John Buckingham, CIO of Al Frank Asset Management, says he is concerned over the short-term but optimistic long-term. “We are in for turbulence and volatility,” he said, noting that the funds he manages are holding 5-8% cash rather than the usual 2%. Nonetheless, he said “I don’t see anything on the horizon that suggests a sustained profit recession, which is what you need to sustain a bear market.” He pointed to 4% nominal growth (2% growth with 2% inflation), increasing company efficiency, debt refinancing, and stock buy backs.
Buckingham is known for his value approach and strong stock-picking record, as reflected in the Prudent Speculator newsletter, a publication he has been involved with for 25 years. Over 15 years, according to the Hulbert Financial Digest, his picks have returned an annualized 11.6%, beating both the market and Warren Buffett. The Al Frank fund he manages has also beaten the market and 95% of large-cap value managers over the same period, but is currently lagging somewhat due to its holdings in energy and mining.
“It’s a great time to be a value investor,” Buckingham said, noting “[t]he fact that most investors are not buying stocks en masse indicates a tremendous amount of fear out there.” He pointed to the market’s “violent reactions recently to earnings misses,” finding opportunity where stock value that would typically have been reduced 7-10% has instead plummeted 30-40%.
One of the areas Buckingham likes big-cap technology stocks like Apple and Microsoft, stating “[t]hese are companies with solid growth potential that are trading below the market’s valuation and paying generous dividends with plenty of cash on the books.” He applies similar thinking to biotech companies, noting “[m]arket history shows that dividend-paying stocks outperform nondividend payers with lower volatility.”