Fund manager Jeff Muhlenkamp outperformed its index in both 2022 and 2023.
Rather than making massive shifts within his portfolio, Muhlenkamp stuck with his stocks.
Here are eight companies or market areas that Muhlenkamp is positive about.
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This year’s stock market is almost the polar opposite of 2022, but the results were roughly the same for standout fund manager Jeff Muhlenkamp.
Solid returns and unusually low volatility in US equities in 2023 are in striking contrast worst year for the S&P 500 since 2009. Surprisingly robust labor and housing data have given investors reason to believe that a recession might not come after all. A downturn is still conceivable, but no longer so certain as Muhlenkamp once warned.
“I would probably have to vote 50-50, maybe even 60-40 for the recession,” Muhlenkamp said in a recent interview with Business Insider. “But nine months ago I would have said 90:10 or 80:20.”
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Regardless of what’s been happening in the economy or the markets, the Muhlenkamp Fund (MUHLX), the investor’s namesake, has found a way to dominate. According to Morningstar, the fund has been owned for the past three years to the top one percentafter beating 95 percent of the peer group last year and 87 percent in 2023.
How Muhlenkamp beat his index – and eight stocks in which he now invests
As interest rates soared last year amid rising inflation, investors abandoned expensive, fast-growing technology stocks for value-oriented stocks. This momentum, combined with rising oil prices, resulted in a second consecutive record year for energy companies, and Muhlenkamp was well positioned to benefit.
Although energy stocks have since turned around and joined the sector with the worst performance in 2023, Muhlenkamp said he held on to the group while benefiting from the broad recovery in technology stocks.
Two of Muhlenkamp’s top 20 stocks, Apple (AAPL) and Microsoft (MSFT), are also among the market’s biggest gainers this year. The shares of these two mega-caps are up 39% and 36% respectively this year and are among the biggest winners of the burgeoning AI boom, according to Goldman Sachs, which is causing investor excitement.
However, its involvement in AI isn’t why Muhlenkamp is so excited about these tech titans. While he said the technology will be ubiquitous and likely to be a growth driver for Microsoft in particular, he cautioned that the company will need to squeeze money out of AI to meet its lofty expectations.
“The question is: How can you monetize that – and is that a lasting advantage?” Muhlenkamp said: “The first person to come out of the gate in a marathon is not necessarily the one who wins.”
Instead, the fund manager said he still sticks with Apple and Microsoft after holding them for a decade because of their ability to continue to grow by launching new products and services. Apple has transformed itself into a services company with the launch of Apple Music and Apple TV+, while launching gadgets like the Apple Watch, AirPods and Vision Pro, while Microsoft has reinvented itself by shifting its focus from software products like Microsoft Office to cloud computing shifted.
And while Muhlenkamp said both Apple and Microsoft are trading at expensive valuations, he doesn’t see that as a reason to sell them as they’re still designed for long-term success.
Two other technology companies mentioned by Muhlenkamp are the semiconductor companies Broadcom (AVGO) and Microchip (MCHP). These companies specialize in making chips for data centers and various electronic devices, respectively, but investors are excited about their involvement in AI.
Outside of technology, Muhlenkamp continues to find real estate and financial sector stocks, including certain regional banks, attractive.
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Homebuilder stocks bottomed last October as pessimism about the economy and the housing market peaked, Muhlenkamp said. But since then, monthly home sales per community have increased from about one to over three, the fund manager said. This suggests that the worst is over for the homebuilding industry, although high mortgage rates are hampering home sales.
“There’s something that’s going on in their sectors, in their businesses, that doesn’t jibe with the general idea that we’re entering or are in a recession,” Muhlenkamp said.
Regional bank stocks and other financial sector companies appear to be trading at cheap valuations after suffering significant losses year-to-date, Muhlenkamp said. Bank earnings would have suffered as the Yield curve inverted while interest rates have skyrocketed. But if the Federal Reserve doesn’t hike rates further, the group could bounce back.
Finally, Muhlenkamp advocated owning gold, which he trades through licensing companies. Rising geopolitical tensions combined with unrest surrounding the recent US debt ceiling drama have prompted central banks around the world to stock up on gold holdings, he noted. It does the same to hedge against the devaluation of fiat currencies, including the US dollar.
“What can’t the world‘s central banks print?” Muhlenkamp asked. “Well, they can’t print gold and oil.”
Read the original article in English here.