Bloomberg Markets: Buckingham on ‘Surprising’ Market


January 30, 2017

Bloomberg Radio 01/12/2017

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Announcer: Global business news 24 hours a day at Bloomberg.com, the RadioPlus mobile app, and on your radio. This is a Bloomberg business flash.

Charlie Palette: From Bloomberg World headquarters I’m Charlie Palette. Now the S&P, NASDAQ are all declining we are well off our session lows. At one point today we did have the Dow Jones Industrial average falling 183 points, now lower by 58, a drop right now of three tenths of one percent. The S&P is down for a drop of two tenths of one percent. NASDAQ is down 19, a drop of three tenths of one percent. Tenure up five, 30 seconds yield 2.35 percent. Gold down $1.20. The ounce little change, down one tenth of one percent to 11.95 was back above $1,200 earlier today. Oil, West Texas Intermediate, 53.06 for a barrel of WTI, a gain right now of one and a half percent. I’m Charlie Palette, that’s a Bloomberg business flash.

Female Speaker: Thank you so much Charlie Palette. You are listening to Bloomberg Markets right here on Bloomberg Radio.

Song: Money makes the world go around, the world go around, the world go around. Money makes the world go around…

Female Speaker: Yes indeed it does. And investors trying to make sense of what will make the markets go around in 2017. John Buckingham is Chief Investment Officer over at Al Frank Asset Management, $600 million in assets under management. He’s also Editor of the top-ranked Prudent Speculator Newsletter, ranked by the Hulbert Financial Digest. John joins us on the phone from Laguna Beach, California. Hi John. Good to be talking with you again. I want to talk specific names with you. But when you look at this market environment what do you see?

John Buckingham: Well frankly I’m a little surprised that stocks have held up as well as they have so far in 2017. I thought we might see a sell-off given some pent-up tax gain taking that might have happened. And obviously we had a substantial rally since election in November of last year. So, pleasantly surprised that stocks have performed as well as they have so far this year. We do have a little bit of cash in our portfolio[1], so we kind of were hoping that we might have a little bit of a downturn to put some of that money to work. But when you’re 96 percent invested you’re not going to complain about stocks going up.

Female Speaker: No. Do you anticipate that they will continue to go up?

John Buckingham: Well, I do. We’re long-term oriented. We’ve been, I’ve been at this now for 30 years. It’s my 30th anniversary with The Prudent Speculator, and as we like to say, we’ve never had a market wide sell signal in our, in our history, and yet our performance leads the pack. So it’s impossible to time the market, so [we believe] investors should certainly be focused on buying good companies, and have the intention to hold them for the long term. But with that as a backdrop, I’m still optimistic about what will transpire in 2017, given that the economy seems to be on the mend, given that equity valuations are not unreasonable, given where we are on the interest rate spectrum. Frankly, people are still putting money into bonds, and not having a whole lot of interest in stocks, and that’s a positive in my mind in terms of contrarian thinking. And also there’s plenty of fuel in my mind, as well, for stocks to gain from asset reallocation as investors eventually start to realize that there’s not a whole lot of dollars that they’re going to make investing in bonds going forward, with the Fed likely to raise interest rates down the road.

Female Speaker: And there are a couple of names. You know, one I want to key in on that you’re interested in at this point, and I’m assuming that you’re suggesting ownership, or you have ownership of, and that includes Nike – ticker of course NKE. It’s roughly up about three percent so far this year. It took a beating, in 2016 it was down almost 20 percent, you know versus something like an Adidas. If you look at the ADRs here in the United States, they are up 62 percent in 2016. We know the story. It’s like all of a sudden Adidas couldn’t do kind of anything wrong. People were liking, consumers liked the product. And maybe Nike, I don’t know, getting a little stale, or, or what. But what do you see this as, a little bit of a value play here?

John Buckingham: Right. And the picks that I like, you know, are stocks that, generally speaking, haven’t done well recently. And that’s why we like them because now they’re, they’re marked down, they’re on sale, that’s the principle behind value investing. But Nike is a super high quality name, a, you know, fantastic balance sheet, we believe an extremely well-run company, tremendous brand, one of the best brands in the world. And those things you mentioned about Adidas doing nothing wrong, those things go in cycles. Steph, Steph Curry at Under Armour was the “bee’s knees” as I like to say, and yet Lebron James of Nike beat him in the, the championship last year. And so Nike has a fantastic stable of athletes, and will continue to have that, and I think will continue to produce stellar profits as we go forward. And right now you’re in a little bit of a wall in terms of getting those profits at a discount.

Female Speaker: What about something like Amgen, which you’ve also been looking at. You know we’ve been looking at the entire kind of healthcare space, and the pharmaceutical spectrum if you will, from the, you know, well-established drug companies, to, you know, the biotech community. I think everybody is kind of waiting to see what kind of pressure we get from a Trump administration in terms of drug pricing, negotiating with the government on drug prices, and what, what that means for some of the healthcare names. Why does Amgen stand out for you?

John Buckingham: Well, we like the healthcare sector in general, for some of the reasons you just mentioned,  the stocks have been under pressure. And I’ve been at this a long time, I have a few gray hairs, and I remember the ‘93/‘94 Clinton healthcare scare. And that created tremendous opportunity as the stocks sold off in anticipation of what might come in terms of pricing, and controls, and regulation. And, and in that environment, not a whole lot came, and the stock prices accelerated to the upside shortly thereafter. Not suggesting it’s much ado about nothing this go around, and certainly Trump killed the stocks yesterday. But I think Amgen trading now at 13 times earnings, with a three percent dividend yield, and a fantastic balance sheet, and a stable of wonderful products, and wonderful products in the pipeline. I think that is a tremendous opportunity for those that can look past what may be a turbulent time here in the short run. You know we believe the time to buy it is when everybody else is selling it, and especially when you’re buying quality goods marked down.

Female Speaker: All right. Well, nice to talk a couple of names with you, kick them around. John, thank you. John Buckingham. He’s Chief Investment Officer at Al Frank Asset Management, $600 million in assets under management on the phone from Laguna Beach, California. This is Bloomberg.

 

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[1] TPS Portfolio

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