Analyzing Al Frank Asset Management's Top New Conviction Buys and Sells

by: GuruFundPicks

Orange County, CA-based Investment Adviser Al Frank Asset Management, headed by Chief Investment Officer John Buckingham, manages over $500 million in two mutual funds and in separately managed accounts for individuals, corporations and pension plans using a value-based investment philosophy. Besides his role as CIO, Guru Buckingham is the editor of the Prudent Speculator, the #1 ranked, not adjusted for risk, investment letter for the past 15, 20 and 30 years according to The Hulbert Financial Digest. He has been profiled by financial media, including Forbes, CNNMoney, and MarketWatch.

Also, Al Frank’s longest-running flagship Mutual Fund, the Al Frank Dividend Value Investors, returned 8.64% over the last ten years versus 4.13% for the benchmark Russell 3000, and an even more impressive 10.64% since fund inception in 1998 versus comparable 4.65% for the Russell 3000. The fund holds a diversified portfolio of 250 positions, and is overweight Services and Basic Materials sectors, and it is under-weight the Energy sector. Furthermore, its portfolio turnover is between 25%-35%, implying an average holding period of three to four years. Further, 55% of its holdings are in large-caps, over 25% in mid-caps and the remaining 20% in small-cap equities.

The following summarizes the new picks and pans in the fund's latest reported 13-F filing for the March 2011 quarter:

  • Mosaic Company (NYSE:MOS) is a manufacturer of phosphate fertilizers, feed phosphate and potash fertilizers sold worldwide. Al Frank sold out its $5.4 million position in the company during the quarter. The position was initiated at the end of 2004 at prices in mid- to high-teens. It went as high as over $160 in mid-2008 and then dropped to the mid-$20s in late 2008, so the close-out of the fund's position does not carry much informative value as after all that volatility, it could have sold-out for many reasons that may have little to do with its conviction about the stock.
  • STMicroelectronics NV (NYSE:STM) is a Swiss manufacturer of ICs used in automotive products, computer peripherals, telecom systems, and consumer products. Al Frank bought $5.1 million worth initiating a new position in this company during the quarter, and this being most likely just an initial buy it is already among the largest positions in the fund's portfolio, and hence represents a high conviction buy.
  • CSX Corp. (NYSE:CSX) operates 21,000 mile rail system in 23 states, the District of Columbia and two Canadian provinces. Al Frank closed out its $4.6 million position in the company. The position was initiated in 2001, and with the stock trading at all-time highs its sell may just be regular profit-taking, since the stock has moved up five-fold from when the fund initiated its position.
  • Ingram Micro CLA (NYSE:IM) is a distributor of networking hardware and software, computer systems, and peripherals via 100 centers worldwide. Al Frank also initiated a new position in this company with a $4 million purchase, and with the stock trading near 10-year highs, this too can be considered to be a conviction buy.*---
  • Hudson City Bancorp Inc. (NASDAQ:HCBK) is a holding company for Hudson City Savings Bank operating via 135 branches in NJ, NY and CT. Al Frank added $3.6 million to its prior $1 million position in the company. The position was initiated at the end of 2009 at $12-14, which is much higher than current prices near $8, so given that Al Frank has already been wrong about this stock, its adding to the position carries no informative value.
  • Travelers Companies Inc. (NYSE:TRV) offers commercial and personal property and casualty insurance to business, government units and individuals. Al Frank sold out its $3.4 million position in the company that was initiated in 2004 at much lower levels in the low $30s, so selling out of its position carries less informative value.
  • Xyratex Ltd. (NASDAQ:XRTX) is an U.K. based provider of enterprise class data storage sub-systems and storage process technology. Al Frank initiated a new position with a $3.1 million purchase during the quarter. The stock has been weak and is trading near almost two-year lows and 60% below recent highs, so its buy at these levels and under weakness represents a conviction buy.
  • Norfolk Southern Corp. (NYSE:NSC) operates through Norfolk Southern Railway, a 20,000-mile railroad in 22 states and the District of Columbia. Al Frank added $2.9 million to its prior $3.7 million position in the company, and with the stock trading at all-time highs, up almost four-fold above the fund's initial buy in mid-2003, its additional investment in the company represents another high conviction buy by Al Frank.

In addition, the company sold out its position in Varian Semiconductor Equipment Corporation (NASDAQ:VSEA), but since the quarter-end VSEA has been acquired by Applied Materials Inc. (NASDAQ:AMAT), and hence this sell does not hold any informative value for the investor.

The following Table summarizes the fund's largest holdings that were mostly unchanged during the March 2011 quarter (including any Schedule 13D filings since the end of the quarter):

  • Marathon Oil Corp. (NYSE:MRO) is engaged in exploration, production, refining, transportation and marketing of oil and natural gas worldwide.
  • Freeport McMoran Copper and Gold Inc. (NYSE:FCX) is engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, and North and South America.
  • Stage Stores Inc. (NYSE:SSI) operates 786 family apparel stores in the U.S.
  • Eaton Corporation (NYSE:ETN) provides electrical power and control equipment, hydraulics systems, truck drive-train and aerospace pneumatic systems.
  • Andarko Petroleum Corp. (NYSE:APC) is engaged in oil and natural gas exploration and production in the U.S.
  • Walt Disney Company (NYSE:DIS) operates theme parks and resorts, produces filmed entertainment, and licenses, publishes and sells toys, and books.
  • Chesapeake Energy (NYSE:CHK) is engaged in the exploration and production of natural gas and crude oil properties throughout the U.S.

New or Increased or Decreased or Unchanged Position
Market Value at end of March 2011 Quarter
Change in Value from Prior Quarter
New Picks and Pans
Mosaic Co.
$ 0 million
$ 5.42 million
STMicroelectronics N V
New Position
$ 5.09 million
$ 5.09 million
Varian Semiconductor Equipment
$ 0 million
$ 4.79 million
CSX Corp.
$ 0 million
$ 4.56 million
Ingram Micro Inc.
New Position
$ 3.99 million
$ 3.99 million
Hudson City Bancorp
$ 4.57 million
$ 3.57 million
Travelers Companies Inc.
$ 0 million
$ 3.39 million
Xyratex Ltd.
New Position
$ 3.09 million
$ 3.09 million
Largest Holdings
Norfolk Southern Corp.
$ 6.63 million
$ 2.91 million
Marathon Oil Corp.
$ 7.95 million
$ 0.12 million
Freeport-McMoran Copper & Gold
$ 7 million
$ 0.18 million
Stage Stores Inc.
$ 6.87 million
$ 0.51 million
Eaton Corp.
$ 6.84 million
$ 0.13 million
Anadarko Pete Corp
$ 6.4 million
$ 0.59 million
Disney Walt Co.
$ 6.31 million
$ 0.11 million
Chesapeake Energy Corp.
$ 6.13 million
$ 0.09 million
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.