The S&P/ASX200 index closed 78 points higher at 5557 points on Thursday, boosted by gains in mining and energy stocks, but it is still sharply lower than its April high of almost 6000.
Grappling with slower growth, a downturn in commodities and an elevated currency, the benchmark is now back at July 2014 levels, meaning investors effectively have not earned capital gains in 11 months, Clime chief investment officer John Abernethy said.
While the slide was "painful", Mr Abernethy encouraged investors to "steel themselves" and seize opportunities.
Woolworth is one of five stocks presenting opportunities for cashed up investors in a "fair value market".
Clime's return-on-equity modelling found that the market had fallen just below fair value on a required return of 10 per cent, 7 per cent higher than the Australian bond yield.
Mr Abernethy said the market may not grow strongly in earnings but investors should focus on the total return on income and growth.
"When companies are delivering a 7 or 8 per cent pre-tax yield, you're not assuming much in earnings growth to get your 10 per cent return," he said.
Five stocks are expected to deliver a return of about 10 per cent in the coming year paying out solid dividends and steady earnings he said: National Australia Bank, Telstra, Woolworths, Wesfarmers and CSL.
Mr Abernethy said traditionally high-yielding Telstra was a "buy" below $6, and he advised accumulating Woolworths at $27 a share. Wesfarmers was another pick with a forecast a yield of 5 per cent, while CSL was an attractive stock as a proxy for offshore investing on a weaker Australian dollar.
Concerns over the viability of Woolworths' Masters stores and uncertainty following key management departures does not justify its shares trading at a discount to its peers, Evidente founder Salvatore Ferraro noted in a blog.
Woolworths was trading at 14-times its forward earnings, while the ASX was at 16-times – the first time the supermarket giant has traded at a discount, he said.
On the banks, Thursday's rally driven by the big four may prove that bargain hunters are pouncing. Mr Abernethy said NAB was attractive after its $5.5 billion capital raising, and Money Matters' Nick Forsyth said that the banks' correction of more than 18 per cent in recent months had moved them from "significantly overpriced to very interesting".
The banks, with a 6 per cent fully-franked yield, when compared with a 2 per cent case rate was "very attractive" he said in a note. Concerns around long-term interest rates rising, increased capital requirements and a property correction were providing "excellent long-term value" in the banking sector, he said.
While Mr Abernethy said the market presented a good entry point for investors with cash to spend, his bullish position is based on a currency fall. He said the market had priced the Australian dollar at US80¢, and if it fell to US70¢ the market would perform relatively well.
"But if the dollar rallies to the mid-US80¢, that will slow Australian growth and the market will be very fully valued," he said.