Stocks to Watch: Rails and Oil Drillers

Craig Hodges

Give me some stocks you should own right now.
You should own some energy. Again, find a driller. If you want something with a little less downside risk, land-based drillers, who have been the stepchild during all this due to an excess supply of land rigs, are seeing a real gas boom now in the United States Helmerich & Payne have a really popular rig. I continue to think service companies like Halliburton and Schlumberger will do well. The cement business is interesting to us. Texas Industries in Dallas, a cement producer, has tremendous pricing power and high barriers to entry. If you want to start a cement plant in Texas, it'd probably take you five years just to get the permits. Then you have to build it. Cement is local, and they play off local markets.

What beaten-up stocks are worth buying?
One area that's been unfairly beat up is asset managers. They've come down pretty close to what financials and banks have. One large one we like is Legg Mason. They don't have subprime credit issues, and that stock could go back to its old highs, which would mean a double in a couple of years. There's another in Texas called U.S. Global Investors with some great international funds and gold funds.

Let's get contrarian. What do you like that nobody else does?
People roll their eyes at this, but I think the airlines are good buys. They've absolutely been lit up. AMR was trading at 20 three months ago, and it's below 8. They're finally running the businesses as profits centers, but that's shaded by what's going on in the price of jet fuel. It's absolutely killed them. If it wasn't for that, they'd be booming. With consolidation as some of them go broke, airlines will start raising prices and charging fuel surcharges. Once that happens, these companies have enormous profit potential. Everyone hates them. I'd buy Continental and American, and they're the ones hit the hardest right now. We do realize we're very early on this play.