Portfolio Manager Perspectives

Jeff Benjamin

Shunning stocks? Big mistake, says Al Frank's John Buckingham

Firm's chief investment officer ‘shocked' by investors' indifference to equities; expects ‘sensational' fourth-quarter earnings

Jan 5, 2010 @ 2:50 pm

By Jeff Benjamin

The stock market might not perform as well in 2010 as it did last year, but the case for equities is still hard to ignore, according to John Buckingham, chief investment officer at Al Frank Asset Management Inc.

“I still don't see a lot of enthusiasm toward equities, which is shocking,” he said. “Those people [sitting on the sidelines] are wrong.”

Mr. Buckingham, who manages $460 million, said the amount of money in money market funds is an indication that investors are still traumatized by the market meltdown that unfolded in late 2008.

But now that the market has rallied more than 60% from its low in March, Mr. Buckingham expects a gradual migration to equities — and away from CDs and money market funds. Such vehicles provide safety but very little yield.

“I think the fourth quarter earnings numbers will be sensational, and I think you'll start to see more investor optimism, which means the market will react favorably to the earnings,” he said. “There's still plenty of dry powder to drive stocks higher.”

As a value manager, Mr. Buckingham said stock picking won't be as easy this year as it was in 2009.

But, he added, with the market still below its October 2007 peak, there is value out there.

“There aren't as many attractive names to buy today as there were nine months ago, when it was the cruddier the better,” he said. “You need to be more selective now and focus on solid profits and dividend payouts.”

The total return picture is what a lot of investors are missing by sitting in cash strategies, he said.

“The S&P 500 is yielding 2% right now and earnings growth will be significant on a year-over-year basis,” he said. “The case for stock valuations remains reasonable.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives .

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