8 Stock Picks for the Next 3-5 Years From 97th Percentile Fund Manager
- In the past 3 years, Robert Stimpson has beaten 97% of his peers.
- Stimpson is co-CIO of Oak Associates Funds, which manages $1.4 billion in assets.
- He shares with Insider 8 stocks he likes for the next 3-5 years.
In charge of the Oak River Discovery Fund (RIVSX), according to Morningstar, Robert Stimpson has beaten 97% of his peers in the past three years and 95% in the past five years.
This year, his Live Oak Health Science Fund (LOGSX) over 97% of similar funds and over 93% over the past year.
But the standout performance isn’t because Stimpson is constantly changing his sails to benefit from any short-term wind direction, or to diversify his funds. For example, he has stayed away from energy companies despite their stellar performance this year and last because he believes oil prices will face long-term downward pressure due to U.S. political interests.
“We’re not afraid to expose sectors of the economy that we don’t think are good for long-term holdings,” said Stimpson, co-chief information officer and portfolio manager at Oak Associates Funds, which manages $1.4 billion in assets.
Rather, it comes from names that Stimpson has determined will benefit from longer-term macroeconomic trends, and names whose fundamentals appear to create favorable opportunities for 3-5 year returns.
But in addition, the 25-year market veteran who worked as a financial advisor at Merrill Lynch said he emphasizes quality when evaluating stocks to invest in. Quality stocks are those that generate strong and stable profits and have a high return on equity.
That’s because companies that generate huge profits are able to distribute money to investors through dividends or share buybacks, putting upward pressure on share prices.
Focusing on quality stocks is also important to his and his firm’s strategy, he said, because they prefer to concentrate bets on certain areas of the market.
“We have to have a very high-quality bias on the portfolio because we believe that the volatility of incremental risk increases has been exacerbated by concentrated portfolios,” Stimpson said. “So we do want more blue chips, more stable growth.”
In addition to having strong profit margins, Stimpson likes companies with strong earnings growth.
“We believe that driving earnings growth is one of the more important factors in creating shareholder value,” he said. “This approach puts us more on the ‘growth’ side of the market.”
8 stocks Stimpson is betting on
Two growth-leaning sectors in the market are technology and healthcare. Stimpson lists stocks he holds in his fund in each sector that meet the above criteria and that he believes have strong upside prospects over the next 3-5 years.
In healthcare, Stimpson said he particularly likes big biotechs because of their low prices relative to other growth areas.
The two big biotech stocks he’s betting on are Amgen (AMGN) and Gilead Sciences (gold plated).
“From our perspective, both are blue-chip stocks that are household names,” Stimpson said. “We’re looking at high-single-digit free cash flow yields for both companies.”
As for tech, Stimpson prefers enterprise tech companies to consumer-facing companies because he believes inflation is weighing on consumer demand, which has been boosted by pandemic stimulus over the past two-plus years. Enterprise tech companies will benefit from employees returning to the office, he said.
“We think the business world is getting back to normal, and as we get back to work, capex budgets within corporate IT will increase,” he said.
Two companies he likes in this space are Oracle (Oracle) and Cisco (CSCO).
He also likes semiconductor companies because he thinks they are oversold and undervalued. iShares Semiconductor ETF (SOXX) is down 36.5% year-to-date, while the tech-heavy Nasdaq Composite is down 27.8%. The industry has been hit by global supply chain disruptions, but Stimpson said he sees supply chain normalization in the future.
“Valuations have all been revised substantially, and we’re looking at 3-5 times sales across the industry,” he said.
The four semiconductor companies he likes include: Cirrus Logic (Cruise), Ambarella (MBA), KLA-Tencor (KLA)and Kulicke & Soffa Industries (KLIC).