stock futures were mixed Friday morning as investors mulled results from General Electric and others, and focused on the effects President Obama's plan to overhaul Wall Street would have on banks.

On Thursday, Wall Street suffered one of the worst day in month after the Obama administration announced a proposal to increase regulation on the financial industry. Despite several strong earnings, concerns over China's efforts to curb lending, a surprise increase in jobless claims and a drop in manufacturing amounted to the Dow industrials sinking 213 points, or 2%. The broader S&P 500 lost 1.9% and the Nasdaq composite tumbled 1.1%.

One of the true icons of finance, Goldman Sachs Group (GS), issued its Q4 report this morning. The stock has been weak off the numbers; at the time of this writing, shares were down well over 5%, and volume was very active. Looking through the press release, I didn't come away as bearish as the market. Then again, the session as a whole was rather choppy, so perhaps overall sentiment was exerting an influence. Still, a 5% sell-off is notable.

Let's look at some highlights. For the fourth quarter, Goldman, whose colleagues include JPMorgan Chase (JPM) and Morgan Stanley (MS), made $8.20 per share. Last year at this time, the company reported a loss of $4.97 per share. Besides improving year-over-year, per-share profit increased over 50% on a sequential basis as well. According to Earnings.com, $5.20 was the number to beat.

A rally that began last year has already run up the prices of some stocks, creating small bubbles across the market. Some investors might be pushing prices higher ahead of their time for 62 of the stocks in the S&P 500 index. These companies now have P/E ratios of above 70, up from 23 a year ago. Says Robert Maltbie of Singular Research, "We have to temper some of this crazy bullishness." He tells USA Today that when P/E ratios approach 70, a stock can begin to have problems.

So, why are some prices being run up? As usual, any hope of rational price drivers is the domain of dreamers. Investors have found their favorites and sometimes haven't allowed reality to become a constraint on their excitement. Take a look at five reasons below:

Here are some highlights from this past week's earnings coverage on BloggingStocks:

• Aetna Inc. (AET) shares declined after the insurer issued a surprise earnings warning for 2010.
• Alcoa Inc. (AA) swung to a smaller-than-expected Q4 profit even as revenue declined, sending shares lower.
• Carter's Inc. (CRI) posted strong Q3 earnings that topped estimates and same-store sales growth.
• Chevron Corp. (CVX) shares declined slightly after the company issued a surprise earnings warning.
• Con-Way Inc. (CNW) was downgraded due in part to concerns about near-term earnings.

Today had all the earmarks of a great day to continue the bull market rallying on and on. There was a strong bullish bias and both Intel Corporation (INTC) and JPMorgan Chase & Company (JPM) both beat earnings. CPI remained tame, but the reading of consumer sentiment held things up. Most importantly, you have a bias set for this new earnings season. These stocks are up massively, and that much needed and way overdue pullback might finally be coming into play. The problem is that so far we are ten months now that every time that is about to happen, it has failed to materialize.

Here were today's unofficial closing bell levels:

Dow 10,609.65 -100.90 (-0.94%)
S&P 500 1,136.03 -12.43 (-1.08%)
Nasdaq 2,287.99 -28.75 (-1.24%)

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