NEW YORK (TheStreet) -- Wall Street doesn't like uncertainty, which is why it's a good time to own value stocks that pay solid dividends, says John Buckingham, manager of the Al Frank Dividend Value Fund (VALEX) .
The mutual fund, which garners three of five stars from
, has returned 23% over the past year, better than 57% of its peers in the large-cap value category. During the past five years, the fund has risen an average of 1.3% annually, better than half of its Morningstar rivals.
Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
Are you a bull or a bear?
While I am optimistic about the long-term prospects of our broadly diversified portfolios of undervalued stocks, especially given the incredibly low-interest-rate environment in which we operate, I am a bit more cautious in the near-term. Equity valuations are reasonable, but stocks are no longer universally undervalued, meaning selection is key. Volatility has begun to creep back into the markets and investor angst is again on the rise as concerns about the European sovereign-debt crisis, the domestic unemployment rate, the ongoing housing malaise and the sparring in Washington over the debt ceiling add to the consternation.
Admittedly, as a contrarian, I actually prefer investor sentiment at the lower end of the spectrum, as history has shown that stocks often perform better over the ensuing 12 months when pessimism is high. That said, with uncertainty running high, investors should place greater emphasis on undervalued dividend-paying stocks. Dividend income comprises a significant portion of long-term equity gains and dividend payers have often proved less volatile than non-dividend-paying stocks.
What is your favorite sector?
While generally we do not make big sector bets, these days we are fond of technology, energy and materials. Technology has been a relative underperformer during 2011, only outpacing financials, and we think there are attractively valued long-term opportunities in the space as balance sheets are very strong, growth prospects are above average and valuations are well below their historical norms. In addition, considering the long-term global trends of industrialization and urbanization within emerging economies, coupled with the potential for longer-term supply constraints, stocks in the energy and materials sectors offer robust reward potential.
What is your favorite stock?
Given that we favor broad portfolio diversification with more than 90 stocks held in the Al Frank Dividend Value Fund, it is difficult to choose just one favorite as we like names like
Cooper Tire & Rubber
Archer Daniels Midland
. We also would highlight
Freeport McMoran Copper & Gold
as our top picks as each sports a generous yield while trading for very low multiples of earnings and offering solid long-term growth prospects.
What is your top under-the-radar stock?
We've recently initiated a position in tiny
( DDIC), a manufacturer of printed circuit boards, or PCBs. The company has a diversified customer base of over 1,000 electronics companies across a variety of industries, but growth within the U.S. military segment is a management focus, as military-equipment makers need PCB work to be done onshore. Normally, we'd shy away from a government-heavy electronics business, but the positioning seems perhaps more likely to survive the ongoing rationalization of American defense spending. Recently, executives disclosed that the company's military/aerospace bookings grew by 17% and said that any potential government budget cuts would have minimal impact as most of DDi's work supports newer, less-likely-to-be-cut programs. We like that the company has been consistently profitable and has a solid balance sheet that sports over $1 per share of cash. A forward P/E ratio of 8 and a dividend yield in the 4% range add to the attractiveness.
What stock or sector would you avoid?
While there are some good long-term opportunities in financials, we have been maintaining a fairly significant underweight position to the sector relative to our benchmark, the
index. Given the continued morphing of regulations and capitalization requirements, the eurozone sovereign debt crisis, the state of the domestic housing market and the difficult labor picture, investors should be very selective in their commitments to this highly volatile sector.
-- Reported by Gregg Greenberg in New York.
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