Buying stocks during a recession takes guts but one portfolio manager believes he has already stomached the worst stretch of the downturn.

Ben Fischer, founder and managing director of NFJ Investment Group, is optimistic that recent policy decisions by the Federal Reserve will help steer the stock market toward a recovery. Fischer, a self-proclaimed contrarian with nearly 40 years of experience in portfolio management, investment analysis and research, thinks buying stocks now has the potential for future gains over the next two to three years.

“We’re now seeing some signs of life,” Fischer said on a national conference call last week. “One thing I really have confidence in is the Fed’s ability to print money and create liquidity. It just takes the will and I think [Ben] Bernanke is going to do it.”

On March 18, the Fed announced plans to buy more than $1 trillion in mortgage-backed securities and Treasuries in an effort to remove toxic assets from the balance sheets of the nation’s banks. The Dow Jones Industrial Average responded to the news with a 15% rally over the following two weeks.

With the Fed shouldering the burden of bad debt, banks will be able to boost mortgage lending activity, which dried up when credit markets cratered last summer and sent asset prices into a tailspin.

The government, on the other hand, will likely run its fiscal deficit to several trillion dollars over the next few years, according to Fischer. Since corporate and consumer debt has become too massive to address through inventory runoffs and interest rate cuts, like the U.S. has done in the past, increasing the money supply has emerged as the only option to jumpstart the economy.

In addition to the Fed’s aggressive policy moves, the market may have already priced in the seemingly never-ending stream of negative headlines. “This has been a real crushing period in terms of financial pain but I think the bulk of the bad news is being worked through,” Fischer told conference call participants. “I’m wondering if it is the beginning of the discounting of future good news.”

Other signs that better economic growth could be on the horizon include the recent rise in commodity prices, which were decimated last year. “Copper bottomed out in December around $130 to $140 per pound and since then it has formed a very nice base,” Fischer said. “‘Dr. Copper’ is one of the best economists we have,” he opined, alluding to the precious metal acting as a leading economic indicator. Meanwhile, the price of oil jumped up above $50, which he views as “a good sign” even though it could be a “startled response” to the Fed’s policy decisions. Fischer, manager of the Allianz NFJ Dividend Value Fund, is aiming to keep the portfolio lined with what he believes are high quality companies and he emphasizes the importance of dividend yield.

While many companies have cut dividends to cope with steep losses, Fischer still sees opportunities for robust dividend yields. “It is possible to find companies with good dividend outlooks with strong fundamentals.” He cited Waste Management, Home Depot and Altria as several companies in the portfolio that have recently raised their dividends in the face of a brutal market environment. As with any mutual fund, current and future holdings are subject to risk.

The fund managed to outperform the market during the credit crunch by limiting its exposure to financials. “We saw in 2007 and early 2008 that the financial sector was really suspect and we pulled back pretty far,” he said. The Russell 1000 Value Index had a weighting in financials that exceeded 35%, whereas his portfolio came in under 20%, he said. Despite the fear that has permeated the markets for the past year, he is bullish on the prospect of a strong second half of the year for stocks. As noted in his first-quarter outlook, Fischer is bullish on cyclicals, energy, industrials with strong cash flow and international stocks. He is also raising his weighting in utilities.

“I’m a very optimistic buyer right now,” Fischer said. “This is the time to look ahead, not the time to despair. If we start recovering, we may be able to get back to the old high within a reasonable number of years and that rate of return would be good."

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