John Buckingham, astute value stock picker, never curbs his enthusiasm for beaten-up, underperforming quality stocks. Take, for instance, his biggest winner ever — Apple, which he recommended in October 2000, only to see its price plummet three months later from a split-adjusted $1.60 to $1.06.
But the value manager held on patiently — and has indeed reaped substantial rewards: Today Apple trades at $310.
In an interview with ThinkAdvisor, the chief investment officer of Kovitz Investment Group’s AFAM division, discusses five dividend-paying stocks that have performed miserably since the end of 2018 but which, he argues, are poised to outperform in 2020. They were culled from a list of his 25 favorite laggards. The manager is betting that “a renaissance in value investing” is “around the corner.”
(Related: John Buckingham’s Top 8 Stock Picks for 2019)
Ever-upbeat on beaten-down equities, the editor of The Prudent Speculator newsletter — published for more than four decades now — forecasts that this year, stocks of the S&P 500 index could double in price from current levels and not be expensive.
Many of the 120 equities that he owns appreciated significantly in 2019. These include Lam Research, Target, Tyson Foods, Citi and Apple.
Buckingham has been manager of the Al Frank Fund (Valux) since its 1998 inception. Through Dec. 31, 2019, it posted an annualized return of 10.17% versus the S&P’s 7.61%.
ThinkAdvisor recently held a phone interview with the Aliso Viejo, California-based manager, who offered his forecast for the market and U.S. economy in 2020. He prides himself on being realistic.
Here are highlights:
THINKADVISOR: What are your expectations for the stock market this year?
JOHN BUCKINGHAM: Right now we’re at an all-time high. In 2020, we could double the current S&P 500 and be fairly priced.
What’s your reasoning?
Stocks aren’t overvalued at all because interest rates are at such historically low levels; and they’re likely to stay low for the foreseeable future, though we now see them trending up a bit. To be negative on stocks today, you have to either believe that interest rates will be significantly higher or that corporate profits will contract. Anyone who thinks we’re going to have a negative return on stocks this year is uber-bearish.
What market return do you anticipate?
An 8% return, which is actually very good, given the low interest-rate climate. Nine percent is what it’s been historically.
What’s your outlook for the economy?
Leading economic indicators and the Federal Reserve project about a 2% GDP growth rate, and I think 2% is probably a pretty good number. The economy will muddle along, which means no boom, no bust. The economy is kind of OK. It’s not Goldilocks — that is, it’s not “just right.” It’s just OK. But just OK is fine because I believe that stock prices have discounted something worse than just OK.
OK — why is the economy “just OK”? The backdrop seems really good — we have quote-unquote full employment and an historically low unemployment rate. Yet there isn’t a lot of traction being made on GDP. A lot of that is about cautious business investment.
What else makes the economy just OK? (This interview took place on Jan. 7, an hour before the first reports of Iran’s missile attacks on U.S. military bases.)
We have a presidential election coming up. We don’t know what the tax regime is going to be as we go forward. We don’t know what’s going to happen tradewise with China and with trade around the world. Things seem better than they were two or three months ago, but we’ve had an additional wild card of potential escalation of Middle East hostilities that could impact oil, which [in turn] can impact inflation, among other things.
What will be the effect of Iran’s near-certain retaliation for the U.S. killing their top general?
I don’t want to be cavalier, but if every time we worry about an event in the Middle East, we’re never going to invest. It’s been shown that there really wasn’t any negative impact [from] the 20 previous Middle East crisis events.
President Trump is unpredictable. What threat does that present to the market?
No matter who’s in the White House, no matter what events happen around the world, the equity markets and the fullness of time will prove to be rewarding, though not without ups and downs along the way.
You’re of course referring to volatility?