Jim Hardesty explains that the economy is in a “jagged recovery phase,” and downplays bearish forecasts. He also discusses his stock picks in the industrial sector.

Host David Asman: Investors are looking for smart plays in this market after last week’s sell-off.

Host Liz Claman: James Lebenthal, president of Equity Asset Management for Lebenthal and Company, along with Jim Hardesty, Hardesty Capital Management president and founder, join us now with some picks.

And, Mr. Lebenthal, when you are looking specifically for names in this volatile atmosphere, what do you avoid doing? What is the biggest mistake investors often make?

James Lebenthal: Well, you know, that’s gonna change from context to context. Right now, I think the biggest mistake an investor can make is waiting too long. Okay. There’s been a lot of fear in the markets right now, and it’s been overdone. So I think if you have those higher beta plays, now is the time to put the money into them. It’s not gonna get any cheaper, and things are nowhere near as bad as everybody would like you to believe.

Host David Asman: But, Jim, you know what folks are waiting for is the same sort of downtick that we had a year and a half ago. They’re waiting for March 2009, for a Dow at 6,000. Some people are putting their money aside till – are they ever gonna see that day come?

Jim Hardesty: Yes?

Host David Asman: Can you hear us?

Jim Hardesty: Oh, I’m sorry. Yes. I doubt it. I really think that’d be a very unusual development. The economy is performing reasonably well right now, and we’re in a recovery phase. It’s not gonna be a straight-up. It’ll be jagged, but we’re coming along. These very bearish forecasts – I just don’t see can happen with the interest rates where they are now.

Host Liz Claman: James?

Jim Hardesty: There’ll be M and A activity that takes over before the market declines to those levels.

Host Liz Claman: Yeah. That I think a lot of people are expecting because some companies are now a lot cheaper, but, James, you must be feeling gutsy, because you’re picking an airline here, among some of the other names that you have. Let’s put up James Lebenthal’s list and talk about Continental.

James Lebenthal: Okay. Well, look. The airline industry has perennially been the industry to avoid, but something interesting has happened in the last two years. They went into this recession – the airline industry as a whole – with the best balance sheet on record for their industry. They’ve gotten new managers across the board, and these new managers get the joke – that this is not the time to flood the market with new airplanes which you have to pay a lot for, and then there’s a glut of seats on the market that you have to cut prices to fill. So what they have done is they’ve maintained discipline on capacity, they’re reaping the benefit of jet fuel prices that are a lot lower than anybody expected a year ago. Seats are full. Yields are in the high 80s, which is very high for the airlines, and you’re gonna see meaningful profits across the board in the airline industry. Continental has the newest fleet, which means it’s the most fuel efficient, and, I think, they have the best management.

Host David Asman: All right. And Jim Hardesty, you see some industrial stocks with potential here. Nucor, which of course is into a lot of metals and then Vulcan Material. Why do you ______ _____ –

[Crosstalk]

Jim Hardesty: These particular stocks.

– do?

Jim Hardesty: Well, Vulcan is basically a play on the infrastructure rebuilding. They are an aggregates company that is into road-building and what have you, and their business has turned rather sharply forward. As to Nucor, it is a very unusual company. It is a nonunionized company that has been able to develop these steel mini-mills around the country, and they are the lower-cost producer of steel, and if the industrial economy is gonna come back, they’re gonna be with it. I mean, that’s the way it goes.

Host David Asman: Jim Hardesty from Hardesty Capital.

Jim Hardesty: Both of these companies had pretty good years.

Host David Asman: James Lebenthal from Lebenthal – we had two namesakes here. People who put their name on the door.