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By Jason Stipp | 10-20-2010 04:15 PM

Four Bright Spots and One Pick for Stock Investors

Morningstar's Paul Larson sees reason for optimism in liquidity trends, improved corporate health, and housing.

Jason Stipp: I'm Jason Stipp from Morningstar. If the doom-and-gloom headlines have got you down recently, Morningstar's Paul Larson has a few reasons for optimism for you to consider.

He is joining me today and telling me what he is seeing in the market, and he's going to give me a stock idea for those who may have an optimistic bent.

Thanks, for joining me, Paul

Paul Larson: Thanks, for having me, again.

Stipp: So, first question for you, there does seem to be what you call a drought of optimism for several different reasons, but you also see some points of optimism out there that maybe people could hang their hats on. What are some of the things that you're seeing?

Larson: Right. One reason for optimism is the liquidity that we have in the market. In late 2008, we obviously had a liquidity drought, the credit markets freezing. We're well beyond that today. We have a flood of liquidity, yet again, much like we had in 2006, 2007. This is evidenced by the very low rates that we're seeing on offer with both Treasuries as well as corporate bonds; corporations being able to come to the bond market and sell debt at very, very low rates is evidence of the excess liquidity that we have floating around.

Also when you look at bank balance sheets, they've had roughly two years worth of earnings to repair their balance sheets via accumulated earnings, and a lot of these have cut their dividends, so they are indeed accumulating those earnings. The bank balance sheets, at least at the large banks, are looking much better than they were, and they certainly have money to lend.

Stipp: So, corporations obviously finding it a little bit easier then, to tap the bond markets to get funding that way, but just generally, corporations are looking a bit more healthy now than they were during the crisis, before the crisis. They've gotten a bit lean and mean, right?

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