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Excerpt from Raymond James strategist Jeffrey Saut's latest essay:

Indeed, there are many investment stocks that have not participated in the recent rally, yet afford investors attractive risk/reward ratios. One such name was added to our Focus List last week, that name being 6%-yielding Embarq (EQ). We think Embarq’s 30% share price decline from last September’s high of $63 has more than discounted this telecommunication company’s exposure to the housing debacle.

Likewise, we favor 7%-yielding Alaska Communications (NASDAQ:ALSK) for its exposure to the vast Alaskan natural resource reserves that should eventually be developed. Our recommendation on Schering-Plough’s (SGP) 8%-yielding convertible preferred “B” shares remains in force; even though we lost our fundamental analyst, along with his Strong Buy rating, last Friday (the shares are still positively rated by our correspondent research affiliates). And while we have clearly been wrong on recommending scaling into 3.7%-yielding General Electric (NYSE:GE), after eight years of avoiding it, we continue to think investment positions in GE will be rewarded over the next few years (GE remains positively rated by our research correspondents).

The call for this week: Last Friday we recommend scale-selling “trading positions” into strength in the 1420 – 1440 target zone (basis the SPX); and especially into our cluster of timing points between May 7th and May 14th. This view is driven by the fact that we have had the envisioned rally, as well as that 77% of the S&P 500 stocks are above their 50-day moving averages (DMAs) for the highest reading since last October (read: overbought). Amazingly, 85% of the S&P’s financial stocks are above their 50-DMAs, which is likely why the financials outperformed gold last week for the first time since last July.

Meanwhile, volatility is falling, bonds have broken down (read: higher interest rates), bond spreads are narrowing, the U.S. dollar has “firmed,” and commodities have “cracked,” all of which suggests risk appetites are rising. Plainly this concerns us and begs the question, “Are we entering a new kind of investment environment?” History shows that if so, it will not be without some major dislocations, which is why we are now turning cautious.

Source: Saut: Are We Entering a New Kind of Investment Environment?