Glass Half Full for Corning, Teck Resources

NEW YORK ( TheStreet) -- Investors seeking high-quality stocks in the face of a weakening economy should consider Corning ( GLW) and Teck Resources ( TCK), says Marian Kessler, co-portfolio manager for the Becker Value Equity Fund ( BVEFX).

The $144 million fund, which garners four stars from fund-rater Morningstar, has returned 9.2% in the past year.

Welcome to TheStreet's Fund Manager Five Spot, where top fund managers give their best stock picks and views on the market in a five-question format.

What is your view of the economy?

Kessler: The global economy continues to weaken as we approach year-end 2012, led by the recession in Europe, slowing commercial and industrial construction in Europe and China, the likelihood of higher taxes and austerity programs globally and widespread inventory destocking that will weigh on GDP growth in the months to come.

The U.S., Canada and Mexico appear to be ballasts; economic growth, while not robust, appears stable. All told, global growth will most likely weaken into the first half of 2013, exacerbated by the fiscal cliff and attempts by the U.S. government to reduce the burdensome debt created during and post financial crisis.

What is your top stock pick?

Kessler: We buy stocks that are out of favor but high quality, selling at attractive absolute or relative valuations and have an identifiable improving roadmap in the near to intermediate term.

We feel a strong commitment to each one of our individually chosen 60 or so holdings and thus run fairly equal weighted position sizes. However, a recent addition to portfolios is Corning. This company is one of the leading glass manufacturers in the world, developing and manufacturing product for display technology -- computers, laptops, mobile devices and life sciences.

The stock was under pressure in late 2011 and 2012 due to concerns about global demand for display, particularly televisions, as well as production over-capacity in China. Recently though, several Asian producers have announced shuttering of uneconomic glass plants and demand appears to be stabilizing after several quarters of decline. Corning is selling at a single digit P/E, is trading below a high quality book value, boasts a solid and cash rich balance sheet and produces strong free cash flow.

What is your top "sleeper" or "under the radar" stock pick?

Kessler: Teck Resourses, a Canadian metallurgical coal and copper company, is our top "under the radar" stock. With a $19 billion market cap, Teck is a large cap value stock, selling at book value, an 11x P/E, a manageable debt/capitalization of 28% and a cash hoard on the balance sheet of more than $4 billion. The stock is not well followed on Wall Street, despite its size and high-quality balance sheet. Teck is one of the world's largest miners/producers of metallurgical coal and has one of the all-in lowest cost of production and shipping among its competitors.

The stock fell sharply in the last year on concerns that steel consumption in China would be tempered as Chinese GDP growth estimates shrunk from 9.5% to 7% annually. By July of this year, investors' worries about Chinese steel demand had cut met coal stock prices by 40% or more, without regard to fundamentals, earnings quality or the ability to manage return on invested capital in a wide range of global economic environments. Teck is well positioned financially and operationally to weather a lower demand environment and thrive in even a modest global recovery.

What stocks or sector would your sell or avoid right now?

Kessler: As fundamental research-driven stock selectors, we do not make macroeconomic or sector rotation investment decisions in our portfolios. Instead, we use the information gleaned from our companies as well as input providers, end users and competitors, to create an investment context generated by bottom-up research. Currently, we are using premium valuation telecom and consumer staples names as sources of funds.

What is your outlook for 2013?

Kessler: Economic conditions in 2013 face headwinds. Global economies show few patches of significant growth, while slowing GDP is becoming the norm. Early indications are that North America should remain in non-recessionary territory in 2013, despite persistently high unemployment. Financial markets however generally anticipate and discount economic change.

We would not be surprised if equity markets corrected following their strong showing in three out of the last four years. We are positioning our value portfolios relatively conservatively -- buying strong balance sheets, well-positioned franchises with stable to increasing returns on invested capital, free cash flow generation and discounted valuations relative to their historic norms or to the market as a whole.

Edited for length and clarity.

-- Written by Gregg Greenberg in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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