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.
Word on the Street

The first is Caterpillar ( CAT), 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). 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).

It's the sixth-largest U.S. bank, with plenty of exposure to the Midwest -- a region heavily aligned with the manufacturing industries, which have seen significant improvement (autos, industrials and factory orders are all vastly improved). As a result, PNC revenues are poised to grow faster than those of its peers. The company also has sizable cross-selling synergies and opportunities from its 2008 acquisition of National City; it has already taken $1.8 billion out of costs.

As the economy improves, credit costs will continue to decline, reserves will be released and the company can focus on lending -- commercial and industrial loans improved 4% in the last quarter -- and I expect this segment to continue to improve in the recovery. The stock trades at a discount on a price-to-book and price-to-earnings basis from historical levels, and PNC will be one of the first to raise its dividends -- another positive catalyst.

Finally, I like Lowe's ( LOW). It's one of the largest home improvement companies in the industry with a specific emphasis on retail Do-It-Yourself. I like this stock for two main reasons -- housing is bottoming, and internal restructuring will improve the company's overall competitiveness, earnings, revenues and margins. The restructuring program is focusing on improving its supply chain efficiencies, products, pricing and service.

Lowe's has also taken aggressive action in cutting costs, a focus that was evident in its last quarter, with a 60-basis-point improvement to its gross margins (ahead of Home Depot's ( HD) 24 bps). Lowe's will generate $10 billion in cash over the next five years, which will be used for buybacks and dividend increases. Trading at a 10% discount to HD, the stock is a cheap way to play the recovery in housing and in the company itself.

Readers Also Like:


Stephanie Link is the director of research & vice president of strategy for TheStreet.com. She is the co-portfolio manager for Jim Cramer's premium investing service, Action Alerts PLUS and works daily on the strategy and stock picks chosen for the portfolio. Stephanie is also responsible for recruiting talent for the paid sites including options, technicians and fundamental contributors. Prior to joining TheStreet.com, Link worked on Wall Street for 16 years. She spent nine years at the Prudential Equity Group as a managing director in U.S. institutional sales and as the New York sales manager covering top national accounts. She was the managing director of equity research in her final year at the firm. Prior to that position, she worked at Dean Witter as an institutional sales person for six years. Link's investment specialties include large-cap core stocks as well as value ideas.

If you liked this article you might like

How Did Caterpillar Get Its Name?

How Did Caterpillar Get Its Name?

Jim Cramer: These 4 Stocks Seem Attractive Right Here

Jim Cramer: These 4 Stocks Seem Attractive Right Here

Caterpillar Rallying as Big Machinery Is Moving Again

Caterpillar Rallying as Big Machinery Is Moving Again

Closing Bell: LIVE MARKETS BLOG

Closing Bell: LIVE MARKETS BLOG