The 'three bears' stocks to buy now

With the crisis in the eurozone drowning out often strong individual corporate fundamentals, investors are finding market conditions a little dispiriting. But when the headwinds finally ease and investors start to take a more discerning view of individual stocks, the many attractively priced opportunities on offer should come to the fore. Our focus is on identifying companies that are benefiting from change, especially when that change is misunderstood or unappreciated by investors. The three stocks below are examples from right across the scale in terms of market capitalisation.

Let's start in the large-cap world. BP (LSE: BP) is finally starting to make headlines for the right reasons after a dreadful year and a half when its very existence was called into question. It is 19 months since the announcement of the Macondo disaster, during which BP's shares fell by around 30% and underperformed Royal Dutch Shell by a huge 65%. However, the well has stopped leaking, the Gulf of Mexico coastline has been cleaned up and the flow of claims against BP has abated. The majority of clean-up costs have been accounted for and BP's partners have stumped up their share of these costs. The contractors Halliburton and Transocean have not yet admitted any liability, but this seems to be just a matter of time.

The US Department of Justice investigation into whether BP was grossly negligent' still looms and could carry a heavy fine. However, the valuation of the shares already assumes a worst-case outcome and there are mitigating factors that should reduce the fine. The recent award of a drilling permit in the Gulf of Mexico, the first since the disaster, is important and confirms the softened regulatory stance toward the company. Recent third-quarter results stated management's aim to double operating cash flow over the next three years. This implies there is scope to increase dividends again, in our view at a rate of around 10% a year.

In the mid-cap arena, UK and US defence contractor QinetiQ (LSE: QQ) is exactly the type of turnaround story we look for. It has a strong history, high market share and excellent technology. It had been suffering from a bloated cost base and inefficient working-capital management. But two years into Leo Quinn's tenure as CEO, the business is better diversified and more commercially focused. A higher margin, more cash generative and less capital-intensive business is the result. For now, given that the market remains nervous about the outlook for defence expenditure in both the US and UK, there is a lack of interest. But with a 13% free cash flow yield and a p/e of eight on depressed earnings, our forecasts suggest the stock comes with a high margin of safety.

The management of small-cap Hamworthy (LSE: HMY) did all the right things during the economic downturn by continuing to invest in their business. This investment has substantially boosted the firm's product range, giving it exposure to high growth markets in the global marine and oil and gas industries, such as onshore and offshore liquefied natural gas (LNG) and gas-powered ships. Hamworthy also benefits from regulatory-driven opportunities to provide retrofit emissions control and ballast water treatment systems for the shipping industry. It has emerged from trying conditions with higher growth rates and margins. It also continues to boast strong earnings momentum.