Quality stocks that are bruised, battered and marked down are what smart value investors crave. And John Buckingham, the Kovitz wealth management principal and portfolio manager, can be found first in line making selections.
"The way I operate is to put money into things that haven't had a massive run-up," Buckingham says in an interview with ThinkAdvisor. "I'd rather buy things that haven't had their day in the sun."
In the interview, the value manager presented 10 of his current top stock picks, most of them household names across nearly as many sectors, including technology, health, energy and transportation.
Buckingham, editor of the Prudent Speculator newsletter, believes in broad diversification. All 10 stocks discussed are trading at valuations that offer a significant discount to the long-term three- to five-year target prices he had set. Dividend income is important and factored in.
Returns for the Al Frank Fund (VALAX) since its 1998 inception, when Buckingham began managing it, through Oct. 11 are 10.38% per year. Meanwhile, the S&P 500 and the Russell 3000 Value Index scored 8.88% and 7.5%, respectively.
Buckingham, who oversees $900 million of Kovitz's total $7.5 billion in assets under management and advisement, holds that no matter the direction of interest rates, "more than nine decades of return figures show that stocks, in general, have performed admirably, on average, with value stocks leading the charge."
Here, in alphabetical order, are 10 of his top picks and what he has to say about them:
Alphabet (GOOG): Alphabet controls many subsidiaries, including Google, YouTube and Android. Their balance sheet has never been in such good shape as it is today in terms of cash. They've even started paying a dividend.
The U.S. government is looking into potential monopolistic practices in the search engine and advertising businesses. A long road [of litigation] remains ahead.
But we continue to think the business has tremendous growth potential whether independent or broken up.
Google is [priced] higher than what a typical value-oriented investor might be looking at, but this is a quality company that historically trades for a much higher multiple of forward earnings.
Comcast (CMCSA): Comcast Cable is one of the country's largest video, high-speed internet and phone providers to residential customers. NBCUniversal operates news, entertainment and sports cable networks, as well as Universal Parks & Resorts.
Comcast has had trouble lately keeping broadband and TV subscribers from canceling their services. Peacock, its streaming service, continues to grow but that doesn't yet offset headwinds experienced in other parts of the business.
Therefore, the top line isn't growing as fast as some might like. There are lots of expenses building out a streaming business.
But I like stocks that are still likely to grow, and Comcast is paying a nice dividend of 3%.
EOG Resources (EOG): This is a low-cost energy producer that rewards shareholders with very generous dividends, and also does special dividends. There's going to be tremendous demand for energy over time.
We like that EOG prefers a lean operation, and it has a strong balance sheet with net cash. Management has repurchased about 3% of outstanding shares since implementing its current buyback authorization.
We also like that the company hasn't been caught up in irrational growth or M&A.
HP Enterprise (HPE): A Hewlett Packard spin-off since 2015, it offers enterprise security, analytics and data management services. The stock has a very low P-E ratio, around 10, and we get a 2.5% yield.
We think there's still growth potential in terms of the bottom line.
CEO Antonio Neri said last month: "When you talk about the next generation of architectures, I do believe the networking component is going to be a core tenet."
Healthpeak Properties (DOC): More than half of this REIT's annual rents come from tenants involved in various aspects of the life sciences; for example, biotechnology, medical devices, pharmaceuticals.
Even as DOC has rebounded markedly from the REIT turmoil owing to higher interest rates, shares remain a third below where they were a few years ago.
