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Top 4 ‘diamond in the rough’ stocks

With an optimistic outlook on the market, four beaten-down stocks offer value, James Lebenthal of Lebenthal Asset Management said Tuesday.

"The diamond in the rough is a way of saying our industry is pretty simple, right? Let's buy low and sell high," he said. "The problem is a lot of people don't want to buy stocks when they're down. They think there's something wrong with them."

On CNBC's "Fast Money," Lebenthal said that his top picks in this category included Cliffs, Seadrill, Caterpillar and United Airlines.

Cliffs Natural Resources, he added, were oversold on the belief that things don't look good in China, Europe or the United States.

(Read more: Carl Icahn's effect on Apple stock: Traders weigh in)

"We firmly believe that the American economy is growing more than people expect," Lebenthal said. "We think that Europe is turning a corner, and we see iron ore prices growing. So, with that, we don't think Cliffs is going to have to write down resources anytime soon. And we think at 75 percent of book value, it's a great trade to be in, particularly if China picks up again."

Lebenthal said that Caterpillar had deftly managed the recession.

"They unilaterally cut the book that their dealers had on order so that they would protect the brand, so that they wouldn't do what the automakers did, which is flood the dealers' lots with inventory," he said. "And then they'd have to cut prices and hurt the brand."

Plus, the company's shares had a 2.8 percent dividend yield, paying out about 30 percent of the company's earnings and it had 10 percent cash flow.

"That's not something I'd ever want to short," he added.

Lebenthal also said that J.C. Penney appeared attractive.

"I'm waiting to pull the trigger," he said.

(Read more: 'Correction' too strong a word: Stephen Weiss)

If the company "is not one foot in the grave," as the market seems to think it is, "then this will be back in the 20s within the next year," Lebenthal added.

But it would still take another quarter or two of earnings to persuade him, Lebenthal said.

"I'll pay another dollar or two. I'll pay up to $14 if I get that clarity because I think it'll be a $20 stock," he said. "Right now, it's a roll of the dice. I don't like to roll the dice. I like to invest, and I like more clarity."

By CNBC's Bruno J. Navarro. Follow him on Twitter @Bruno_J_Navarro.

— CNBC's Michael Newberg contributed research to this report. Follow him on Twitter: @MikeNewberg.

Trader disclosure: On Aug. 13, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Tim Seymour is long BAC; Tim Seymour is long SBUX; Dan Nathan is long FB; Dan Nathan is long JCP; Dan Nathan is short BBRY; Dan Nathan is long VIX; Dan Nathan is short IWM; Karen Finerman is long AAPL; Karen Finerman is long BAC; Karen Finerman is long C; Karen Finerman is long JPM; Karen Finerman is long TGT; Karen Finerman is long GOOG; Karen Finerman is long M; Karen Finerman is long CAT; Karen Finerman is long JCP; Karen Finerman is long SPY; Karen Finerman is long MDY PUTS; Brian Kelly is short Aussie dollar; Brian Kelly is long US dollar; Brian Marshall is long AAPL.

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