As we all know, the market is a fickle mistress -- and I will be the first to admit, she has humiliated me with her indiscretion on many occasions. However, I'm happy to report that my pick of The J.M. Smucker Company (NYSE: SJM) as a "Cheap Stock" for 2009 has not completely blown up in my face (yet).

The peanut butter-based security jumped back on my radar today when I noticed that brokerage firm Janney Montgomery Scott started coverage of SJM with a Buy rating. Not too many analysts are currently following the shares; according to Zacks, the jam giant has garnered just two Strong Buys and one Hold. Any additional bullish initiations could help the stock extend its recent uptrend.

Virtualization specialist VMware, Inc. (NYSE: VMW) is scheduled to report its fourth-quarter earnings next Monday, Jan. 26, after the market closes. Ahead of the announcement, analysts are expecting a profit of 26 cents per share on sales of $516 million. The company has a mixed history in the earnings spotlight; during the past four reporting periods, VMW has matched estimates once, missed once, and surprised to the upside twice.

Prior to next week's release, Wall Street is aligned almost unanimously in the bearish camp. The stock sports 16 Holds and 3 Strong Sell ratings, according to Zacks, compared to just 2 Strong Buys. These skeptical analysts have placed an average 12-month price target of $26.33 on the shares, representing a reasonable 30% premium to Tuesday's closing price.

Elsewhere, short interest represents a whopping 14.6% of VMW's float. This accumulation of bearish bets would take nearly 10 trading days to fully repurchase at the stock's average daily volume. In the event of another upside earnings surprise, the shares could rally as these shorts rush to cover their positions.

Los Angeles-based builder KB Home (NYSE: KBH) is scheduled to report its fiscal fourth-quarter earnings this Friday, Jan. 9, before the market opens. Analysts are expecting KBH to swallow a loss of $1.19 per share, which would represent a marked improvement from the homebuilder's year-ago loss of $9.99 per share.

However, if history is any indication, there's a good chance KB Home's results will fall short of the Street's predictions. The company has disappointed analysts in each of the previous five quarters by reporting wider-than-expected losses.

On the plus side, it doesn't seem that many players on Wall Street are betting on an upside surprise. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open nearly 3 times more puts than calls on KBH. The stock's 10-day ISE put/call ratio of 2.78 ranks higher than 65% of comparable readings taken in the past year, which suggests that bearish sentiment is ramping up ahead of earnings.

China-based Suntech Power Holdings (NYSE: STP) is slated to report its third-quarter earnings results ahead of the opening bell tomorrow, and the solar stock looks particularly vulnerable to a post-report drubbing. Sector peer JA Solar (NASDAQ: JASO) fell to an all-time low last week after offering a weak outlook, while Trina Solar (NYSE: TSL) today lowered its revenue forecast for 2008.

Currently, First Call reports that analysts are expecting STP to report a quarterly profit of 42 cents per American depositary receipt. Suntech has a respectable history in the earnings spotlight, having exceeded the Street's forecast in three out of its past four reports.

On the plus side, it seems as though many brokerage firms have already downwardly revised their expectations for STP. There have been 10 cuts to the firm's average 2008 earnings-per-share estimates, compared to just two increases.

Plus, several analysts have issued bearish notes on Suntech in the past few weeks: Jefferies & Co. cut its price target on November 17; JPMorgan Chase cut the stock from "neutral" to "underweight" and lowered its price target on November 16; Raymond James downgraded STP from "strong buy" to "outperform" on November 13, the same day that AmTech Research slashed its price target; and Deutsche Bank cut the stock from "hold" to "sell" on November 10.

I'm always on the lookout for pearls of investment wisdom -- information on the down and dirty rudiments of securities analysis is important, but the more subjective "investment psychology" material can be just as key to investment success.

