Prudent Speculator Bullish on Housing Stocks, GM

John Buckingham edits the Prudent Speculator newsletter and the Al Frank mutual funds. He's profiled in this article from the Orange County Register:

Buckingham's been into building stocks since 1998 – and isn't budging. For example, he bought D.R. Horton when it was $3 almost a decade ago, saw it rise to just above $40 only to get sliced in half.

His newsletter currently recommends 18 different builders, as part of a broadly diversified portfolio. His funds are 9 percent invested with builders.

Buckingham thinks building stocks get whipsawed because investors still mistakenly think of the business as a bunch of corporate cowboys making wild bets on raw land. This generation of builders matured their practices into a better-run, better-financed craft. Buckingham says the industry has the financial muscle to ride out the current choppy waters.

It's a downturn that Buckingham insists is nowhere as bad as the press clippings suggest.

I don't own any homebuilders -- that's not a sector call. I just don't own any.

I do, however, own one stock Buckingham likes. Read on:

Buckingham notes a favorite holding – a company that's been the top performer among the Dow Jones 30 index in 2006. This company isn't a tech giant or entertainment wizard. Rather, it's been maligned on Wall Street and in the media as a financial disaster waiting to happen.

The hot stock? General Motors, up 53 percent in '06.

"We sift out the emotion," Buckingham says.

Value investing, which Buckingham practices, is often about testing one's stomach lining. This work means doing all the same research as other investors do – then frequently placing your bets on companies that all those other investors found distasteful.

I don't know if Buckingham is right about housing stocks. Or GM for that matter. But the article writer nails it about value investing testing the stomach lining.

Comments

[C. Maoxian]

I wonder what his cost basis is in GM? Was he "sifting out the emotion" at $38 or $28 or $18? ;-)

[John]

CM: Ha! Excellent point. I wish the article said. I'm sure subscribers to his newsletter or shareholdes in his funds would know.

BTW, I've never subscribed to the Prudent Speculator letter or invested in the Al Frank funds. Mark Hulbert used to give the letter high marks for long-term performance, as you probably know. But I don't know if there's been any drop-off in performance since Al Frank died.