Frank Ingarra, co-manager of the $153 million
Hennessy Focus 30 Fund
( HFTFX), says he's betting on
that might benefit during a
The Hennessy Focus 30 Fund, which is rated four stars by
, is up 2.4% this year, 1 percentage point better than the
S&P 500 Index
. The portfolio has lost 12% a year on average in each of the past three years, but has gained 4.2% a year in the past five years. The fund beat the benchmark in both periods. About 39% of the fund is invested in consumer-discretionary stocks such as
Ingarra shares his thoughts in today's
Fund Manager Five Spot
, where America's top
managers give their best stock picks in five fast-and-furious questions.
Are you a bull or a bear?
I am a bull. We might see a pullback in the short term because of the great recent performance, but the valuation levels for the indices are compelling to me for the long term. For example, we utilize the price-to sales ratio to determine value. Today, 30 stocks in the
Dow Jones Industrial Average
have a price-to-sales ratio of 0.75. In other words, you only pay 75 cents for a $1 of combined sales for the Dow 30 stocks. The five-year average for the price-to-sales ratio is $1.13. So, for the index to revert back to the five-year average, the index would have to go up over 50% from current levels.
Assuming the market stayed constant, sales of all 30 stocks in the index would have to decrease by over 33% to have the price-to-sales ratio reach the five-year average. We do not think that is likely. Sure, the markets are volatile, but the average investor would be wise to remember that it is not timing the market; it is time in the market.
What is your top stock pick?
Our favorite stock pick is AutoZone, which we currently own in our mid-cap focused Hennessy Focus 30 Fund. With Chrysler filing for bankruptcy protection,
having similar issues and the lack of credit available for customers to buy or lease a new car, existing cars will be on the road longer. This trend should benefit AutoZone, which is a specialty retailer and distributor of automotive replacement parts and accessories. They operate more than 3,900 stores in the United States and Puerto Rico.
What is your top "beneath the radar" or "sleeper" stock pick?
Another stock we like from our Hennessy Focus 30 Fund is
. They are a regional brokerage firm. With all of the turmoil surrounding the major brokerage firms, they have been successful in keeping their balance sheet clean and remaining out of the news. This could lead unhappy brokers from the major firms to consider moving to Stifel, since they cannot justify to their clients a move from one troubled firm to another. Since they are a relatively small player, this could significantly impact their earnings and positively affect the performance of the stock.
What is your favorite sector?
Our favorite sector is consumer discretionary. It is important to note that we do not like the entire sector, but we do we like the more defensive, lower-end names in this sector like
, AutoZone and Corinthian Colleges. Basically, the companies that benefit from customers trading down for value or that help educate people who may be unemployed.
What sector or stock would you avoid?
Two sectors that did not pass our Hennessy Focus 30 quantitative screen when we rebalanced in the fall were energy and telecommunication services. The Hennessy Focus 30 strategy requires stocks to have a market cap between $1 billion and $10 billion, a price-to-sales ratio below 1.5, improved annual earnings and positive three and six month stock price momentum.
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.