Long-Term Partner

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This fund is unlikely to replicate last year's outsized gains in the near term, but prospective investors shouldn't discount this savvy manager's ability to identify and profit from undervalued stocks--especially over the long haul.

Given the vicissitudes of the last few years, it's no surprise that some investors might emerge from their shell-shock with warped sensibilities; the irrational exuberance that characterizes extreme market movements--whether to the upside or downside--often causes investors to lose sight of fundamentals.

For mutual fund investors, danger lurks in chasing near-term returns. Over the past two years, the ebb and flow of the proverbial tide has alternately grounded and raised all ships. But a fund that did well during broader market rallies or downturns won't necessarily outperform when stock selection again separates the losers from the winners.

Although Neuberger Berman Partners (NPRTX) suffered a staggering 52 percent loss in 2008 and posted a 56.1 percent gain the following year, manager S. Basu Mullick's commitment to value investing should continue to pay off in the new normal.

It's hard to argue with management's strategy of investing in well-managed companies that boast strong balance sheets and significant competitive advantages--especially when the firms' shares trade at historically low valuations or fail to reflect long-term growth prospects. Accordingly, Mullick avoids stocks whose price-to-earnings ratios exceed the industry average and often holds positions as long as they offer long-term upside.

Over the past two years, Mullick's bullish stance on energy and materials has been both a blessing and a curse, though these investments should reward the fund over the long haul.

The thesis is simple: As urbanization and economic growth in emerging markets increases demand for vital resources, companies leveraged to these structural trends will reap the benefits. At the end of 2009, materials names accounted for 21 percent of the fund's investable assets, while energy stocks represented 18 percent of the portfolio.

In particular, Mullick favors companies that offer exposure to the next frontiers of oil exploration and production--for example, Brazilian energy giant Petrobras ( PBR ), which boasts huge reserves and extensive experience operating deepwater fields, and Canadian Natural Resources ( CNQ ), which continues to ramp up its oil sands operations and plans to expand production through a slate of heavy oil projects. Offshore driller Noble Corp ( NE ) trades at historically low valuations and likewise offers exposure to this trend. As the hunt for new oil supply shifts to hard-to-produce reserves, these names should benefit.

On the materials side, Mullick remains a believer in TECK Resources ( TCK ), a Canadian mining outfit that produces copper, lead, zinc and metallurgical coal. A position in Freeport-McMoran Copper & Gold ( FCX ), the world's largest publicly traded copper miner, has also done well.

Although financial services names have rallied somewhat from the lows of March 2008, valuations remain undemanding thanks to regulatory uncertainties and credit quality issues. That being said, normalized earnings for the nation's largest financial institutions are a tantalizing prospect; by Mullick's estimation, this downtrodden group offers considerable opportunity. Bank of America (BAC) remains the fund's biggest position, while JP Morgan Chase (JPM) and Wells Fargo & Company (WFC) also appear in the portfolio. Mullick also likes asset management firm Invesco (IVZ), which stands to benefit from its acquisition of Morgan Stanley's (MS) retail fund operations.

Taken together, financial services, energy and materials positions account for 62 percent of the fund's investable assets. Prospective investors should be aware that Mullick's propensity for sector concentration can lead to near-term volatility. That being said, management's value-oriented approach to stock selection and strong selling discipline provide a degree of downside protection under normal circumstances.

And Mullick's bets outside of the fund's three biggest sectors demonstrate his commitment to uncovering value in all corners of the market. Retailers Macy's (M) and J.C. Penney

(JCP) face near-term challenges from weaker consumer spending but will survive and should benefit from consolidation within the industry. Meanwhile, credit rating firm Moody's Corp (MCO) and financial market and educational publishing giant McGraw-Hill Companies (MHP), which owns Standard & Poor's, boast industry-leading positions and their credit ratings services underpin key financial regulations.

With a focus on buying undervalued stocks that offer attractive long-term growth prospects, Neuberger Berman Partners is a solid choice for younger investors.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Article Republished with permission from <a href="http://www.KCIinvesting.com" rel="nofollow">www.KCIinvesting.com</a> and <a href="http://www.rukeyser.com" rel="nofollow">www.rukeyser.com</a>


This article appears in: Investing , Stocks

Referenced Stocks: CNQ , FCX , NE , PBR , TCK

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