In an interview (subscription required) with the Wall Street Journal, Lorenzo Di Mattia, manager of Sibilla Global Fund, a hedge fund, explained that good trades are often painful while bad trades can feel wonderful: "Actions that make us feel good are usually a lot less profitable than the ones that make us feel bad or stupid. The best trades are usually painful."

It makes perfect sense -- we're pack animals, and going with the herd feels good. But it often leads to disaster -- the internet stock bubble, Beanie Babies, etc. Buying the stuff no one else wants can make you feel like a social outcast, but history has shown that that's often a good strategy.

It's a lot like dieting -- the stuff that feels good at the time can lead to a pretty bad-looking body. For more on the science of behavioral economics, check out Why Smart People Make Big Money Mistakes.

It's no secret that compact discs are on the way out as the preferred method for distributing music, and their decline has continued to accelerate. According to Nielsen SoundScan, 500.5 million albums sold as CDs, cassettes, LPs and other formats were purchased last year, down 15 percent from 2006's total.

Including digital music download sales and music videos, music purchases were up 14% from 2006. What should investors be looking at here?

Perhaps paradoxically, I don't think digital music is the way to play this. The fast-growing innovator often lags that declining old-economy company in terms of stock market returns because investor sentiment can be overly negative. For instance, railroad stocks outperformed airplane stocks (and the broader market) by a wide margin, even as railroads lost their status as the major method of travel. The reason? Railroad stocks were beaten down so badly by the headlines about their demise that they became tremendously undervalued.

The music equivalent of the railroad is Handleman (NYSE: HDL), a stock that has frustrated bottom-fishers for years. The company manages the music category for retailers like Wal-Mart, and well-known value investors like Joseph Harrosh and Marty Whitman have accumulated stakes in the company, even as the stock has continued its decline.

The stock trades at a huge discount to its (probably overstated) book value, and has had trouble adapting to changing trends in the industry. But at its current price, it may be worth a look for contrarian investors who aren't afraid to own stocks that other people snicker at.

Yesterday, Robert Shiller of MacroMarkets said "the pullback in the US residential real estate market is showing no signs of slowing down." This followed the S&P/Case-Shiller national home price index falling 0.9% sequentially in the second quarter.

The index is down 3.2% from the second quarter of last year and is at its lowest level since it began in 1987. Robert Shiller went on to say he is worried about your home's value, and that's not good.

As a reminder, Shiller, of Yale professorial claim, correctly called the excesses of the late 1990's stock market. However, while he called the top, he never called the bottom, staying with his bearish bias way too long and never becoming a buyer.

Shiller shifted his focus to real estate in the current decade. Once again, his bearish prognostications proved correct. However, as the real estate market becomes weaker and weaker with the media flocking to his doors, the trained economist appears to be focused on following the downward trend and not attempting to find a point to start bottom fishing.

A new contrarian indicator may be when Shiller hits the airwaves in full force with his bearish views, it could prove to be a good sign that the bottom for the bear market in real estate is near.

In his book The Future For Investors: Why the Tried and True Triumph Over the Bold and New, Jeremy Siegel outlines the paradox of growth: Growth does not necessarily lead to superior returns in the stock market. In January, I wrote a piece called Are newspapers the new railroads?, in which I discussed a fascinating statistic that I found in Siegel's book: Since 1957, railroad stocks have outperformed airlines, trucking, and the S&P 500.

Think about this: If you'd been there back in 1957, which would you have picked as the better investment? You, along with the vast majority of people, probably would have picked airlines. That's why railroads ended up being the better investment. Extremes in market sentiment often lead companies with poor prospects to be undervalued while companies with terrific prospects become overvalued.

How can you tell when this has happened -- when popular opinion has over-shifted against an industry or company? Oftentimes, you'll see a lot of brilliant investors who are unafraid to go against the trend moving in. In an interview with the Wall Street Journal, legendary investor Carl Icahn explained his philosophy this way: "My investment philosophy, generally, with exceptions, is to buy something when no one wants it."

