Now is the time to buy US equities

Cheap valuations and rising yields make US equities the best asset class in the world, according to Hersh Cohen, chief investment officer at the Legg Mason subsidiary ClearBridge Advisors.

Cohen, who oversees more than $48bn at Legg Mason’s largest equity manager, says American stocks in general, and high quality blue chip companies in particular, are currently extremely undervalued given their balance sheet strength and increasing propensity to pay and raise dividends.

"Prices and yields make US equities the best asset class in the world right now," he said. "American stocks have discounted a very negative scenario and high quality stocks have discounted the worst possible scenario."

"We can't find any areas of the market that are overpriced. But companies are flush with cash and are being aggressive with dividends and share buy-backs. Even some great cyclical companies are now trading at levels that look very attractive."

Cohen is especially bullish on internationally known businesses with long track records of shareholder-friendly behaviour that have suffered unjustly amid the general market gloom.

"We like the blue chips where price-earnings multiples are compressed and expectations are low and can't really get any lower, giving us limited downside," he added.

Walmart, Microsoft and Exxon are among the manager's favourite stocks.

Cohen believes many US stocks will perform well in the early part of 2012, though he warns that the longer-term picture will become murkier as government spending cuts begin to bite.

"We think the surprises over the next six months will be on the upside," he said. "But after the second half of the year, when austerity measures become more real, the situation will become increasingly uncertain," he finished.