Al Frank's Value Fund (Al is dead, John Buckingham is fund manager):
THE STOCKPICKERS
Value, quite frankly
Al Frank manager picks IAL, Aetna, Keynote
By Jeffry Bartash, CBS.MarketWatch.com
Last Update: 12:02 AM ET Sept. 5, 2003
WASHINGTON (CBS.MW) - John Buckingham frankly knows how to wring value out of depressed stocks.
As of Sept. 3, the manager's quirkily named Al Frank
Value Fund (VALUX: news, chart, profile) has generated
a year-to-date return of 49 percent, beating the Standard
& Poor's 500 (SPX: news, chart, profile) by 31
percentage points, according to fund tracker
Morningstar.
The fund has also weathered the bear market of
2000-2002 better than most. On a three-year basis, Al
Frank has returned 8.4 percent, exceeding the S&P by
19.5 percentage points.
Buckingham tends to focus on companies with
generous dividends, low price-to-earnings ratios or
strong balance sheets - on the theory "cash is king".
And now that U.S. growth is accelerating, he's buying
stocks that are most sensitive to swings in the
economy.
For his top three picks, Buckingham likes International
Aluminum, Aetna and Keynote Systems.
International Aluminum (IAL: news, chart, profile), a
maker of aluminum and vinyl products used in
construction, is a beneficiary of the current low level of
interest rates and the recent dividend tax cut. That
makes its shares particularly attractive, especially with
the economy on the upswing, he said.
"The stock pays a quarterly dividend of 30 cents a
share, making the current yield in excess of 5 percent,"
Buckingham said. What's more, he noted, International
Aluminum "has a clean, long-term debt free balance
sheet." Shares closed up 18 cents to $21.77 on
Thursday.
Another undervalued stock is Aetna (AET: news, chart,
profile), one of the nation's largest suppliers of dental,
health and long-term care insurance. Buckingham noted
that the insurer earned $2.26 a share in 2002 and that it's
forecasting profit of $5.55 to $5.70 this year
"After enduring a hefty operating loss in 2001, Aetna is
in the midst of a major turnaround," he said. The
pending retirement of the Baby Boom generation,
meanwhile, offers a favorable demographic trend.
At its current stock price of $57.25, Aetna trades at a
price-to-earnings ratio of 10. "I think that companies
trading for less than 10 times earnings are excellent
investments," he said.
Buckingham also sticks to stocks with strong cash
reserves, such as Keynote Systems (KEYN: news, chart,
profile). Keynote offers testing and other services to
help companies improve the quality of their online
business.
Though not profitable, Keynote has posted six
consecutive quarters of positive cash flow from
operations, he said. And despite spending millions of
dollars to buy back its own stock, Keynote still has
around $159 million in cash on a debt-free balance sheet.
"This works out to $8.59 per share, yet the stock trades
for just north of $10," he said. On Thursday, shares of
Keynote closed 11 cents lower at $10.49. |
