A recession is coming. These are the stocks to squat in.

Eli Salzmann loves nothing more than to find a company that is “a dog of a stock with no momentum” but on the cusp of better days. At its core, that is what value investing is all about. Over the course of his 36-year career, Salzmann has proven that he has a knack for buying undervalued stocks shunned by the market, delivering great returns along the way.

Salzmann is General Manager at Neuberger Berman and Senior Portfolio Manager of the $10 Billion

Neuberger Berman Large Cap Value

fund (ticker: NBPIX), along with fellow portfolio manager David Levine. At the end of July, the fund fell 5.67% for the year, less than the

Russell 1000 Value Indices

7.08% drop. Over the three-year period, the fund is up 14.55%, beating 98% of its peers. Over five and ten year periods, it has returned 12.80% and 13.51% respectively, outperforming 99% of its competitors.

Sure, just because a stock is cheap doesn’t mean Salzmann is buying. There must be a catalyst that can improve the fortunes of the company. “Buying a cheap stock without a catalyst is called a fall in value,” he says. “You have to buy a company that is making lower than normal returns, that has a catalyst or a tipping point, something that is going to change it and bring revenues from below normal back to normal or even above normal.” The catalyst can be anything from the launch of a new product to a change in management.

In a recent conversation with Barron’s, Salzmann discussed where he finds value today and how investors should defensively position their portfolios for an looming US recession. An edited version of our conversation follows.

Barron’s: What was the first value stock you bought?

Eli Salzman:


[T], in 1997. Mike Armstrong ran the company and the stock was very out of favour. And luckily that went well. I bought it for $33 [a share], and I sold it in the top $70s a year later. For AT&T, that’s a very big step.

What are you looking for in a stock?

There must be a catalyst. And in addition to looking for companies with lower than normal profits, we also look for sectors, subsectors and industries that have not been given capital and in turn no capacity.

Exxon Mobil

[XOM] is your top spot and is up more than 50% this year. Will it go even higher?

Absolute. Energy is a perfect example of a sector that lacks capital and capacity, and Exxon is one of our favorite stocks in this sector. Some of the capacity has returned. The number of rigs peaked in 2014 at about 1,600 rigs, then fell to 300 in 2016, then peaked again just below 900 at the end of 2018, reached a low of 172 in 2020 and is now back just above 600. why we focus on capital capacity is because when capacity becomes available it is always a good thing for an industry. We aggressively bought Exxon in the 1930s and 40s. Today it is trading around $94 per share.

What was the catalyst for Exxon?

One of the catalysts we look for is when a company thinks it’s a growth company and it isn’t, and they finally wake up and realize they’re not a growth company and need to start acting like a value company. Growth companies are companies that continuously reinvest in themselves. If you’re really a growth company and you can really get better returns by investing in yourself, then you definitely should, but it’s not our kind of stock, and it probably won’t be against our valuation.

Exxon was a very badly run company for many years, believing they were more growth than value, and they started waking up a year and a half to two years ago. Twenty years ago, Exxon was considered one of the best stocks, and every investor wanted Exxon or…

General Electric

[GE] or Pfizer [PFE]. But it was a massive underperformer. Management realized their strategy just didn’t make sense, and they started limiting capex [capital expenditure]. They started returning money to shareholders. They started to get rid of non-core assets. And suddenly we noticed a big behavioral difference in management. It was partially powered by the proxy voice [to add new members to Exxon’s board] that happened because shareholders were also angry. But in a nutshell, they woke up. And that was an important catalyst.

What other energy companies do you have?


[COP] and


[CVX]. ConocoPhillips is one of the most capital-disciplined energy companies and delivers consistent returns to shareholders, while Chevron has a strong balance sheet and a massive buyback program.


is another major holding company. You are a fan of the stock.

Pfizer is a company that has truly transformed itself. It has removed many non-core assets. Like Exxon, it has been a massive underperformer for the past 20 years. We don’t buy companies just because they’ve underperformed for 20 years; we had a catalyst: Covid. Pfizer is at the heart of Covid, which will be here for many years to come. Without a doubt, Pfizer is at the forefront of both reputation and research into Covid, and that’s actually a real growth lever for this company for years to come.

We have great confidence in Pfizer. It meets the criteria of a company being a dog of a stock with no momentum. And now you suddenly had a catalyst and a catalyst that could really change the world.

Where else can you find value today?

Banks and metals and mining. We love very much

JPMorgan Chase

[JPM]. The valuation has dropped dramatically – it was ridiculously over the top on the plus side when it rose to $165. And now it’s gone ridiculously too far on the downside now that it’s $114.

One of the things that got us really interested in JPMorgan many, many years ago was when Jamie Dimon took over. The management team he has set up is first class.

What do you like in the metal and mining industry?


[FCX] Management has done an excellent job of running the business over the past few years. It’s an example of a value stock that people don’t pay attention to. We bought it for about $10. The stock is $30 today, and I’d be surprised if it doesn’t outperform the market in the next few years. We are bullish on Freeport because it is a cheap stock based on mid-cycle earnings. It’s also an attractive takeover target for a large, diversified miner looking to get bigger in copper. We are very optimistic about copper and Freeport is the leading pure-play copper miner in the world.

In which sectors are you overweight and underweight?

We are overweight in utilities, healthcare and consumer staples. Also metals and mining. We are close to a market weight on energy. Don’t get me wrong, we’re going to love energy for the next five years. But because we’ve repositioned the portfolio, we’re probably closer to a market weight. We are underweight technology, banking, consumer discretionary and communications services.

We are defensively positioned. We may face a very challenging period next year as many of the sectors in which we are underweight will experience a very severe slowdown in earnings across the board.

Would you recommend such a positioning to others?

I would encourage investors to be very defensively positioned, so sectors like utilities and consumer staples, with a company like

Procter & Gamble

[PG]Because like it or not, in a tough economy people still have to wash their clothes and brush their teeth. In a tough economy you want to be in non-cyclical stocks because at the end of the day you don’t have to go out and buy a new one


[AAPL] iPhone every year. You don’t have to go out every year to buy a new pair of jeans.

But the reality is, you’re still going to have to wash your clothes, you’re still going to turn on your electricity, and so on. Same with healthcare. If you do get sick, go to the doctor. The same from the point of view of medication in terms of pharma. So, where would I like to be? I want to work in healthcare and pharmacy like Pfizer.

I also like basic materials, especially metals and mining, and energy. The years 2020 and 2021 were a very risky period. Everything went up. It was a beautiful risk-on environment. We are entering a fairly extended risk-out period outside of short on-risk periods. So in a risk-free period you want to be careful.

What is the greatest risk that markets face?

Everyone is shouting that the Fed is definitely going to make a soft landing. That will not happen. They made a soft landing in the mid-’80s. They did so in the mid-1990s, as there was a disinflationary backdrop and the Fed raised interest rates to a strong economy. This is the exact opposite of that. We are in a slowing economic landscape and the Fed is raising interest rates. Why? Because inflation is a real problem.

Remember that inflation is a lagging indicator. And as such, the Fed will continue to raise interest rates as it is determined to bag inflation and, of course, deflate inflation. The problem is that the Fed is a reactive body, and as they continue to take away this massive stimulus, I can tell you that 2023 will be about risk reduction, because we’re looking at a very serious slowdown. That does not mean that investors should not be invested, but that they should know what they own. This is no longer the risky environment we have been in for the past two years.

It sounds like you see a recession coming.

Where am I in the recession camp? Pretty damn close to 100%.

Thanks, Eli.

Write to Lauren Foster at [email protected]

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