Stocks in a Slump, and Look Who's Buying

And so, last fall, he started buying shares of Munich Re. By the end of the year, he had accumulated $25 million in shares. He thinks the management has a reasonably conservative philosophy and he likes that the company is returning capital to shareholders through dividend increases and share buybacks. "It's a good sign that they feel the business is healthy," he said.

The fund also added to its position in Allied Irish Bank, a stock he said is more diversified than is commonly recognized in the market. Although housing prices in Ireland have come down, only 6 percent of the bank's revenue is tied to Irish mortgages, Mills said.

At the same time, his fund shed its stake in UBS, which has announced billions of dollars in write-downs related to subprime mortgages.

Going against the tide, Mills's fund also took a $14 million position in Sumco of Japan, which makes silicon wafers from which semiconductor chips are made. While some investors are worried about falling prices and a slowdown in U.S. consumer spending that could hurt demand, Mills said that there aren't many quality players in the industry niche and that the stock is trading at "almost ridiculous valuation with a single-digit" price-to-earnings ratio.

"This is a name that at some point is going to be off to the races," he said. "We don't pretend to be able to time the bottom perfectly -- no one can do that -- but when you see a really compelling valuation on a reasonably high-quality company that has a good industry niche like Sumco, that's something we like to buy."

While weak consumer spending has kept investors away from clothing stores, leisure-equipment companies and luxury retailers, Legg Mason's Miller is one man boldly striding into consumer stocks. Legg Mason Capital Management, an investment subsidiary run by Miller, held 4.6 percent of J.C. Penney, with 10.2 million shares, as of the end of last year.

Through a spokesman, Miller declined to comment but said in a recent note that consumer stocks may "have seen their worst days" now that the Federal Reserve had begun to cut interest rates aggressively.

"I think the market is in for a period of what the Greeks refer to as enantiodromia, the tendency of things to swing to the other side," Miller said, noting that the poorest-performing parts of the market, including housing, financials and the consumer sector, were at valuation levels unseen since late 1990 and early 1991, an "exceptionally propitious time to have bought them."

Perkins said his firm also took a look at J.C. Penney but ended up passing. His bet is on a competitor, Kohl's, which he started buying in January, in part because he likes that the department store chain has more free-standing property outside of struggling malls.

J.C. Penney has dramatically increased its operating margins in the past five years, and Perkins said that it was hard to see it improving substantially more but that the stock was indeed "depressed and cheap."

Some analysts see a case for buying J.C. Penney. Writing in a note to investors on Thursday -- the same day J.C. Penney reported a 9.9 percent drop in quarterly profit on weak consumer spending -- Citigroup analyst Deborah Weinswig said she was impressed by the progress the company had made in clearing excess inventory. She also made note of American Living, a new lifestyle brand designed by Global Brand Concepts, a division of Polo Ralph Lauren, whose launch is the biggest in the department store's history and "should potentially bring new customers into the stores."

She reiterated her "buy" rating, saying she thought that recession and other concerns were already reflected in the price and that the stock is "poised for appreciation based on . . . solid fundamentals."