(MONEY Magazine) – Consumer confidence has fallen to the weakest level in nine years. Investor confidence is at a historic low. Geopolitical tensions and concerns about corporate earnings and the weak recovery continue to pressure stock prices. And investors are searching for any bright spots in this troubled market. This month I spoke with three top Wall Street strategists who have compelling views on which sectors will thrive and which ones will lag. While their recommendations sometimes varied widely, they all agreed that there are opportunities in this market--if you know where and how to look for them.

First, I asked the experts about their current stance on stock prices. Kari Bayer-Pinkernell, senior U.S. strategist at Merrill Lynch, calls herself cautious. She expects Standard & Poor's 500-stock index to finish the year at 860, basically flat from its early March level. "Investors need to reduce their expectations," she says, "to...the 7% to 10% region for longer-term returns."

Francois Trahan, chief investment strategist at Bear Stearns, believes that the bear market has ended but says there's no real catalyst for a sustainable recovery in equities. "We've removed some pretty significant head winds--valuation being one of them," says Trahan. "Our measures...show that the market is now fairly valued." He says this is the first time in four years that we began the year with earnings expectations that were not overly optimistic. Trahan's year-end target for the S&P is 950, about 14% above its early March level.

Jeffrey Saut, chief investment strategist at Raymond James & Associates, says the market will be stuck in a trading range for the foreseeable future. "What we've had has been a profits depression and overcapacity," he says. "This is not your father's typical business cycle."

As for sectors he likes, Trahan mentions cyclical sectors that have been hurt by rising oil prices: "The industrial sector would be one that comes to mind." In particular, he points to transportation, such as trucking and airfreight stocks. Trahan says that the consumer discretionary sector is also very sensitive to changes in oil prices. "So retailers, consumer durables: Those are the stocks that will probably get a pop if we get a resolution in Iraq," he says. In these areas, stocks that Trahan likes include retailer Limited Brands and trucking company J.B. Hunt.

Bayer-Pinkernell says that Merrill's sector recommendations definitely reflect the firm's more cautious outlook on the market: "Our biggest theme has been to focus on higher-quality stocks, because there is no denying that we just experienced the worst profits recession in the postwar era, and we've had a very unpredictable earnings recovery." As a result, she is focusing on higher-quality stocks that "by definition" give more reliable earnings.

Bayer-Pinkernell likes consumer staples: "It's a very defensive high-quality sector, and it's got very attractive value in it right now." She also spotlights energy stocks because of "the supply-and-demand issues that are currently lurking in the energy sector. Right now, we're pretty much operating at an oil deficit for the first time in quite some time."

She also likes aerospace defense, which Merrill believes offers a lower-risk way to play technology. "We think you're going to get the most innovative and creative technologies from companies with strong ties to the Defense Department," she says, "not necessarily from companies like Sun and Cisco."

Saut says that pricing power is a major factor in his sector picks. "Very few sectors have the ability to raise prices," he says. "I think defense has pricing power." He notes that defense stocks have more "visibility" than most--that is, their earnings outlooks are less uncertain. Saut also believes that casual-dining restaurants have pricing power. "People are not going to spend $150 or $200 to go on Saturday night to dinner," he says. "They're still going to eat out, but they're going to spend $50 to $75.... They're likely to go to Applebee's or P.F. Chang's or Olive Garden [owned by Darden Restaurants]." Saut also cites hospitals and natural resources as sectors with pricing power. He adds, "I think we've got in a bull market in commodities and natural resources. I've been bullish on Apache."

All three strategists said investors should look closely at dividend-yielding sectors. And all three pointed out that those stocks are attractive even without the prospect of President Bush's proposed dividend tax cut.

Francois Trahan says, "At this stage, you want to buy stocks that have interesting dividend yields." Not because of the potential tax cut, but because dividends provide some reassurance "in light of the uncertainty on both the economy and the markets." Among chemical stocks, he says his firm finds that DuPont has "some appeal."

Bayer-Pinkernell likes utilities, she says, because only about 70% of the companies in the S&P 500 pay a dividend, compared with 95% in 1980. "There's a big shortage of dividend-yield stories," she says, "and obviously utilities are the highest-yielding sector in the S&P 500."

Jeffrey Saut points out that dividends give investors a cushion: "You're getting paid while you are waiting" for the economy to recover. He notes that if you had invested $100 in the S&P 500 in 1926 and left it to compound, with dividends reinvested, to the end of last year, you'd have about $250,000. But if you eliminate the dividends, that $100 compounds out to just $10,000. Saut says he has been attracted to investments with dividend yield for several years now. He points out that "Raytheon has a convertible preferred out there that yields 7.7%. I think that's an interesting piece of paper."

As for which sectors to avoid, Trahan says, "If you assume that there's going to be some sort of resolution in the Middle East and that oil prices will be coming down, then what you want to do in the next month or so is lighten up on the sectors that have benefited from the higher oil prices and greater uncertainty." He recommends cutting back on energy, consumer staples and financials.

Bayer-Pinkernell differs and says energy is still a good bet. But she recommends staying away from tech and telecom because she believes those companies still have a ton of excess capacity from the technology bubble. "You still have about 75% more companies in the tech sector today than you had in 1995," she says. "So as far as we're concerned, in order for tech and telecom companies to start growing their earnings, become more profitable and start growing their margins again, you need to have massive consolidation."

Saut agrees: "I'm not as high on technology as other folks are. I continue to think that we have not corrected the excesses of the mid-to late 1990s. I'm not a big advocate of the big brand-name premier stocks that everybody wants to know about."

While that's obviously not what investors who have bet heavily on technology want to hear, tough advice is perhaps the best counsel in this challenging market. In fact, the message coming from most of the experts I've talked with recently is that investors should make their investing decisions with caution and with a long view.

Lou Dobbs is the anchor and managing editor of CNN's Lou Dobbs Moneyline.