The latest issue of Barron's featured the results of the weekly paper's stock-picking contest for college students. Derek Zoch, a student at Wharton, had a strategy that smacks of classic contrarianism in the tradition of David Dreman. He looked for stocks making the largest moves, up or down, on each day and then bet against them. This strategy (with, of course, a huge amount of luck) led him to a 34.94% gain in six months.

Does this strategy make sense? It might. Jim Cramer has said that the market never rewards the best news and enough, and never punishes the worst news badly enough. But contrarians like David Dreman would argue that it's just the opposite: the stocks that are disappointing investors the most are often the best bargains. And, as Zoch bet, stocks making great gains are likely to be overrated.

Here is a hardcore contrarian strategy that you could try: each day for 2 weeks, buy the biggest % loser on the NYSE, and short the biggest gainer. Hold each stock for six months, and then close all the positions and see if you beat the market. Interestingly, one might extrapolate from Cramer's remarks that his approach could be just the opposite.

The newsprint industry has been one disaster of a sector to invest in. However, as Barron's Andrew Bary pointed out in a contrarian piece on the Bowater Incorporated (NYSE: BOW) and Abitibi Consolidated Inc (NYSE: ABY) merger, this might be a sign this industry is finally bottoming out.

Some relevant stats:

• Bowater shares are down to $23 from a high of $59 in 2000 while Abitibi shares are down from $20 a decade ago to $2.80
• The combined company will be the third largest forest-products company in the US behind Weyerhaeuser (WY) and International The merged company will have 50% market share of the North American newsprint business
• The decline in newsprint demand might have bottomed as demand from emerging markets is beginning to offset the decline in mature markets. Newsprint demand grew 1% last year. However, North American demand decreased 7%
• By 2008, global newsprint demand could increase 2%, according to Citigroup

Citigroup indicates that Bowater's poor first quarter performance might be the bottom for the Canadian-based company and forecasts earnings of $ 1.00 in 2008 jumping to $2.35 in 2009. Citigroup has a target price of $35. Citi also has a $5.00 target on Abitibi.

The merged company also has $2.0 billion of assets it could sell to paydown the $5.6 billion in debt of the combined companies. The merged company will generate revenue of $8 billion.

The newsprint industry is the contrarian of contrarian investments. While most commodities have performed well this decade, this sector has been a disaster. However, it is time to start looking at these two companies. Start listening to conference calls to see if the companies can hit their quarterly earnings targets. If they can, these stocks could have a good run.

Whenever I see a list of contrarian stock picks, I'm reminded of the Yogi Berra witticism about a popular restaurant: "Nobody goes there anymore because it's too crowded."

A list of stocks to buy because no one is interested in buying them seems paradoxical, but the methods that the Wall Street Journal used to compile its list of contrarian stocks [subscription required] are interesting: Stocks that have lagged the market for six months but have made sizable gains in the past week, have manageable debt levels, solid profits, negative analyst ratings, and PEG ratios below 1.5.

That's a pretty good screen for finding beaten down stocks, and I'm going to try to find a site that will allow me to input all of that into a stock screener. Anyone with any suggestions, please leave a comment.

And to learn more about contrarian investing, I recommend David Dreman's Contrarian Investment Strategies.

Based on an analysis of quarterly sector performance during the period 1995-2006, S&P 500 economic sectors that perform best in any given quarter tend to fare less well in the three months that follow. In contrast, groups that perform worst tend to improve their relative standing in the subsequent span.

So far this period, utilities and materials have been the best performers by a relatively wide margin. The laggards have been financials and consumer discretionary shares. If past trends hold true, it might make sense to shift sector allocations for the next three months away from shares in the winning sectors towards those in groups that finished at the bottom of the pack.

It's worth noting that this is a relative performance strategy. Some or all of the ten sectors could finish higher or lower next quarter, depending on what happens to the overall market.

