Stock Tips, Tech Value Investing, Picks From Fund Manager John Flynn

• John Flynn’s fund has returned 72% to investors over the last year, according to Morningstar.
• That roughly doubles the performance of the S&P 500 index over the same period.
• Flynn told Insider about the “pain” he likes to invest in, including where he finds value in tech.

It’s easy to make a case for a good stock that’s worth more than the public thinks. It’s tougher, even if it’s more honest, to admit that a company is cheap because it’s having real trouble.

“The only way you really can get a good business at a substantial discount is something has to be wrong,” John Flynn of Pzena Investment Management told Insider in an exclusive interview. “You have to go to where the pain is.”

Over the last year he’s been especially successful at turning that pain into gains. According to Morningstar, Flynn’s John Hancock Classic Value Fund has returned 72% to investors over the past 12 months, which doubles the return of the S&P 500. Kiplinger data shows that only two large-cap funds performed better over the year ended September 30.

That was a dramatic end to a sluggish period for the fund, which had slightly trailed its benchmark and competing funds over the course of the past decade, according to Morningstar data. Flynn says that according to earnings metrics cheap stocks remain extremely cheap, and he thinks that will be the basis of a long comeback.

“Once you’re looking out a few years, you’re looking at low double-digit earnings yields for the portfolio. We think that still is a very attractive investment profile against the opportunity sets in the marketplace today,” he said.

Flynn explains that he and other fund managers at his firm, which managed $50.8 billion in wealth at the end of the third quarter, start by looking at the cheapest stocks based on metrics like price to earnings. From there, they decide which ones will overcome their problems and which ones won’t.

“Then we systematically research the issues and make a decision whether the issues facing the company are temporary or permanent,” he said “In the cases where we deem them to be temporary and the valuation remains compelling, those are the candidates to go into the portfolio.”

One of the most pain-riddled companies in recent market history is General Electric, which bounced from crisis to crisis as it dealt with fears about its financial liabilities, cut its dividend, slashed jobs, sold off numerous businesses, lost its longtime CEO, and went through an ill-fated combination with Baker Hughes, among other problems.

“We’ve been around 25 years, never was GE hitting our screens as a stock,” he said, adding that the portfolio is somewhat heavy on industrial companies right now because of the combination of a near-industrial

recession

in the US…