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Value managers are by their nature a contrarian bunch, looking for stocks they believe the market has priced incorrectly. Dennis Ruhl, manager of JPMorgan Intrepid Value (ticker: JIVAX ), takes it one step further. In addition to traditional valuation metrics, he analyzes the behavior of investors and management teams to exploit anomalies in the market and find attractively valued stocks. “A lot of investors are biased to believe that a good company is automatically a good stock and a bad company is automatically a bad stock,” says Ruhl. “That’s what creates opportunities in valuation. A good company is a good stock only if you get it at the right price and a bad company can be a great stock as long as you buy it very cheap.”

AN/AAQ-28(V) LITENING Targeting Pod Northrop Grumman Media Relations

In addition to a company’s valuation, Ruhl looks at quality and momentum. Quality companies, by his definition, have management teams with conservative expectations and accounting, and consistently return value to shareholders. His final criterion is positive momentum. “We like to see not just the earnings growth but also the rising expectations and the company beating those views,” says Ruhl.

Right now Ruhl views the overall market as fairly valued, but sees some potential bargains in the slumping energy sector. ConocoPhillips ( COP ) is one energy stock that he likes right now. Other good values include Hewlett-Packard ( HPQ ), Anthem ( ANTM ) and Northrop Grumman ( NOC ).

His $1.7 billion fund invests in large- and medium-sized U.S. stocks. Over the past three years the fund has topped its benchmark as well as 93% of its large-cap value peers with an average annual return of 18.53%, according to Morningstar.

Barrons.com asked Ruhl to share his top five value stock picks.

Anthem: Formerly known as WellPoint, Anthem is the second-largest insurance company in the U.S. Anthem trades at just under 14 times earnings, below the broader market multiple of around 16, and the managed-care sector at 17 times earnings. Ruhl says investors are overestimating the negative impact of health-care reform. Ruhl likes the management team and its conservative pricing, which saw Anthem become one of the few companies to have a positive margin on the health-care exchange in its first year.

Northrop Grumman: The defense and aerospace company has a strong balance sheet with around $2 billion in free cash. Despite falling revenues, Northrop Grumman has consistently increased earnings through a combination of buybacks and managing costs. Earnings-per-share growth has averaged 9% over the past three years. With less pressure on the government to cut spending, Ruhl says the defense-spending environment could be set to improve. “Valuation is closer to neutral,” says Ruhl. “At this point it’s more of a momentum and quality story for us.”

ConocoPhillips: The exploration and production company’s shares have fallen about 20% in the last six months, dragged down by the decline in energy prices. Ruhl says from a momentum standpoint the company looks better than its energy sector peers. The company was one of the first to cut capital expenditures in response to the collapse in energy prices, and has done so aggressively. ConocoPhillips trades at just 1.5 times book value, below the energy sector average of 1.8 times book, and the 2.8 average for the Standard & Poor’s 500. The stock also boasts an attractive 4.3% dividend yield, which Ruhl believes is safe.

Kroger: The retailer operates some 2,400 stores, primarily supermarkets, plus a smattering of convenience and warehouse stores. The improving employment picture and the decrease in gas prices should continue to boost consumer spending. Kroger ( KR ) has been able to boost its market share at the expense of struggling peers. The company has also taken on higher-priced food stores by entering the organic and natural foods market. Kroger has averaged 25% earnings growth over the past 10 quarters and topped estimates in the last four.

Hewlett-Packard: “The strongest part of the story here is the valuation,” says Ruhl. The PC maker trades at just nine times earnings estimates for 2015. Hewlett-Packard has traditionally traded at about 75% of the market’s price-to-earnings multiple, which would be about 12 times earnings today. Ruhl thinks the company’s shares could return to that range which would mean a 30% increase in the price, recently at around $38. The company has focused on paying down debt and now has net cash of about $6 billion compared to almost $12 billion in debt three years ago.

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