NEW YORK ( TheStreet) -- Momentum and yield-rich stocks have led the market's charge so far this year, but investors will soon see a return to fundamentals, said Brian Frank, portfolio manager for the Frank Value Fund (FRNKX). The mid-cap blend fund, which garners three stars from fund-rater Morningstar, has returned 6.5% year to date.
Welcome to TheStreet's Fund Manager Five Spot, where top fund managers give their best stock picks and views on the market in a five-question format.
What is your view of the economy?
Frank: We see the economy bumping along as a whole, but some portions are doing far better than others. In our view, that makes it a great time to be a stock-picker. We are finding ideas that are benefiting from the pockets of growth in the world. For example, we have been very active in sectors like consumer discretionary in emerging markets, U.S. health care, and Internet advertising which are all growing faster than the global GDP.What is your top stock pick? Frank: My personal favorite in the Frank Value Fund portfolio is RPX Corp (RPXC). We've all heard about the patent trolls taking on the big companies, and RPXC is a one-of-a-kind play on the booming patent industry. This $500 million company is the peacemaker. They are signing long-term, stable cash-flow contracts with large companies, and using the cash flow to purchase patents and settle cases with the trolls. The only loser in this process are lawyers, which, for some people, may not be a bad thing. The big companies avoid litigation and get access to RPX's growing patent portfolio, and the trolls deal with a single payer and settle cases out-of-court for faster payments and lower legal fees. RPXC fits our criteria of extremely low valuation, high returns on capital, and steady future cash flows. What is your top "sleeper" or "under the radar" stock pick? Frank: I believe Amerisource Bergen (ABC) is the greatest sleeper of all-time. This wholesale drug-delivery company has razor-thin margins and slow growth, but the shareholders are better treated than guests at a five-star hotel. ABC's management pays a modest dividend, and consistently buys back a material amount of stock while avoiding empire-building acquisitions. In addition to being shareholder friendly, this company trades near its historical valuation lows and benefits as the pharmaceutical industry goes generic. Generic drugs produce higher margins for ABC.
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