By Matt Andrejczak, MarketWatch
SAN FRANCISCO (MarketWatch) -- Value-stock investor Bill Smead looks to his own house as a reason to own Home Depot shares.
The repair-tab is estimated to run into the tens of thousands of dollars for his 25-year home in the Seattle, Wash. area. Smead thinks others are in the same position.
He believes people postponed home repairs when the economy tanked. But nowadays families have a better grasp of their budgets and have tightened spending. Since they aren't buying new homes, money will be spent on fixing up existing residences.
"We see a lot of pent up demand," Smead said of home repairs, something that should boost sales at Home Depot (NYSE:HD) until housing-starts improve.
The manager of Smead Value Fund (MFD:SMVLX) runs a portfolio of
Value Investing for the Next Decade
Long-duration investing is about finding well-established companies to buy and hold for the next 10 years, according to fund manager Bill Smead, who favors pharmaceutical, housing and equity-fund plays. Matt Andrejczak reports.
32 companies. Smead prefers large companies that have built high barriers to competition. Moreover, he wants to own shares of companies that can be held 10 years, and which meet an economic need and generate strong free cash flow.
Smead Value is up 6.5% so far this year, landing in the top 10% of its class according to investment researcher Morningstar Inc. The portfolio is up more than 56% over the past 12 months, among the upper 25% of its group.
Merck
In addition to Home Depot, Smead also favors pharmaceutical provider Merck Co. Inc. (NYSE:MRK) .
On a price-to-earnings basis, the stock is trading at its lowest level relative to the Standard & Poor's 500-stock index (SNC:SPX) in more than three decades, Smead said. "So effectively you're buying whatever future scientific successes they have in health sciences for nothing," he said.
Merck, he argues, should see increasing demand from poorer countries that are building hospitals and clinics, while baby-boomers will boost prescription pill demand in richer countries. Regarding the year-long debate over heath care reform, Smead thinks the effect of the legislation is priced into Merck's stock already.
On Monday, Merck shares rose 0.6% to $38.30.
Franklin Resources
From home ownership to health care to retirement investing, Smead's favorite stocks mirror people's lifestyle and life cycle.
Accordingly, if the stock market continues to rebound, Smead looks for mutual-fund giant Franklin Resources Inc. (NYSE:BEN) to be a big beneficiary as U.S. households pour more money into stock mutual funds as the economy improves.
Equity funds carry higher fees than bond funds, Smead pointed out. Bond funds have been overwhelmingly in favor with investors over the past couple of years, but Franklin has a broad lineup of bond funds, he said.
Shares of Franklin Resources added 1% on Monday to $111.42.
