Transcript is as follows:

Interviewee 1: Sandy Lincoln

Title: Chief Market Strategist

Company: BMO Asset Management

Interviewee 2: Robert Pavlik

Title: Chief Market Strategist

Company: Banyan Partners

Channel: CNBC US

Date: September 30, 2011

Time: 1:00 PM ET

Duration: 7 minutes 25 seconds

Interviewer 1: Tyler Mathisen

Interviewer 2: Sue Herera

Tyler Mathisen

Just amazing, last trading day of the third quarter and can’t come too quickly for many people on Wall Street. The Dow on track now for its worst quarterly decline since the first quarter of 2009. CNBC’s Andrew Ross Sorkin asked billionaire investor Warren Buffet this morning if the US is going back into a recession, and here’s what Mr. Buffet said.

Warren Buffet

I think it’s very, very unlikely we will go back into a recession. We are coming out of a recession, and we’ve been doing it since 2009, and a great majority of our businesses are going to be earning more money than they did last year and the year before.

Tyler Mathisen

Joining us now with their thoughts on whether the US is going back into a dip and what the best place to put your money now for the fourth quarter and beyond are Sandy Lincoln, Chief Market Strategist with BMO Asset Management US and Bob Pavlik, Chief Market Strategist with Banyan Partners. Mr. Lincoln, let me begin by asking you: do you think the US is in a recession, and whether it’s technically in one or not, it’s certainly a slow-growth economy, if that, so does it really matter?

Sandy Lincoln

Well, Tyler, it’s a distinction with a very big difference, actually. Whether we’re in slow growth or whether we’re in recession mode is a huge difference to the markets, believe me, and I sort of agree with the tease you put at the front of this, I think from Warren, we definitely are feeling it’s more of a slow-growth scenario. It could be a very protracted slow-growth scenario, but if you look over the last four decades, we’ve had several quarters of slow growth—40 of them exactly—where growth has been zero to 2.5% and the markets actually respond not great—you don’t get great returns—but the returns, on average, have been 3 to 4% positive in those slow economic outcomes. So if we get the slow-growth economic outcome, which is where we are, that’s the camp we’re in, if we get that, that’s a distinction with a difference. A recession typically carries a double-digit kind of decline in the market. So it’s a big important difference. We sort of agree that we’re going to work our way through it.

Tyler Mathisen

Mr. Pavlik, where should I put my money now in this slow-growth economy?

Robert Pavlik

If you’re an investor out there and you’re worried about what the economy is going to be doing and you’re trying to get some sort of guidance from experts, first of all, realize that the experts are talking out of their you-know-what because nobody actually knows where the economy’s going from here. It feels like we’re in a slow-growth economy. It feels like we’re going to into recession,

but I don’t necessarily believe we are. Yesterday’s GDP numbers showed you, hey, you had positive growth in the second quarter. I think that continues. We’re going to still see some positive news. We got it out of the Chicago PMI. We got it out of the consumer sentiment, and that consumer sentiment is not something really to rely on. I think if you’re an investor out there and you have a longer-term time horizon, you don’t worry about the volatility in the market or the near-term concerns. You look for market leaders, companies that are really at the top of their game—companies like Apple, Amazon and Google. There are three names right there that I would start investing in on any kind of pullback in the market. I’d do it sort of in a propitious manner. I wouldn’t put all my money into these names, but I wouldn’t worry that they’re $400 stocks either, because I’m going to do it as a percentage of my portfolio.

Sue Herera

Okay, Sandy, you know, one of the frustrations for investors and for some of the big guys that I talk to on the Street is it seems that nothing is working right now, and that the volatility is very much working against them rather providing them opportunity. So how do you navigate those waters? What stocks would you be going into that would shield you a little bit from that?

