Stealth fighters.

Old Economy stocks come to the defense of some investors

They're back.

It seems like the so-called Old Economy is having its day. For the past year, most of the attention has been placed on technology stocks and the sector's volatile nature. Now, many investors are rotating out of the tumultuous tech sector and into stocks that are less prone to short circuit.

Call them stealth stocks. They include defense, paper, and consumer-products industry picks. For example, look at the performance of the Dow during the middle of the third quarter. In the week of August 7; the blue-chip index rose an impressive 260 points, or 2.4%, to 11,027, breaking the milestone mark for the first time since the second quarter. The Dow was led by farm equipment manufacturer Caterpillar (NYSE: CAT) and tobacco company Philip Morris (NYSE: MO).

Another slumping stock that is currently on the rise: the Class A shares of Berkshire Hathaway (NYSE: BRK.A). Yes, financial wizard Warren Buffett's Berkshire Hathaway. Pummeled by a tech-driven market and concerns about Buffett's health, shares of Berkshire, with such holdings as Coca-Cola (NYSE: KO), American Express (NYSE: AXP), and Gillette (NYSE: G) stock, slid 41.71% by mid-March from its high of $70,000 in January 1999. Since that period, the stock has risen more than 50%. Granted, not many of us can afford the world's most expensive stock: As of August 11, one share sold for $62,400.

What has powered these stocks? Investors continue to be encouraged by news of tame inflation and a slower economy. For example, blue chips were buoyed by the government report that worker productivity in the 12 months, ending in the second quarter, grew at the fastest pace in 17 years without a rise in the unit cost per labor. Such news has been tonic to a market that believes that the Fed will take no further inflation-taming action. Says Dr. Andrew Brimmer, a former Fed govenor and a member of the BLACK ENTERPRISE Board of Economists: "I believe that the Fed will hold interest rates steady for the next few months."

Even without Fed action, a number of stocks such as International Paper (NYSE: IP) and Alcoa (NYSE:AA) have been beating the analysts' estimates on earnings for the past few quarters. Even though these companies are not in the sexier segments of the economy, they have emerged as market leaders.

Money managers like Nathaniel Carter, portfolio manager of the Victory Lakefront fund and a member of the BE Investment Roundtable, sees more diversity in the selection of stocks and believes investors will begin to identify stocks that have been "trading at a discount to the market." Like other stealth investors, Carter likes PepsiCo (NYSE: PEP). The beverage manufacturer was trading as low as $30 per share in mid-March and has soared to $45 per share by August, a whopping 50% return.

He, and a legion of other investors believe that the market has other such low-tech gems.

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