Sarat Sethi, managing director and principal at Douglas C. Lane & Associates, manages portfolios for the $4 billion fund. He believes airlines and oil refiners are two places to find good investments, and he likes two stocks in each of those sectors.
"The airline thesis is pretty simple," said Sethi. "The airlines have consolidated. You have basically three majors now in this country, and Southwest kind of as the fourth. Pricing has gone up, supply has gone down. And essentially you've got managements that are running these companies as real companies, not just to increase seat miles but to increase revenue."
Sethi's picks in airlines are Delta and United Continental.
"They are a premier airline at this point," said Sethi about Delta. "They have a great balance sheet, they have been paying back debt, they started a dividend, and I think the road ahead of them is going to be really good."
United Continental is also a buy but since United and Continental haven't merged their systems yet, it may not be as smooth of a flight for investors.
"UAL (United Continental) is more of the value play, a little more bumpy," Sethi said. You get a discount on the multiple then, too. I think going forward, you probably get a bigger bang for your buck at UAL, but it's a little more of a rockier ride going forward."
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But while United Continental may be having a bit more difficulty in its merger compared to Delta's merger with Northwest, "the issue here is where else are you going to go?" asks Seth. "It's basically a monopoly between the four carriers. They all are selling out seats. They're all are raising prices. They're doing everything they can to run them as businesses. As a consumer, you're not happy. But as an owner or as an operator, they're actually doing the right thing."
Another sector Sethi likes is the oil refiners. Key to his thesis is the spread in price between a barrel of West Texas Intermediate crude oil (WTI) – which is U.S. benchmark – and a barrel of Brent crude oil in Europe.
"We've got an oil renaissance in this country," Sethi said. "We've got more oil than we know what to do with…. This spread is a differentiation between us and the rest of the world."
(Read: Valero Energy 2Q profit rises 26 percent)
Though oil refiners are capital intensive, they can make money not just by refining oil but also by exporting it as well, Sethi said. "The price differential allows them to do that."
Valero and Marathon are Sethi's picks in that industry for a couple of reasons. "One is that they're both in the Gulf of Mexico, so it allows them to have easy access to shipping refined product – which is really diesel – to South America and Europe," he said. "And then the other part is they've also done what the airlines have done: They've paid down debt, they've got better balance sheets, and they're increasing their dividends…. So you'll get that opportunity, as the energy sector does better, to actually partake in two companies that then grow with it."
To see the full interview with Sethi and is take on Delta, United Continental, Valero and Marathon, watch the above video.