Three fund managers share their outlook for stocks. April 28, 2008 Jim Barrow, co-manager Vanguard Selected Value"If you miss the first month of the boom, you will have missed a big part of it. Things move very quickly. "Tobacco is one area that's historically been okay or even good in this kind of sluggish environment. It's a very profitable business. We own UST, Carolina Group and Reynolds American in Vanguard Selected Value. In Vanguard Windsor II, we own Altria and Imperial Tobacco. RELATED LINKS The Worst Is Over The Best Ways to Invest in Bonds Spotting a Stock-Market Bottom 5 Risks That Weigh on the Markets "We also like defense companies, like Northrop Grumman and General Dynamics. In a recession, the government will try to spend money any way it can, and defense is certainly one way. "This may be strange coming from a stock jockey, but high-quality municipal bonds are in a unique situation today in that they offer pretax returns higher than those of Treasuries. This is extremely unusual and is an indicator of stress in the financial system.' Advertisement Jean-Marie Eveillard, manager First Eagle Global Fund "The current financial crisis is the worst since the Great Depression. "Investors want to believe it will come and go as the previous half-dozen crises have because the Fed will flood the system with money. But the Fed's actions are increasing the risks of inflation, of a continuing decline in the dollar and of some holders of Treasury debt saying, 'Hey, our notes are no good, are they?' "TIPS [Treasury inflation-protected securities] are expensive, but they're still an attractive investment. Remember, it's not just the interest rate that's indexed to inflation; it's the principal, too. Gold can also be insurance. Advertisement "Whenever a sector, as with financials today, is under heavy pressure, investors stop discriminating. But the financial sector is not homogeneous. We like American Express's business model. So when the stock declined recently, we acquired a fairly substantial holding." Bob Rodriguez, manager FPA Capital and FPA New Income "I am focusing on capital preservation. It is better to save money than to go out there and lose it. "I smell risk where others don't, so I have 40% of FPA Capital in cash. Our financial system is going through a transition, and when something is changing and I don't understand it, I don't play it. Advertisement "The credit crisis has already expanded well beyond the housing market and has seeped into the credit-card and auto-loan industries. I predict that this crisis will become even more pervasive. I believe that there will be more defaults in the area of commercial real estate loans in the second half of 2008. "The worse the situation gets now, the more optimistic I become. At another point in time, I will be as aggressive and greedy as anyone else."