NEW YORK (TheStreet) -- To be perfectly Frank, the market is pricey.
"The market has been running ahead of earnings all year and looks quite expensive going into 2014," says Brian Frank, portfolio manager for the Frank Value Fund (FNKCX) - Get Report. The S&P 500, which started 2013 with a trailing 12 month price-to-earnings ratio of 13.5, now sports a 17 multiple, well above the historical average P/E of around 14.5.
Frank's fund is up 39% in this wildly bullish year, a full 9 percentage points better than the benchmark S&P.
Despite his view that stocks in general are priced beyond perfection, however, Frank does have his eye on a few laggards he believes will outperform over the next few years.
"Performant Financial (PFMT) - Get Report is one of the cheapest stocks in the market due to renewal uncertainty surrounding their two government contracts, student loan collections, and Medicare fraud investigation," says Frank. "Even if they lose one of these contracts, it is still cheap given the growth demographics in either contract."
Performant is barely up 5% in 2013, leaving it far in the dust of better known names and especially huge internet outperformers like Facebook (FB) - Get Report and Twitter (TWTR) - Get Report. Still, Frank says the stock will benefit going forward because student loans are expanding rapidly and rising interest rates means more defaults even if students lock in rates. He adds that the company's Medicare Fraud is a relatively new program and given all the spending pressure on Medicare, a program that puts money back into the trust "is likely to continue".
"They have no significant competitor in liquidations," says Frank. "Their network effect is very powerful so when revenue growth comes back, the company's earnings will grow even faster."
"There is a bear market in retailers right now which makes for a fertile ground for investing, says Frank. "We like Vera because of its cheap price and growth prospects, and as for Vitamin Shoppe, it has a dedicated customer base that grows as the population ages."
--- Written by Gregg Greenberg
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