Sandy Lincoln

Well and much like Bob said, I think the exception I take to Bob, it’s a tendency to really gravitate to the big-cap names for shares, Sue, and that’s what you see the dividend payers, the steady growers, the stellar performers. That’s all great advice. I totally agree with what Bob said, but on the other hand, you don’t want to throw the baby out with the bath water. You don’t want to avoid every single growth name. You don’t want to avoid every single cyclical name. So you want to look for companies that have really strong earnings characteristics. For example, one of the names we like is PAREXEL, and it’s a defensive sector; it’s out of healthcare, but it’s a company with a great growth story. They do clinical outsourcing for large pharma. They do it around the world. P/E’s maybe 12 times forward earnings. They’ve just recently raised earnings guidance. Those are the kind of names, you mix those in with some of the more defensive names or some of the bigger-cap names and you position yourself to be sort of around your neutral exposure to equities, allowing you to sort of suck it up, quite truthfully, and get through this difficult transition period that we’re living in right now.

Tyler Mathisen

And Western Union is another. Have you heard about email, Sandy?

Sandy Lincoln

Yeah, Western Union, yeah, I have heard about that. Is that a new thing, email? Yeah, Western Union is the old wire transfer business. 10 times earnings, buying back stock, 2% dividend yield, free cash flow, and a lot of online stuff that they are doing in Western Union. So there’s a way to play a value name with a low multiple—10 times—and really have some upside at this entry point at maybe $15 a share tor thereabouts.

Sue Herera

Bob, how do you lock in protection in this market? I understand what you’re saying and I find your frankness quite refreshing, actually, but if you are a longer-term investor and you invest in the three stocks that you suggested, that’s great. But what about putting protection in your portfolio? Do you play some of the commodities’ names? Do you put in some options protection?

Robert Pavlik

You could certainly, you know, a firm like ours, we have a covered-call strategy. That’s only going to try to minimize your losses in a downward market. You could certainly go to a plan of buying puts in your portfolio and that’s something we also do, but I think eventually this market is going to start moving up. I mean, we had these near-term concerns: Greece, you have the jobs bill which isn’t going to probably get passed. You had the Budget Deficit Committee, and that’s probably going to put some pressure on the overall market, but I think the third quarter earnings

season is actually going to provide a positive lift to the overall market. Analysts’ estimates have been slashed so I really wouldn’t be worried about where the market goes right after that.

Sandy Lincoln

I agree, Bob. I think we might also see some nice markup on, people might get surprised on the sales side for the third quarter earnings. So I think there’s some positive stuff that’s out there that could come.

Robert Pavlik

Sandy, I think as the fourth quarter approaches, there’s going to be a lot of probably tax loss selling and a lot of institutional managers are going to find themselves really underperforming and really underinvested, and so what are they going to have to do? They’re going to have to fill out the portfolios with stock names because they’re required to have a certain amount of money into the stock market.

Sandy Lincoln

Absolutely. You could see that reverse very quickly in the fourth quarter and beyond, I think, absolutely, Bob.

Robert Pavlik

Well, early in 2012, the President’s going to find himself lagging the, whoever really challenges him, so what’s going to have to happen is the President’s going to have to try to inspire the overall economy and try to create some jobs. What he really has to start thinking is about removing this double taxation on corporations that are doing business in other markets, companies that earn money overseas, get taxed there, and they want to move it back to the United States and get taxed again. If he were to try to partner that up…

Sandy Lincoln

I agree with that. The one thing I would say though, it’s not just the President. You know, we’ve got, this whole political sieve is really, a really crucial issue and that’s what got investors scared. So we have the politics of Europe that probably are as big or a bigger hurdle than what we have here in the US, but you’re absolutely right on the tax policy. It’d be a big boost for stocks.

Robert Pavlik

If the President were to partner up a tax reduction—or better, tax elimination—of this double taxation and tell the corporations that if they start bringing back money in, for every $100 million, they have to increase their workforce in the United States by 1 or 2% of that to keep these workers for about--

Sue Herera

You know what, guys? We’ll let you guys continue this discussion. You guys go have lunch.

Tyler Mathisen

We’ll keep the satellite up and we’ll let you keep talking, guys. Great discussion, Sandy, Bob, appreciate it. We’ll have you back soon.

Sue Herera

Have a good weekend.

Robert Pavlik

You’re very welcome.

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