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Buckingham's Bets

09/02/2005 12:00 am EST


John Buckingham

Editor, The Prudent Speculator

With a time-tested strategy of finding value and growth opportunities, John Buckingham ranks among the very best. His Prudent Speculator is one of the top performing newsletters over the past two decades. Here, he highlights some of his current favorites.   

"I am absolutely still bullish on housing stocks. I think valuations in the housing sector are still very attractive, in terms of the large, well-capitalized builders. Keep in mind, that you have companies that build in 20 to 25 different states, so they are geographically diversified. Yes, you have Southern California, and the condo market in Florida, and maybe parts of New York and DC that are in what we could call a bubble. But the builders don’t just build in one market.

"In addition, we also want to keep in mind that while some may believe there is a a bubble in housing prices, we would not say the same for housing stock prices. Indeed, many of the homebuilding stocks are trading at the same multiple of earnings as they were six years ago. Granted, the stocks have gone up 800% because earnings have gone up 800%. I would continue to be buying D.H. Horton (DHI NYSE) or Centex (CTX NYSE). I own both personally.

"D.H. Horton, for example, has a p/e ratio on a going-forward basis of just 7. Yet it has grown sales and earnings in every one of the last 27 years. I think D.R. Horton will continue to grow over the next five years, even if interest rates rise from current levels. Of course, interest rates are at historic lows. And yes, we’ve had ten Fed rate increases. But the ten-year Treasury was recently at 4.25%. Homebuilders like Horton and Centex offer excellent value in a diversified portfolio.

"Meanwhile, oil tanker companies also offer value. Tsakos Energy (TNP NYSE) yields 5% and is trading at a single digit multiple. OMI Corp. (OMM NYSE) trades at about 5.5 times earnings. Yes, earnings are down this year from last, but gee, instead of making $2.88 last year they may make $2.81 this year. And you get a 2% yield on OMI. I like dividend paying stocks. But I like to buy them when they are undervalued. And the tanker sector now offers opportunity.

"Among more speculative stocks, I have one tech company that is yielding 5.5%.  Traffix (TRFX NASDAQ) is an online database marketing firm, operating online dating and lottery sites. It’s been a very lucrative business. The company has been very profitable in 24 out of the last 26 quarters. The balance sheet has over $2 a share in cash. They are cash flow positive. Overall, this is the type of technology stock I like to invest in, with cash and a high yield. This stock meets the criteria that has been our recipe for success over the last 28 years."

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