Q: Where can the stock go? A: If by some miracle, the Yahoo! deal falls through and Microsoft goes it alone and it can achieve my estimate, which is north of $4 in 2012, the stock could be trading at 80 in a few years. Even if Microsoft buys Yahoo!, the stock could be a lot higher.

Q: How about drug stocks? A: Johnson & Johnson [JNJ] is cheaper than it has been in a long time. It's trading around 62, which is 14 times this year's estimated profits. It continues to be a world-class company. J&J bought the over-the-counter business of Pfizer [PFE], and it's made a real go of it even though a lot of people thought J&J overpaid. They didn't realize that Johnson & Johnson did the deal on a very tax-advantaged basis.

Q: How about cable? A: Comcast [CMCSA] is another attractive stock. At the end of the road, you want to see how much free cash flow a company will generate. Now Comcast is perpetually talking about generating more free cash flow in the future than it is currently producing. I don't like that Comcast has two classes of stock. I admire that Loews has only has a single class of stock. There is a certain amount of abuse that can come into a company when there are two classes of stock. But Comcast is still attractive.

Q: What about banks? A: One of the groups that will benefit most from the Federal Reserve's easing policies is the money-center banks. The best way to participate is to buy the KBW Bank ETF, [KBE], which is an exchange-traded fund for the group. There are individual banks that seem attractive such as Citigroup [C], but my favorite vehicle is the KBE. Even if one bank gets stuck with a lot of toxic waste, the group will be helped by the Fed.

Q: You also like Fannie Mae. A: The stock is around 31. I believe it can earn $7 to $9 a share annually at some point in the future. You don't even have to believe that earnings estimate to justify the current price. It could earn $4 to $5 a share, and the stock would be a lot higher. Fannie Mae's [FNM] profit margins on new business are going way up.

Q: What abut depressed property-and-casualty insurance stocks? A: There is some value there. We should divide the sector into two parts, personal lines and commercial. There is severe price competition on the commercial side, and it's hard to tell when that will abate. I won't comment about Loews or CNA, but I like Allstate [ALL], which is trading at 46, about seven times estimated 2008 earnings. Allstate is focused on personal lines, primarily auto.

Q: What else appeals to you? A: Retailers are selling at historically low prices, and we know the reasons why. There's a fear that the American consumer is completely wiped out in terms spending ability. But the American ability to spend money is enduring and isn't going away in this cycle or any other cycle. I'd be more selective here and not go with an ETF. My favorite is Target.

I went into a new Target store and it was quite an experience. I saw organic foods in the grocery department, which puts Whole Foods Market [WFMI] -- which is way overpriced -- at great risk.