Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Stephanie Link will appear on NBR Tuesday (check local listings) to highlight her top stock picks for a global economic recovery.
Global economies and equity markets have improved significantly from their March 2009 lows. Manufacturing activity continues to improve, GDP has rebounded nicely and the global banking system has strengthened.
The easy global fiscal and monetary policies of the past three years -- including the massive QE2 program in the United States -- not only rescued the world economies from one of the most severe recessions ever, but also provided the stimulus for growth. Commodities have surged, GDP has recovered and the consumer has remained resilient.
All is not perfect: China continues to try to slow its economy, European debt remains problematic, and we're still assessing the damage from the devastating disaster in Japan -- an incredible personal and economic tragedy. But the recovery is evident, and I have three ideas that will benefit from the global economic recovery.
The first is Caterpillar (CAT - Get Report), a U.S. industrial machinery company that specializes in construction, mining equipment, diesel and power engines and industrial gas turbines. It is the industry leader, boasts a strong balance sheet and is a clear beneficiary of global economic activity, higher oil and commodity prices and the 40% year-over-year rise in mining capital expenditure budgets.In December the company bought Bucyrus, a leading mining equipment company, and the combination not only makes Caterpillar a fierce competitor, but will also provide upside to earnings, revenues and margins -- and ultimately a higher stock price. The deal, with its $400 million in annual synergies, could lead to earnings of $8-$10 a share in 2012 and potentially $15-$20 by 2015. The company will present at the ConExpo trade show next week, and I believe Caterpillar will stand out as the industry winner as it outlines its growth strategy, and shares will rally. Valuation remains attractive -- the stock is below its average levels on price-to-earnings, EV/EBITDA and price-to-revenues. The next recovery stock is PNC Financial (PNC - Get Report). After three years of underperformance, mortgage markdowns and balance sheet improvement, I believe the bank sector is in the early stages of its recovery. PNC is one of the highest-quality banks out there, and it really is a plain-vanilla sort of bank (the majority of its revenues are tied to spread investing).