Hugh Johnson, Chief Investment Officer, Hugh Johnson Advisors picks (NASDAQ:CHKP)
Check Point Software (NASDAQ:CHKP) is being bought by Hugh Johnson, the Chief Investment Officer, Founder, Partner and a member of the Investment Strategy Committee at Hugh Johnson Advisors.
His work on the U.S. economy and financial markets guides the firm’s investment strategy. He joined First Albany Corporation in 1978 after serving as Executive Vice President of Hugh Johnson & Company, Inc. Mr. Johnson has more than 40 years of investment experience.
In this 3,411 word interview, exclusively in the Wall Street Transcript, Hugh Johnson advocates his philosophy and uses Check Point Software (NASDAQ:CHKP) as an example of this investing strategy.
“Basically, I would say we are a conservative manager of assets. We’re not trying to hit homeruns.
We’re not developing pooled assets or mutual funds. We manage individual accounts on a separate-account-by-separate-account, objective-by-objective basis.
We’re managing portfolios for individuals that tend to be in the high net worth, ultra-high net worth category. They tend to be individuals who have very, very different goals and objectives and financial needs.
We do a number of things or provide a variety of services for clients. We do manage their investment assets in most cases. But we also provide estate planning, tax planning, foundation management, as well as managing bill payments.
There are many services associated with a family office business. So it’s many services for individuals.
And then I should add that Hugh Johnson Advisors also specializes in managing assets or portfolios for non-profit organizations. So there is a broad range of investment services we provide.
It is always account by account, individual by individual, or a separate account business. We work really hard at it.
If there’s a philosophy on the investment side it is that we integrate the top down — the overall analysis, the world’s financial markets and world’s economy — with the structure of portfolios, to include asset allocation.
Additionally, there is the bottom-up component, which is picking individual securities. It is quite a diverse approach. But nevertheless, it seems to be working pretty well.”
The market run-up for stocks such as Check Point Software (NASDAQ:CHKP) has created uncertainty for Hugh Johnson’s investors:
“…Our clients are very, very concerned and worried. They’re also worried about something that’s a subcategory of what I just mentioned.
I think they’re all aware of the fact that the stock market has had a significant move to the upside since, say, March 23 of 2020. The rise has been about 70%.
Clients ask the question: Has it come too far too fast? Can we feel comfortable that the stock market has further to go or has it come too far too fast, and therefore is pricey or overvalued? Maybe we are even in a bubble?
And so I hear the words “mania” and “bubble” from our customers often. I think they’re all very, very concerned.
They’ve made lots of money in the stock market. They are asking us, what do they do to preserve it? How do they preserve gains particularly in an environment where it’s difficult to preserve profits or generate a positive return from the fixed-income markets with interest rates being so low?
So those are the kinds of questions we get. Believe me, people are very focused and interested in what’s going on.”
Hugh Johnson believes that this is all part of a cycle:
“I’m a student of cycles going back to 1890. There have been 25 cycles.
I’m not going to go through them all, obviously.
And there’s commonality among the cycles, cycles consisting of three parts: the stock market cycle, which is followed by an economic cycle, which is followed by an interest rate cycle.
And the key is to determine where you are in that cycle and we have developed methodologies to try to determine where we are in that three-part cycle.
And on the basis of that, we see that, first of all, the markets perform in very specific ways at the beginning, the middle, and the end of the cycle.
And if we can identify, by looking at the performance of the financial markets, where we are in that three-part cycle, then making the important decisions in a portfolio, such as asset allocation, sector allocation, doesn’t become easy, but it becomes certainly easier.
So I think that’s the starting point of everything we do.
And once we’ve identified or think we’ve identified where we are in the cycle, then comes the important process of sector allocation and picking individual stocks within each sector or the sectors we want to overweight and the sectors we want to underweight.
Of course, we try to set equity allocation. That’s the starting point. That is what is common to all clients. It’s made very specific for every client.
As you can imagine, some clients want to take considerable risk or they want a very meaningful percentage of their assets allocated to equities and in addition alternatives.”
This leads to the Check Point Software (NASDAQ:CHKP) pick:
“Nevertheless, we are in the early stages.
And if you’re in the early stages, you generally want to overweight the so-called economically sensitive sectors of the market, such as materials, consumer discretionary, communication services stocks, along with technology stocks, industrial stocks.
In that wide group of sectors, there’s a number of features you want to examine or be aware of. And you want to look at the kinds of things or themes that are developing.
An example is Check Point Software (NASDAQ:CHKP). It is a technology company. It’s performed very well.
It’s in the cybersecurity business or the security business. As you know, cybersecurity is receiving much attention these days. Check Point is one of the companies that’s been performing extremely well in that particular corner of the market.
When I look at companies like Check Point, I want to see that the company is in the right business and I want to see that the company is performing well.
And Check Point, although their growth rate has been somewhat slow — and in some ways disappointingly slow to some analysts — it nevertheless has been positive growth. That’s one thing I look at. We look at the general business.
And the second thing we want to look at is, of course, their financial statements, particularly their free cash flow, cash from operations, and the level of cash that they have on their balance sheet.
We want that to be solid and strong in all cases. It’s certainly solid and strong in the case of cash of Check Point. Good cash numbers, good balance sheet numbers and reasonably OK performance, and a good operating statement in a business, which is extremely important at this time.
Cybersecurity is getting a lot of attention and deservedly so. So that would be one company I would mention.”
Get all the top picks from Hugh Johnson by reading the entire 3,411 word interview, exclusively in the Wall Street Transcript.
Hugh Johnson, Chief Investment Officer & Founder
www.hjadvisors.com
email: info@hjadvisors.com
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