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John Buckingham (Photo: Andrew Collins)

Portfolio > Economy & Markets > Stocks

Here Are Some of John Buckingham's Favorite Stocks for 2024

By Jane Wollman Rusoff

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Some could accuse contrarian value investor John Buckingham of being a permabull. But Buckingham, the astute stock picker and Kovitz wealth management principal and portfolio manager, always has solid reasons to be bullish.

Forecasting 2024: The prior two years haven’t been favorable for stocks — and that makes him optimistic.

“Anybody who thinks that stocks will not appreciate next year is super-bearish,” Buckingham, who expects an overall market return of 9% to 10% amid high volatility, says in an interview with ThinkAdvisor. 

Buckingham is looking for a 15% return for value stocks next year, partly because “it’s been a couple of lousy years for value.” About his loyal preference for value investing: “I’d rather be looking at businesses I want to partner with for the long term instead of having the ‘greater fool mindset.’”

Another reason for his bullishness: The fourth year of a U.S. presidency has historically been the second-best year for the stock market, he argues.

Buckingham’s stock picks for 2024 are guided by seven themes he has created. They include “The World Is a Dangerous Place” and “Intelligent Ways to Play AI.”  

Buckingham, editor of the newsletter The Prudent Speculator — published for the past 46 years — oversees $750 million of Kovitz’s $7.5 billion assets under management.

He has managed the Al Frank Fund (VALAX) from its 1998 inception. Through Nov. 7, it has had an annualized return of 9.62%. That compares to the Russell 3000 Index with a return of 7.05%.

In the recent phone interview with Buckingham, who was speaking from his office in Aliso Viejo, California, he says he anticipates real GDP growth to come in at only 1% in 2024 with a possible “mild recession.” Here are highlights of our interview:

THINKADVISOR: What’s your forecast for the market in 2024?

It will be positive for stocks. 

[But] volatility will remain escalated. I’ve been watching the markets for 36 years now, and seldom have I seen the kinds of moves in individual stocks that we’re seeing these days — both on the upside and downside. 

Lots of scary things have occurred [this year] and will continue to occur. My view is not to get scared out of stocks — the headlines will always have some reason why you shouldn’t be invested.

What’s your expectation for the U.S. economy in 2024?

A mild recession, but I don’t think it will lead to an earnings contraction for companies.

The wild card is [the Ukraine and the Israel-Hamas wars].

Please talk about some of your top stock picks for 2024 in random order. You believe in broad diversification and have seven different investing themes. One is “The World Is a Dangerous Place.”

The U.S. is arming Ukraine, and a lot of munitions are being used up. So defense contractors, like Lockheed Martin and General Dynamics, are two companies that are likely to get substantial business as arsenals are replenished.

What’s going on in the Middle East relates to the price of oil. The U.S. is one or two events away from being dragged into [the Israel-Hamas war], and there are all sorts of issues that could send the price of oil skyrocketing. So investing in fossil fuel companies still makes sense.

But what about the rise of electric car sales?

The transition from internal combustion-engine vehicles to electric will be measured in decades, not years. And we’re still going to need plenty of oil in the developing parts of the world.

EOG Resources is an exploration and development company that I like. It has a significant dividend and, on top of that, special dividends when the price of oil is high.

One reason you invest in dividend-paying companies is not for the yield you get today but because, over time, the yield increases. 

So there’s the opportunity to generate income that will keep up with inflation.

On the oil refining and marketing side, HF Sinclair makes and sells products such as gasoline. Internal combustion cars will clearly be in need of gas.

So energy is something that investors should consider.

Another of your themes is “Health Care Temporarily in the Sick Bay.” Which stocks have you picked?

Pharmaceutical stocks and health management companies have been hit pretty hard this year. But over time, pharmaceutical companies generally grow at a faster rate than inflation. 

We’re living longer, so demographics favor our requiring greater health-care coverage going forward.

Pfizer, one of the COVID-19 vaccines makers, has a very inexpensive P/E ratio and a generous dividend yield. It’s attractive because it’s been a horrible performer this year. A lot of that was because the COVID business has been falling off faster than people had thought. 

We always thought it was just a bonus.

On the managed care side, CVS Health, which owns Aetna in addition to pharmacies, has a single-digit P/E and continues to grow earnings, and that won’t stop going forward. 

Valuation-wise, it deserves a higher multiple, and the underlying earnings are likely to grow.

Your theme for the tech sector is “Intelligent Ways to Play AI.” What are they?

Part of the promise of AI is trumped by the companies that produce the “picks and shovels.” Think: the Gold Rush [of the 1800s]. 

To get to the AI Gold Rush, businesses have to invest to upgrade their computers. They have to power the super computers that are going to deliver all of this great, promising AI technology.

Here are two companies that are “picks and shovels”:

Power management company Eaton isn’t as inexpensively priced as some of the other stocks I’m talking about, but they’re going to be in tremendous demand.

The AI revolution and the next generation of computing technology will require more and more power to fuel the actual computing that AI needs.

And as companies invest in the new tech, they need data centers; that is, big warehouses for all the computers. Digital Realty, a data center REIT, will benefit from that.

