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3 Stocks Ready for the Recovery

Stocks in this article: EMR BHI PNC

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Stephanie Link joined NBR Tuesday (watch video and read transcript here) to discuss stocks that are positioned for growth as the economic recovery takes hold.

Global economies and equity markets have improved significantly from their March 2009 lows. Manufacturing activity continues to improve, the global banking system has strengthened and corporate earnings have recovered significantly.

Simply put, the last three years of easy global fiscal and monetary policy (including the Federal Reserve's massive QE2 program in the United States) not only rescued the world economies from one of the most severe recessions, but have provided the stimulus for growth. Commodities have surged, GDP has recovered and the consumer has remained resilient.

Of course, all is not perfect. China continues to try to slow its economy, European debt remains problematic and Japan has endured an incredible personal and economic tragedy. But a recovery is evident, and I see three stocks that should benefit as economic growth continues to pick up.

Word on the Street

The first is Emerson Electric (EMR), a late-cycle industrial company that operates in 5 businesses -- process management, industrial automation, network power, climate technologies and tools and storage. Its focus is on providing superior technology with exceptional service. Its broad product portfolio and technologies help make its customers smarter, more efficient, more productive and more competitive.

I like this industrial because it is positioned well for above-average growth (due to its 30% exposure to emerging markets), positive operating leverage (strong demand and lean cost structure mean strong earnings leverage) and attractive valuation (shares are down 7% in the past week). Its recent quarter was very strong, with revenue growth of 18%, organic growth of 14%, earnings growth of 38% and nearly a 2% increase in margins.

I expect the company to continue to create value for shareholders -- over the past 3 years, Emerson has spent $5 billion on dividends and buybacks while also investing $4.2 billion in new acquisitions and building future growth. My target for the stock is $65.

The next idea is Baker Hughes (BHI), one of the largest oil service companies in the world. I expect that over the next several years the oil service industry will benefit from the increased capital expenditure budgets of the large integrated oil companies ( Chevron (CVX), Exxon (XOM), etc.) that are a direct result of higher commodity prices. As demand for services improves, pricing in both the U.S. and around the world will move higher, providing better revenues and earnings for Baker Hughes.

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