Here’s a shot – with a helping hand from Merrill Lynch – at participating in the risky and often lucrative art of contrary investing.

The strategy here: You run counter to what the institutional or professional money is doing, which takes a great deal of guts since you’re dueling folks who have a lot more investment savvy than you do.

Call it, if you will, a shootout at the Wall Street corral.

In brief, you shun or sell the stocks that are considered over owned, even though they’re the darlings of the institutional crowd. These would include the likes of Bristol-Myers Squibb, eBay, Target Corp., and Dow Chemical.

By the same token, you should look to buy the usually better performing neglected stocks, provided, of course, they’re fundamentally sound and you recognize that neglected stocks may be neglected for a good reason. Pulte Homes, T. Rowe Price, E-Trade Financial, and Tiffany & Co. are among Merrill’s favorites and they all sport buy recommendations.

These over owned and neglected stocks are so designated by Merrill, based on an intriguing analysis in which the brokerage kingpin examined the latest reported equity holdings of 120 stock mutual funds.

What makes this exercise so relevant is Merrill’s clear inference that investors are blundering by owning many well-known stocks they really shouldn’t own. Likewise, they’re blundering by not owning many well-known stocks they really should own.

An over owned stock, explains Merrill’s global strategist, Sarah Franks, is one that’s 20% or more owned by the funds. A neglected stock is one that’s 5% or less owned by the funds. Also factored into the analysis is the dollar amount invested in the stocks. The stocks in question are the components of the S &P 500.

Neglected stocks (76) in the S &P 500 are more conspicuous than over-owned (50), with Merrill noting that the consumer discretionary and technology sectors are the most overweighed and utilities and staples the most underweighted.

Of Merrill’s over owned stocks – which are usually among the very first to go down if the market heads south – 15 are viewed unattractive, what with one (Texas Instruments) rated a sale and 14 viewed as neutral. Aside from the four mentioned above, the other 10 neutral-rated stocks are Nextel Communications, Lockheed Martin, General Dynamics, Cardinal Health, The Gap, Forest Laboratories, Analog Devices, Electronic Arts, Maxim Integrated Products, Linear Technology, and Xilinx.

Of its neglected stocks, Merrill rates 17 as buys. Aside from the four already mentioned, the other 13 are Sempra Energy, MBIA, Kinder Morgan, Cinergy Corp., Health Management Associates, McCormick & Co., United States Steel Corp., Citrix Systems, Qlogic, Manor Care, Allegheny Technologies, Worthington Industries, and ADC Telecommunications.

Though Merrill isn’t officially recommending any of its neglected or over owned stocks as buys or sales solely on that basis, but rather in conjunction with fundamental analysis, one top Merrill strategist nonetheless tells me they’re still good lists to look at for prospective buys and sales.

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More zip in energy: With oil prices as high as they are, you don’t have to be a brain surgeon to figure out that oil service companies are a major beneficiary as exploration and production companies step up their activities to unearth more reserves. Still, oil service stocks, on average, are already up 25% to 30% in this year’s down market, raising the obvious question: How much more mileage, if any, is left in them?

Merrill analyst Mark Urness, for one, obviously believes the answer is plenty since he thinks investors should continue to overweight the sector. He is especially gung ho on offshore drillers, notably Global Santa Fe, Noble Corp., and Transocean.

One bullish note: the prospects of higher prices despite the fact that most oil service companies are currently on their second round of price hikes. Just back from a Texas energy tour, Mr. Urness talked to seven oil and gas companies and found that none thought service and drilling costs were too high.

Several, in fact, he notes, acknowledged that oil service and drilling companies were experiencing higher labor and steel costs and merely passing through those costs. Also auguring well for further price hikes is his belief that the integrated oil companies (he met with 15 of them) will have challenges replacing reserves and growing production, causing them to slowly rachet up their capital spending.

Further, because of increased operating efficiencies and improved pricing, many oil service companies, observes Mr. Urness, expect to reach and subsequently exceed prior cycle peak operating margins in coming quarters. Yet another plus: Earnings and cash flows are reaching record levels for most companies, providing them with considerable discretionary cash flow.