Legg Mason's Dmitry Khaykin shares the stocks he considers essential to own in a weak economy in this video.

If a company's product or service isn't essential, it has no place in Dmitry Khaykin's mutual fund.

"What we mean by essential is something that a consumer needs every day of their lives," says Khaykin of the Legg Mason Partners Investors Value Fund ( SAIFX). " Wal-Mart ( WMT), for example, sells groceries and products that consumers need every day. And Wal-Mart is the lowest-cost retailer, so they have a tremendous advantage over their competitors."

Khaykin's fund, which he co-manages with Robert Feitler, is down 24% this year, on par with the S&P 500. Over the past 10 years, the fund is flat on an annualized basis, 3.5 percentage points better than the index. That's good enough to place it in the top quartile of all large-cap value funds tracked by Morningstar, which assigns the fund four out of five stars.

Khaykin owns less than 60 stocks in the fund and tends to hold on to them. The turnover rate for the fund is 23%, which means less than a quarter of the fund's assets are replaced each year. The manager concentrates on picking individual shares, a so-called bottom-up approach, rather than evaluating an industry or the economy first.

Khaykin is bullish on energy stocks due to the dramatic decline in oil and natural gas prices. He favors El Paso ( EP) for its pipeline business.

"Over the long term, one can make a very bullish argument for oil and natural gas prices," says Khaykin. "El Paso is a recent addition to our portfolio, and its pipeline business, in which it is basically a toll-taker, is very cash-flow generative."

He is a fan of satellite-television provider DISH Network ( DISH), primarily for its strong management. Charlie Ergen founded a predecessor company in 1980, taking on more powerful cable-TV companies by selling his product door to door.

Ergen "is the best operator in the business," says Khaykin. "They have had some hiccups operationally, but it is nothing fundamental that Charlie can't fix." He also said the company's stock is inexpensive at five times earnings and five times free-cash flow.

Elsewhere in the telecom sector, Khaykin likes AT&T ( T), which at 4% of assets is the largest holding.

"They have a superior brand, balance sheet and set of assets in both wireless and wireline," says Khaykin. "Plus they have an exclusive agreement with Apple ( AAPL) for the iPhone, and that has been a huge growth driver."

Americans can't live without energy, television or their cellphones, but Khaykin dives even deeper into the "essentials" with toilet paper manufacturer Kimberly-Clark ( KMB).

"We like the way their management allocates capital, which, as value investors, is very important to us," says Khaykin. "It does not get much more essential than toilet paper now, does it?"
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.