Aug. 10--Auto components, building products, construction and farm machinery, even industrial conglomerates -- the stocks analyst Kent Mortensen follows have provided many of the market's best returns so far this year.

Small jumps in sales can produce dramatic results for many of these cyclical companies, so investors tend to gorge on them at this point in the cycle, said Mortensen, senior equity research analyst in Thrivent Investment Management Inc.'s Appleton office.

This time, though, he's being more careful.

"My feeling is we'll see economic improvement, but the sustainability of that improvement is in question," Mortensen said.

U.S. manufacturing activity expanded in July for the first time in five months, residential construction and unemployment are stabilizing and government stimulus spending has been effective, particularly in China.

But there's still a lot of excess capacity, financing can be difficult, and stimulus spending can't go on forever, Mortensen said.

"We could be in for a long, shallow recovery characterized by fits and starts," he said.

So Mortensen is investing in stocks that would benefit from an improving economy as well as more defensive names. Some leveraged to an improving economy are:

Manitowoc Co. (MTW, $6.83) is a riskier play, given its large debt load. But shares of the crane and foodservice equipment maker could see strong appreciation if the company can turn the corner and pay down debt, Mortensen said.

Navistar International Corp. (NAV, $44.96), Warrenville, Ill., is a leader in heavy- and medium-duty trucks that could benefit if the economy keeps improving and more products are shipped, Mortensen said.

Some more defensive names are areas that recently sold off dramatically:

Alliant Techsystems Inc. (ATK, $79.41), Minneapolis, has been winning ammunition contracts around the world, Mortensen said. Alliant also makes rocket fuel for NASA, a large federal government program the Obama administration has been kind to so far, he said.

Rockwell Collins Inc. (COL, $45.23), Cedar Rapids, Iowa, sells communication and aviation electronics to military and commercial aerospace markets. Its stock has traded as high as $54.83 and as low as $27.67 in the last 52 weeks.

Rockwell Collins is an extremely well-run company, Mortensen said. It has a 50-50 mix of defense and commercial business. The company could benefit considerably from Boeing's delayed 787 aircraft program, once Boeing works through its operational issues and gets the plane to market, he said.

"It's a great time to buy this quality company now that the sector is out of favor," Mortensen said.

An added kicker: Rockwell Collins is often brought up as a potential acquisition target, he said.

The biggest risks to this stock would be continued delays in Boeing's 787 program or cuts in the U.S. defense budget, Mortensen said. Those aren't big concerns though, and he says Rockwell Collins shares could go as high as $53 in the next 12 to 18 months.

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