Amid an ailing stock market, individual investors and shareholders want to know what the best mutual funds are doing that their own funds are not. And for that matter, what are the best stocks to buy now?
After all, it is those stocks that are enabling a small circle of mutual funds to outperform the market.
So let's look under the hood of one of those outperforming funds. The $3.2 billion American Century Focused Large Cap Value Fund (ALVIX) is beating the broad market this year going into Wednesday, although only by posting a loss that's roughly one-fourth the size of the S&P 500's setback year to date: -5.13% vs. -19.22%, according to Morningstar Direct.
The fund is also down less than half as much as its direct peer group. U.S. large-cap value funds tracked by Morningstar Direct has lost 11.28% this year on average.
The fund is also down less than half as much as its benchmark. The Russell 1000 Value Index has lost 12.62% this year.
Best Stocks To Buy Now
Focused Large Cap Value Fund aims for a select group of what lead manager Brian Woglom calls undervalued high quality companies.
Woglom and his fellow managers generally hold around 40 stocks. To Woglom's team, those are the best stocks to buy now, at any given time.
A key part of what Woglom and fellow managers Phil Davidson, Philip Sundell, Adam Krenn, Kevin Toney and Michael Liss are trying to do is outperform over the long haul by keeping pace with market advances while losing less than the broad market in downturns. "We call it winning by not losing," Woglom said. And he adds: "We take advantage of drawdowns. We look for names with limited downside. We're looking for names with the best balance of risk and reward. We're not looking for names with the most upside potential."
For this fund, the best stocks to buy now "are usually stocks of companies where something has gone wrong, but it is fixable," Woglom said.
Energy Stocks This Fund Likes
Look at some recent moves. If you listen to many market pundits, you'd think the only stocks worth owning at the moment are energy names. Any energy names.
Yet for Woglom and his teammates, the best stocks to buy now are not just any energy names. The fund made key moves in March.
"We've taken advantage of dislocations in the market," Woglom said. "Chevron had done very well at the beginning of the war in Ukraine. But we thought the market underappreciated its exposure to that region, so we swapped out into Exxon Mobil. Exxon had underperformed Chevron (so it had more upside potential). We also added to TotalEnergies ADRs. That's a French integrated energy company, which was getting penalized due to its Russia exposure."
Woglom and his colleagues decided that the market was undervaluing TotalEnergies' assets outside Russia and the war zone. "They have projects in the U.S., off the coast of Africa and in the Middle East," said Woglom. Also, TotalEnergies has completed its work in Russia, "So unlike other companies, no impact on them for leaving the Russian oil sector," he added.
Best Stocks To Buy Now In Health Care
Health care is mostly a space for value investors. Johnson & Johnson was the fund's top holding as of March 31. For many investors, it's still one of the best stocks to buy now. "It's a high quality, well-diversified health-care name," Woglom said. "It's got a triple-A balance sheet."
Prescription drug making accounts for about half of Johnson & Johnson's revenues. No key products are about to lose patent protection, Woglom says. "So there's no worry about an impending big decline in earnings or a need for a large M&A," he said, referring to a costly merger or acquisition.
In medical technology, "they are the second largest med tech player behind Medtronic," Woglom said. And that space appears poised to rally as elective procedures rebound when Covid pandemic fears and supply-chain disruptions both ease.
Consumer products are JNJ's third main business line. "They announced they will spin it off in the next 18 to 24 months," Woglom said. "That offers opportunities to improve (the remaining business's) profitability."
Supplemental Or Core Fund?
Over the past 10 years, the fund's average annual return is 10.48% vs. 13.28% for the S&P 500 and a shade ahead of its large-cap value rivals, which average 10.47%.
Should you think of this fund just as a supplement to other diversified funds in your portfolio? Is it just a safe haven in stormy markets? Woglom sees it as a core fund for the long run. "We will outperform in more volatile markets," he said. "That's our MO (modus operandi) since this strategy began in 1999. We outperform over a full market cycle."
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and funds that outperform by feasting on the best stocks to buy now.
