Last week saw the Dow Jones industrial average add to the record books, while the S&P 500 index in turn reached a six-year high. Unfortunately, any discussion of the market's recent performance also raises the question of whether the rampant rampage of late will continue or if a pullback of a similar magnitude is just over the horizon.

Although I cannot shed any light on short-term market direction, it is obvious that Wall Street is developing and honing its next nightmare -- one that consists of a reduction in corporate earnings as the economy slows.

Meanwhile, according to a report by the Wall Street Journal on Wednesday, the Fed sees obstacles to further declines in inflation, in part because of a rebound in energy prices, a weaker dollar and the failure of unemployment to rise as expected.

The uncertainty over the direction and health of the economy will reign supreme in the minds of many during the months ahead. It also will result in some bargains on Wall Street. One key reason is that the concerns and worries of Wall Street's prognosticators take their toll on a company's share price, generally in concert with a reduced earnings announcement. However, such an occurrence is often an investment opportunity.

Two examples that readily come to mind are Caterpillar and Fortune Brands. A year ago I forecasted that Caterpillar [Ticker: CAT] would earn $5.10 per share in 2006, with a target price for the shares of $90. Caterpillar earned $5.17 per share, but the shares have recently retreated to $73 from a high of $82.

To its credit, Caterpillar reported better-than-expected results for the first quarter, as foreign markets took up some of the slack brought about by the troubled housing market. Although 2007 will be a challenging year for the company, 2008 should show considerable improvement and that is what you should focus on.

Caterpillar's intrinsic value, using discounted earnings with a discount rate of 11 percent and an 8 percent earnings growth rate, is $92. A free cash flow to the firm approach yields an intrinsic value of $80. My earnings estimate for 2007 is $5.80 and $6.67 for 2008. I have an $80 target on the shares for 2007 and $93 for 2008. In addition, there is currently a 1.6 percent dividend yield.

The shares of Fortune Brands [FO] are under similar pressure. A year ago I forecasted Fortune would earn $5.30 per share and the company did just that. Meanwhile, its share price has retreated from a high of $87 to its current $82 level.

Nonetheless, Fortune's free cash flow was $584 million after dividends and capital expenditures, well above the $385 million generated in 2005. The company, which makes Jim Beam bourbon, Moen faucets and Titleist golf equipment, recently reported that its first-quarter profit dropped 31 percent as a strong performance in spirits and wine was offset by the impact of the housing downturn and higher commodities costs for home products.

Net income for the year came in at 77 cents per share as compared with $1.15 per share a year earlier. Excluding a tax-related gain in the year-ago quarter and restructuring costs in both periods, earnings fell to 81 cents per share from $1.06 last year. Sales slid 3 percent to $1.95 billion from $2.02 billion in the prior-year period.

The intrinsic value of the shares, using the discounted earnings method with an earnings growth rate of 10 percent, is $97. The free cash flow to the firm approach yields an intrinsic value of $114.

My earnings estimate for 2007 is $5.20 per share and $5.80 for 2008, with a target price for 2007 of $84 and $94 for 2008. In addition, there is almost a 2 percent dividend yield.

Although investing in either company represents a bit of a contrarian viewpoint, their size, product offerings and earnings track record predicate above average share performance going forward.