The market is in a very happy mood in 2012. In addition to beginning the year with attractive valuations, U.S. economic data suggests that the economy is on the mend. With housing indicators showing that the bottom may have been hit and unemployment not getting worse, consumer confidence is improving. That's good for the economy, which helps the market rally.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Participating Intelligently
While investing today poses greater risk than it did last month, that's always the case when valuations are increasing. While some great gains have already passed, investors should always pay attention to the value they get at the price paid. Clearly, prices were better when the S&P 500 was trading at 1200, but even at 1400, some companies are poised to do well and trading for a reasonable price. Drug giant Abbot Laboratories (NYSE:ABT) currently yields about 3.3% and may appeal to more conservative income-seeking investors. More so, the company is splitting up into separately traded public entities. The transaction will likely be completed at year's end and create one company that will retain the pharmaceutical business, and another to retain the medical device business. Shares should continue to do well, as this transaction is expected to unlock shareholder value.

Growth at Value Price
Despite trading at a new high of around $90 a share, Advance Auto Parts (NYSE:AAP) still trades at a respectable 17 times trailing earnings while EPS is approximately 5.11. More so, AAP continues to trade at a discount to peer O'Reilly Automotive (Nasdaq:ORLY) despite the fact that Advance Auto is buying back boatloads of its shares at favorable prices. At a market cap of around $6.5 billion, AAP trades at one times sales while ORLY trades for double that ratio. Yet Advance Auto continues to make strides in the faster-growing commercial segment. The market is catching on, as shares have surged in 2012 but are attractively valued given the future growth.

With little respect bestowed on financials these days, banking and credit card company Discover Financial Services (NYSE:DFS) is a gem. The company continues to boost EPS buy, aggressively pursuing cost cuts and share buybacks. Low rates continue to widen spreads and increase profitability. However, as customers continue to gain confidence, they will increase payment and banking transactions, which bodes well for DFS.

SEE: A Breakdown Of Stock Buybacks

The Bottom Line
It's not too late to make some decent investments from a risk reward perspective today. As the market advances, investing risk naturally increases but seeking out quality companies where you can pay below a reasonable price for growth will likely work going forward.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Budgeting

    5 Alternatives to Traditional Health Insurance

    Discover five of the most popular alternatives to traditional health insurance plans, alternatives that are increasingly popular as health insurance costs rise.
  5. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  6. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  7. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  8. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  9. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  10. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
RELATED FAQS
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center