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4-star manager's stock picks

While the latest housing data is a sign the industry is on the mend, the recovery has been taking a lot longer than people thought—and that means there are hidden values to be found, portfolio manager Michael Sansoterra said Tuesday.

U.S. housing starts increased 0.2 percent to a seasonally adjusted annual pace of 1.21 million units, the highest level since October 2007.

However, Sansoterra noted that is still about 200,000 units lower than the last 50-year average. So anyone who thinks the housing trade is getting overvalued is wrong, he said.

"As long as demand is still there and still growing, albeit slowly, the stocks valuations aren't quite right because the expectations and the earnings aren't quite right," the chief investment officer and lead portfolio manager with Silvant Capital Management in an interview with CNBC's "Power Lunch."

A worker walks on scaffolding at the construction site of a new home in Carlsbad, California.
Mike Blake | Reuters
A worker walks on scaffolding at the construction site of a new home in Carlsbad, California.

Sansoterra is also an advisor to the four-star Morningstar-rated Ridgeworth Large Cap Growth Fund.

He particularly likes Vulcan Materials, which sells construction materials such as crushed stone, sand and gravel, as well as ready-mixed concrete and asphalt mix.

While the stock hit a new 52-week high of $99.41 on Tuesday, Sansoterra believes it has more room to run and thinks the company could double its earnings in the next few years.

"They have been buying small players, which has allowed them to not only get a little bit better pricing, 5 to 6 percent, but also better volumes, call it 6 to 8 percent," he said.

"They're getting closer to their customers when they buy these small mom-and-pop quarries, which is great because it lowers the fuel costs."

He also likes home builder D.R. Horton.

Sansoterra's non-housing pick is the IT company Cognizant Technology Solutions. While its outsourcing business is growing at a smaller rate, it has done a good job at growing its digital presence in the intermediate term by allowing its customers to expand into the cloud and mobile computing, as well as engage in social media plays, he said.

—CNBC's Brenda Hentschel and Reuters contributed to this report.

Disclosure: Michael Sansoterra and his family do not own CTSH, DHI and VMC.