Trader: 5 value stocks for an improving economy

Published Fri, Jan 8 201611:12 AM EST

For the 2016 Halftime Report Portfolio Challenge , new member Sarat Sethi chose beaten-down stocks across many sectors with upcoming news catalysts. The names are also heavily leveraged to an improving U.S. economy, a theme reinforced by Friday's better-than-expected jobs report. Here are the picks from the Douglas C. Lane & Associates managing director and the reasoning behind them, in his own words. BorgWarner BorgWarner's competitive position is intact with impressively engineered products, high entry barriers and market power. The negative mix shift to gas from diesel engines will be offset by rising content in gas engines over time. Profit margins are holding strong despite weak top-line sales, which reflect financial discipline. Electric vehicles will remain a niche segment over the medium term. China macro weakness will abate. Qualcomm Qualcomm Technology Licensing segment has upside potential from better royalty enforcement. The new agreement with Xiaomi (the second-largest handset manufacturer in China) is a recent example. There are several strategic options within Qualcomm CDMA Technologies including large M & A to diversify away from mobile and more cost cutting. The valuation is overly negative at 11.5 times forward earnings or 8.5 times forward earnings excluding $20 billion ($12.70/share) in net cash. The dividend yields 4 percent. Read More Jon Najarian's top stock picks for 2016 Macy's Some of the recent weakness drivers are transitory. They include the impact of currency-driven international tourism, weather and self-inflicted management rotation issues. Macy's has a proven management team with a strong operational track record. The company is already taking action with store closures and large cost cuts. The retailer's omnichannel capabilities are some of the best in the industry. There are real estate monetization opportunities. The dividend yields 4 percent. Yum! Brands The spinoff of the China business is a catalyst. The company ex-China stands out with its highly franchised model that generates stable revenue, high profit margins and strong cash flows with low capital requirements. China is becoming "less bad" as the KFC brand continues to recover from the latest supply chain incident and Pizza Hut launches new initiatives. Over the long term, each of the businesses can grow earnings at a double-digit percentage rate annually. XPO Logistics The strategy transition from a U.S.-based truck brokerage consolidator to global, asset light, full-service transportation logistics provider is under-appreciated. Brad Jacobs and his management team are proven acquirers, integrators and company operators. There is low-hanging fruit to improve profitability and a robust macroenvironment is not required to drive profit growth. XPO Logistics trades at an attractive underpriced valuation at 7 times forward EBITDA (earnings before interest, taxes, depreciation and amortization). Read More Top investor Link: Get diversified in '16 For all the picks and analysis for the "Halftime Report" portfolio, click here . Disclosure: Douglas C. Lane & Associates Inc. and Sarat Sethi are l ong BWA, QCOM, M, YUM and XPO.

Sarat Sethi, managing director and principal at Douglas C. Lane and Associates.

Adam Jeffery | CNBC

For the 2016 Halftime Report Portfolio Challenge, new member Sarat Sethi chose beaten-down stocks across many sectors with upcoming news catalysts.

The names are also heavily leveraged to an improving U.S. economy, a theme reinforced by Friday's better-than-expected jobs report.

Here are the picks from the Douglas C. Lane & Associates managing director and the reasoning behind them, in his own words.