You also own some super-size tech companies. Right?

We’ve sold some Microsoft and some Apple, but they’re still our two largest holdings. We’ve peeled a little bit more off because of risk mitigation, and valuations aren’t as cheap today as they were way back when we bought these two.

We also continue to have exposure to Google and Meta, even though they’ve done extraordinarily well this year.

A way that you might participate in the next big technological [breakthrough] is by investing in businesses that have profited from [them] in the past and are at the forefront of whatever the next big thing will be.

So I would certainly consider those big tech names.

Are you invested in Nvidia, the leading AI chip company?

No. We used to own it 10 years ago. It’s a fine name – and the poster child of AI – but it’s expensive. 

On the chip side, I’d rather be investing in the capital equipment makers – picks and shovels – because you need that equipment to produce the chips. 

For example, Lam Research Corp. is a good stock to own. It has very reasonable valuations, dividend yields too and is likely to be a beneficiary no matter who wins the AI race.

Another of your themes: “A Run on the Banks by Shareholders but Not by Depositors.” Please explain.

There’s an opportunity for investors to go into the banking space, but for the most part, you want to stick with quality. 

I’ve been through the S&L crisis and the housing bust, and I’ve seen that the better capitalized banks tend to take market share.

They’re also able to make acquisitions during tough times, and they generally come out of a downturn stronger capitalized and stronger businesses.

JP Morgan is the perfect example of that. They’re the lender of last resort: When the government has an issue with banks, they come to JP Morgan.

The stock has held up much better than the regional banks this year. I think that JP Morgan is a core holding that investors should have in the banking space. If JP Morgan goes under, we’re all going to go under.

Western Alliance is a bank that’s been hit very hard, but it’s well run, and there’s great opportunity to be buying it today at very inexpensive valuation metrics and with very rich dividend yields.

Also, PNC Financial has historically always been a well-run bank. They’re going to do just fine through the difficult times that banks are facing today.

Please discuss your theme: “Shoot First and Ask Questions Later.”

Some stocks have been whacked this year far harder than justified.

A lot of babies have been thrown out with the bathwater: There have been significant moves in both directions, often on news that, in years past, wouldn’t have warranted such big moves.

The fact that these stocks have been battered this year makes me very optimistic about going forward.

We just bought PayPal, the payment processing company. That stock has been a horrible performer since peaking during the pandemic at over $300; today it’s at $50.

Though the stock is down significantly this year, earnings are continuing to grow. P/E is 10.

We think this is [exceedingly] cheap for a company that’s likely to be very viable: A lot of people will still use PayPal for the foreseeable future, and I think the company will continue to grow.

 Any other stocks applicable to this theme?

Whirlpool, the appliance-maker, recently got whacked even though their earnings were better than expected. 

It’s an incredibly profitable company, trading at around seven times earnings with a big dividend yield as well.

It’s sensitive to the housing market. [But] housing has held up much better than most might have envisioned, given the rise in interest rates.

There’s a lot of pent-up demand for housing, and I think that Whirlpool is likely to post very strong profits and that ultimately the market should be willing to pay six or seven times earnings.

”Good Things Come in Small (and Mid) Packages” is another category you’re enthused about.

Small caps offer very attractive valuations today, especially relative to their history. Further, the dividend yield is very attractive. You can build a portfolio of undervalued small cap stocks that have significant capital appreciation potential and offer income as well.

Western Alliance [noted above] is a regional bank that, like most, has been hit hard on worries about deposit flight, higher interest rates, loan demand and what regulators are going to do in terms of capital requirements going forward. 

It’s been hit even though the company has continued to grow, generate substantial earnings and raise its dividend all through this turbulent period.

Another small-cap company I like is railcar manufacturer Greenbrier, trading at around 10 times estimated earnings.

Railroads have to continue to upgrade and replace railcars. So there’s plenty of growth to come for Greenbrier. 

The earnings expectations aren’t necessarily in the bag, but they already have orders for lots of cars. Yet the stock is trading at a very inexpensive price tag.

And finally, there’s your theme, “It’s a Great Big World Out There.” Please elaborate.

The U.S. market has generally outperformed foreign markets over the last four or five years. But this year, foreign markets have certainly done better than the average stock in the U.S.

But we think there are still opportunities in international stocks. We invest only in companies that trade in the U.S. 

You can have exposure to foreign companies via American Depository Receipts or American Depository Shares.

When shipping overseas, DHL, the package carrier, is the better way to go versus FedEx or UPS. It’s reasonably priced, and the company derives 75% of its revenue outside the Americas. 

Also, there’s nothing wrong with focusing on Europe these days since it’s been a laggard in terms of its economy and stock market. Opportunity is there for long-term investors.

What else do you look for in international?

You can invest in U.S. companies that derive substantial business overseas. For example, Cummins, which makes engines and power [systems]. 

Forty-two percent of their business comes from outside the U.S., and the international portion is growing nicely, up 13% in the last quarter. 

Cummins has a generous dividend and just raised it this year by 7%. That’s better than the rate of inflation.

There are lots of opportunities to benefit from global growth via companies that are domiciled in the U.S. 

Jane Wollman Rusoff

@jrusoff2

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