(MONEY Magazine) – Winston Churchill once rejected an unappetizing dessert by declaring, "This pudding has no theme." You could say the same thing about today's stock market. Given all the uncertainties, it's impossible to make a meaningful forecast for any period shorter than 18 months. Oddly enough, it's easier if you look out further. The bear market has eliminated most of the excess and overvaluation in stock prices. At some point, the economy will recover and stocks will make back a large part of their losses. We can't predict when that turning point will come, but we can identify stocks with enduring franchises that are selling at unreasonably low prices. Here's a look at three areas that offer promising long-term picks.

UNAPPRECIATED PHONES. Value investors were looking at the regional telephone companies even before February's adverse regulatory decision by the Federal Communications Commission. The changes in FCC regulations are complex. Essentially, they offer the regional Bells favorable treatment on new technologies like the Internet but require them to sell access to their local phone systems at low rates. In theory, that will stimulate competition that helps consumers. The FCC also voted to preserve the regulatory authority of the states.

Looking beyond the current confusion, there's no question that local phone stocks are cheap. They're down 25% to 45% from their 52-week highs and offer yields above 3.7%. They trade at price/earnings ratios below 13, a level that suggests Wall Street expects little or no growth from them. But as conflicts among local, long-distance and Internet service providers are resolved, analysts are likely to revise growth projections upward. Verizon appears to be the strongest stock in the group. It could manage 3% to 5% annual earnings gains over the next few years, and the stock yields a hefty 4.3%.

FREE CASH TO SPEND. In this environment, investors are especially worried about the debt loads of the companies they own. But debt isn't necessarily a problem if companies generate plenty of cash. To determine whether a company has the money it needs, you have to consider both cash flow and free cash flow. The latter measure reflects the amount of cash a company generates over and above what it needs to pay out-of-pocket costs, including interest on its debt, and to fund essential capital spending.

Cash flow and free cash flow can also be useful yardsticks for identifying undervalued stocks. We screened for large, financially solid companies that appeared unusually cheap relative to their cash flow and free cash flow. Many of them had fundamental problems. But some seemed to be out of favor solely because they are cyclical and the economy is so weak. Among the latter group, three stocks offer earnings growth of at least 10% annually over the next five years and carry yields of at least 1.9%.

Merrill Lynch, $34 a share, is down more than 50% from its peak and trades at less than 13 times earnings. Brokerages always overexpand in booms and then must slash costs when business slows. But nothing should prevent Merrill from recovering when the market does.

Alcoa has the classic problem of massive fixed costs in an industry where price is set largely by demand. And as the world's largest aluminum producer, Alcoa can't deal with its excess capacity by taking a lot of market share from rivals. But at $20 a share, down from a high of $46 in 2001, Alcoa is an underrated franchise. The stock's P/E, just over 16 on this year's estimated earnings, could be as low as 11 based on likely 2004 results.

Rohm & Haas makes sophisticated coatings and adhesives. The mid-size specialty chemical producer reported subpar earnings for the fourth quarter, along with a big write-down. Nonetheless, the company has enjoyed a 12% core growth rate and carries a 2.9% yield. Rohm & Haas looks attractive with a 16.3 P/E--and it's considerably cheaper on a price-to-cash-flow basis.

ENERGY STOCKS. No assessment of today's market would be complete without a discussion of oil. And two things are clear. First, oil and gas reserves in safe places, such as North America, can only grow more valuable. That trend will have the most impact on independent producers like Anadarko Petroleum, Apache and Burlington Resources that have large North American reserves and get most of their earnings from oil and gas production rather than from refining and marketing.

Second, oil prices are now above normal levels and subject to a short-term setback that would have the greatest impact on those independent producers. Of the three, Apache is the favorite among analysts right now. The company has been conserving cash and reducing debt. It also continues to build up its reserves, which rose in 2002 for the 17th straight year. In January the company announced that it would acquire producing properties in the North Sea and the Gulf of Mexico from BP for $1.3 billion.

At $67 a share, Apache is at its highest level in more than two years. The stock doesn't look especially pricey at 12.4 times this year's estimated earnings. But Apache's future growth rate depends chiefly on the price of crude. That's where the problem lies, not only for Apache but for the shares of most production companies. Analysts say stock prices reflect the current $36-a-barrel oil price--and that a drop below $33 could trigger a sell-off in the sector. That possibility argues for not chasing oil stocks right now, but waiting for an opportunity to buy them on weakness.

Michael Sivy can be reached at sivy_on_stocks@moneymail.com.