Q: What makes Textron's valuation attractive? A: The stock trades at just about 20 a share, and their earnings for next year will probably be less than $1 a share. It has a P/E that's high because of the cyclically depressed nature of the earnings. We believe that the company can earn closer to $2 going out several years, as soon as the turnaround that management is starting to put into place becomes better recognized and as their businesses slowly begin to improve. They have done a lot to improve their liquidity profile, mainly by restructuring some of the near-term maturities on their balance sheet. Their finance company is seeing good progress in terms of beginning to deal with some of the problems that they have had. And if you look at the components of Textron's business, whether it is Cessna, Bell Helicopter or the defense systems, margins are very depressed, particularly in business jets, but those margins can improve over time.

Q: How much upside do Textron and Schering have? A: We see upside of greater than 25% for the prices of both stocks.

Q: What else looks interesting? A: Another stock we hold is TNT [TNT.Netherlands], which is a transportation company. Its stock's upside is more than 25%. A good portion of their business is similar to FedEx [FDX] or United Parcel Service [UPS]. They are based in the Netherlands, and about 60% of their operating earnings come from a mail business, which is basically the legacy mail business in Holland. It's a large cash-generator. The other 40% of operating earnings comes from their express segment, which generates most of its revenue in Europe, but which is also growing quickly in areas like China, India, Southeast Asia and Latin America. This business is the one that competes globally with the likes of UPS or FedEx. The express segment has been hurt by the economic downturn. But we are very impressed with the management of TNT. We would categorize the situation there as problem-fixing. They are doing a lot on the cost side to improve their express business. In addition, they're engaged in negotiations with the unions in the Netherlands mail business, which is shrinking over time. We believe that, ultimately, they will be successful in controlling costs in that business, allowing it to remain a strong cash generator.

Q: Last but not least, what do you like about PepsiCo? A: We have a high degree of confidence in prospects for strong earnings growth over the next 10 years. It has very conservative accretion assumptions for the Pepsi Bottling Group and PepsiAmericas deals, an abundance of organic growth opportunities with a dominant global snacks business, and an excellent management team. Yet the stock sells at about 14.5 times next year's consensus earnings. That's in line with the [consumer-]staples group and a discount to its global peers.