Sector	Quarter-to-Date Return %
=================	====
Utilities	8.78
Materials	7.92
Telecom Services	4.80
Energy	2.07
Consumer Staples	0.99
Industrials	0.44
Health Care	0.24
=================	====
S&P 500	-0.08
=================	====
Information Technology	-1.02
Consumer Discretionary	-1.33
Financials	-3.86

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World.

Contrarian (noun), pronounced con.trar.i.an. : A person who takes a contrary position or attitude; specifically : an investor who buys shares of stock when most others are selling and sells when others are buying.

Turning things inside out, and upside down is basic to contrarian and value investing. In this article I will share my WOW Principal of investing.

WOW Principal origin: Observing how my wife manages our family I have been in awe. It's true: "a mother's work is never done." To express my amazement, I have exclaimed WOW often. MOM upside down spells WOW! There are many times that Mom's world is upside down, juggling three kids and an ever increasing number of commitments with spectacular efficiency. She is also an architect and my partner in our architecture practice. In my bio, I referred to my relationship with my wife as my best investment, and since we met many years ago, I have been collecting dividends.

So, it is with my wife in mind that the WOW Principal of investing came to be. It is a perfect fit with my investing style. Simply stated: If, after thorough analysis of an investment, you are not in awe of your findings (company data, news, trends and surprises) and you do cannot exclaim WOW! (double WOW is even better!), then it is not a worthy investment.

If however, the investment does reach WOW status, you are in business. I do not invest unless I think there is an amazing opportunity and any risk is understandable and acceptable. Good is not good enough, it must be a great opportunity, and the case must be very convincing.

When things are upside down or people's perspective is jaded, there may be a deep value opportunity and my interest is peaked. At the point of discovery is a moment that begins when I say "hmm," and stroke my beard. Then I spend time with my investigation and analysis. But I do not fork over any cash until I find the WOW factor(s). If you find yourself scratching your head and saying huh? instead of "Wow," move on!

Shares in Merck & Co (NYSE: MRK) moved up past $40 for the first time in a long time last Wednesday, July 26. I bought some shares about 20 months ago at $32 after the stock tanked on the Vioxx (R) debacle. You could have bought in at just under $26, if you had perfect timing.

Now what? Should I stay or should I go? Does it have more upside or have I reached my objective return and now should sell? Most of the shares are in my Roth IRA so taxes are not an issue.

So my thinking on Merck went like this: Merck had been a well-managed profitable company for decades and was on sale. The company had been voted, by peers, as the top-managed company on the planet numerous times, made tons of money and was envied by all. The Vioxx (R) revelations tanked the stock. Contrarian that I am, I had to take a look. In addition to quality management, earnings, cash flow, and panic what did it have going for it? Try billions in cash reserves and a 5.5% dividend at the time.

What was the downside? Litigation for years, maybe for a decade plus.

Yes, Wal-Mart is down sharply this morning and yes, it was downgraded by Merill Lynch. Yes, it might go lower still.

Call me a contrarian -- I have been called worse -- but I think the stock is getting attractive. I want to buy stocks on sale.

Wal-Mart (WMT) is too big to stay out of the news and most of what we have heard the past year seems to have weighed down the stock. Its trailing P/E is slightly below the S&P average at 16.85. but that is nothing to get excited about.

What drew my attention to WMT is its incredibly low price-to-sales (P/S) ratio of 0.62. (source, AOL Money & Finance). Other positives I see:

- WMT has a five year earnings-per-share (EPS) growth rate of just under 14%, a return-on-equity (ROE) of over 23% which is higher than their P/E, another good sign and a return-on-invested-capital (ROIC) of over 14%. It has a 1.4% dividend yield growing at 20% rate over the past five years and plenty of cash (about $7B)with no debt, manageable debt (thanks Stacey for pointing out my earlier mistake -- haste makes waste writing at 4:00 AM), so that yield is probably very secure.