Debt-Ceiling Standoff Awakens Value Investors

BOSTON ( TheStreet) -- Investors are showing disapproval of the debt-ceiling drama in Washington by pushing down the benchmark S&P 500 Index for the third straight month.

But some value investors are making the most of the 4% drop in stocks this week by snapping up companies they've been watching for a pullback.

Jason Clark, portfolio manager at value-investment firm Al Frank Asset Management in Aliso Viejo, Calif., added to his favorite companies as well as new positions. With a long-term orientation and a contrarian investment approach, Clark is using uncertainty from the debt-limit debate in Washington to his advantage.

Clark and his firm view as solid value picks Wal-Mart ( WMT), Disney ( DIS), Chesapeake Oil ( CHK) and Cooper Tire & Rubber ( CTB), among others.

"I would not say we are happy with the mess that is going on in Washington. That said, we would much rather endure some short-term discomfort for some better long-term solutions," Clark says. "As we are long-term investors in individual companies that may or may not be linked to the mess in Washington, we would look to take advantage of moves down that might become more like major down-swings because of the fear multiplier."

Clark says his firm usually invests all its money, but lately he's kept higher levels of cash as the stock market climbed throughout the year. "Historically, we've maxed out at 2% cash. Now, we're between 4% and 7%, which is low but still a lot more than usual," Clark says. "We've got the dry powder."

Designed for long-term-oriented investors, the Al Frank Fund ( VALUX) has total assets of about $104 million and more than 110 stock holdings. Most of the fund was devoted to electronic technology and finance as of June 30. Some of the fund's top holdings are Marathon Oil ( MRO), McKesson ( MCK), and Norfolk Southern ( NSC), according to the latest fact sheet.

Since it was started in January 1998, the Al Frank Fund has had an annualized return of about 10.2%, beating the 4.6% gain of the Russell 3000, which the fund uses as a barometer of the broad stock market.

With the markets in flux, European debt woes continuing and plenty of uncertainty regarding the U.S. debt limit and a possible downgrade of the coveted triple-A rating by credit-ratings agencies, Al Frank Asset Management's value approach with expansive diversification is an investment strategy for investors unsure of which direction to take. Clark says now the focus has turned to dividend-paying stocks.

"We are a bottoms-up investment shop, but we do have a top-down overlay," Clark says. "With the uncertainty in Washington, you're seeing people already looking at dividend payers. There could be additional demand for them, especially with what we're seeing with yields in the bond market, fixed-income market and money markets."

Clark offers 10 stocks that Al Frank Asset Management views as good value stock picks currently, arranged in order of potential upside based on the firm's target prices. The selections are detailed on the following pages.

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