Edward Jones' investment strategist is encouraging investors to diversify beyond the market's most stable sectors. By Kathy Kristof, Contributing Editor February 21, 2012 Edward Jones is a national brokerage and investment advisory firm that takes pains to avoid risk. Catering to conservative, long-term investors, the St. Louis-based firm won’t even consider recommending highly volatile stocks. And yet the company’s investment strategist worries that investors have taken risk-aversion too far. “They’ve loaded up on utility and telecom stocks -- the extremely stable, dividend-heavy segments of the market,” says Kate Warne. “We’re trying to convince them to diversify.”SEE ALSO: How to Be a Better Stock Investor Investors are understandably shell-shocked by a 12-year-long slump in stock prices marked by two massive downturns and a plunge last year that just missed entering bear-market territory. Also spooking investors is extreme volatility that rips away wealth as quickly as it’s given. But the fundamentals of both the U.S. economy and the health of public companies are improving, says Warne. That bodes well for future stock prices -- and particularly for companies in economically sensitive sectors, such as manufacturing and finance. To be sure, the stock market is likely to deliver a bumpy ride, with any bad news about Europe, employment or earnings capable of trashing prices in the short run. Investing, however, is a long-term game. And for those who measure profits over decades rather than days, the opportunities abound. Advertisement Warne is particularly enamored of industrial, technology and financial stocks, which she thinks investors have shunned in their flight to safety. Companies such as JPMorgan Chase (symbol JPM) and Dover Corp. (DOV) are selling at low price-earnings ratios even as they continue to grow steadily, she says. As of the February 17 close, JP Morgan, at $38.47, traded at 8 times projected 2012 earnings and yielded 2.6%. At $66.09, Dover, a diversified industrial company, traded at 14 times estimated 2012 earnings and yielded 1.9%. Meanwhile, the experts at Edward Jones have buy ratings on 11 technology stocks, including Apple (AAPL), Google (GOOG), IBM (IBM), Intel (INTC), Microsoft (MSFT), Oracle (ORCL) and Qualcomm (QCOM). All of these companies are healthy, growing rapidly and producing prodigious amounts of cash, while selling for a relative pittance compared with earnings. And yet, with the exception of Apple, investors have been reluctant to purchase the stocks because many have lagged since 2000. Jones considers Visa (V) and MasterCard (MA) to be technology stocks, too, because they derive the bulk of their income from transaction fees rather than loans. However, Jones recently downgraded both of the stocks. Warne explains that even though she likes the Visa and MasterCard business model, the companies now sport “hold” ratings because their share prices ran up so furiously in the past year that they now appear fairly valued and are unlikely to deliver market-beating results in the immediate future. From January 19, 2011, through February 17, shares of Visa jumped 68%, and those of MasterCard rocketed 69%. Other stocks that Warne considers poised for profit: Advertisement Johnson Controls (JCI), a Milwaukee manufacturer, supplies car seats and consoles to about one-third of all new cars manufactured worldwide, Warne says. Because car sales have been soft the past few years, the nation’s auto fleet is now old by historic standards. As the economy improves, Warne says, people will start replacing their clunkers, and that will benefit Johnson. At $35.16, the stock sells for 13 times 2012 earnings estimates, and it yields 2.0%. Suncor Energy (SU) is another of Warne’s favorites. The company produces petroleum products from Canada’s oil sands. At $34.29, it sells for just 10 times estimated 2012 earnings. The stock yields only 1.3%, but Warne expects the company to increase its dividend by roughly 10% annually. In addition to JPMorgan Chase, Warne also favors BlackRock (BLK) in the financial sector. She thinks the world’s biggest money manager will benefit from a continuing rise in stock prices. Jones also has buy ratings on Morgan Stanley (MS), PNC Financial Services Group (PNC), U.S. Bancorp (USB) and Wells Fargo (WFC). What about Bank of America (BAC)? Jones rates it a “hold.” Shares of the badly beaten giant are just too risky, Warne says, largely because it’s unclear what will happen with the company’s loan portfolio and whether regulators will require the company to raise a significant amount of new capital. Until those questions are clear, Warne thinks BofA is too aggressive a bet for her company’s conservative clients.