Don't dump these beaten-up stocks: Value investor

Buying auto part suppliers & airlines: Pro
Buying auto part suppliers & airlines: Pro   

While stocks took a beating over the past three days, especially the auto sector and the airlines, there's opportunity in quality names, one top value investor said Tuesday.

"These things are down 30 percent. Some even down 40 percent, when fundamentals don't tell you that things are that bad," Douglas C. Lane & Associates Managing Director Sarat Sethi said.

Stocks traded higher after their worst three-day selloff since 2011.

On CNBC's "Halftime Report," Sethi, who oversees $4 billion in assets, said he was sticking with the pain trade.

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File photo of American Airlines planes
Getty Images
File photo of American Airlines planes

"For new money coming in, we're buying the auto-parts suppliers, we're buying the airlines," he said. Sethi noted airlines in particular are benefiting from a drop in oil prices while passengers are still booking flights.

"Compare that to five years ago when oil was $120, and you had a huge drop-off in demand and you had overabundance of supply," he added. "You don't have those."

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Sethi said airlines had been sold off "as if they're not going to make money in the next couple of years."

Tesla's post 'D' day slump
Tesla's post 'D' day slump   

American Airlines, United Airlines and Delta Air Lines were among Sethi's top picks, noting their U.S.-based businesses wouldn't be affected much by Ebola fears internationally.

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"So, you couple that with kind of where the prices are, and they're pretty cheap," he said. "Look, we bought them when they were higher, so coming back, saying we still like and want to buy more so when they're lower, especially for new money coming in."

In the auto sector, Sethi said his top stock picks were Borg Warner and Delphi, partly on an easy credit environment, healthy automakers and industry consolidation.

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"We're not in the second and third inning like we were a couple of years ago, but we're still in the seventh and eighth inning, I think," he said. "There is a lot of money to be made, especially for the next couple of years. So, we're still pretty confident that these guys can actually make money and do well. The stocks are selling at 20, 30 percent discount, just to the market."

Disclosure: Sethi owns shares of United Continental, Illumina, Alcoa, Qualcomm, General Electric, Harman International, Visa, General Motors and Cisco.

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