What Eli Salzman (Eli Salzmann) is most passionate about is looking for stocks that lack momentum but are about to have a good day, which is actually at the heart of value investing. During his 36-year career, Salzman has fully demonstrated his ability to buy stocks that have been left out of the market and undervalued and make handsome returns.

Salzman is a managing director of established asset manager Neuberger Berman and a senior portfolio manager at $10 billion Neuberger Berman Large Cap Value (NBPIX).

By the end of July, the fund had fallen 5.67 per cent this year, compared with a 7.08 per cent drop in the Russell 1000 value index over the same period. The three-year return of the fund is 14.55%, surpassing 98% of similar funds, and 12.80% and 13.51% of five-year and 10-year returns respectively, surpassing 99% of similar funds.

Low valuations are not the whole reason for Salzman to buy a stock, which must also have a catalyst that can change its fate.

"buying cheap stocks without a catalyst is called a value trap," Salzman said. we are looking for companies that have lower-than-normal profits, have catalysts or inflection points, and can change the status quo to return earnings from below normal to normal or even above normal. " The catalyst here can be anything, whether it's a new product launch or a management change.

In a recent interview with Salzman, Barron Weekly talked about where to see value and how investors should adjust their portfolios for the coming recession. The following is an edited interview.

Barron Weekly: what was the first value stock you bought?

Eli Salzman: I bought $AT&T Inc (T.US) $in 1997, when the company's CEO was Mike Armstrong. At that time, the stock was very unpopular, but luckily it turned out well. I bought it at $33 a share and sold it at more than $70 a share a year later. For AT&T Inc, this is a very big increase.

Barron Weekly: what aspects do you value when choosing stocks?

Eli Salzman: you have to have a catalyst that can push up the stock price. In addition to looking for companies whose profits are declining relative to normal levels, we also look for sectors, subsectors and industries that have been deprived of capital and thus capacity.

"Barron Weekly": Exxon Mobil Corp (XOM) is your largest stock position, the stock has risen more than 50% so far this year, will it continue to rise?

Eli Salzman: absolutely. The energy industry is a typical industry deprived of capital and production capacity. $Exxon Mobil Corp (XOM.US) $is one of our favorite stocks in this industry. Now some of the industry's production capacity has been restored, with the number of oil rigs peaking at about 1600 in 2014, then falling to 300 in 2016, peaking again at the end of 2018, close to 900, and then bottoming out in 2020, when it was 172. now it's back to more than 600.

One of the reasons we focus on capital and capacity is that when they happen, it's always a good thing for an industry. We bought a lot of Exxon Mobil Corp at a price of $30 to $40, and now the share price is about $94.

Barron Weekly: what catalysts does Exxon Mobil Corp have?

Eli Salzman: when a company thinks it's a growth company, but it's not, they finally wake up and realize that they're not a growth company and have to start acting like a value company. This is one of the catalysts we're looking for. A growth company is a company that constantly reinvests itself. A real growth company can get a better return by investing in itself, but this is not our type of stock selection, it may not meet the criteria we set for valuations.

Exxon Mobil Corp has had the problem of mismanagement for many years, and the management thinks they are more like a growth company than a value company, and they began to wake up a year and a half ago.

Exxon Mobil Corp was considered one of the blue chips 20 years ago, when every investor wanted to own Exxon Mobil Corp, $General Electric Co (GE.US) $or $Pfizer Inc (PFE.US) $stock, but Exxon Mobil Corp badly outperformed the market.

Realising that their strategy would not work, management began to limit capital expenditure, return cash to shareholders and divest non-core assets. All of a sudden we see a change in management implementation, in part because shareholders are also angry, but in short, they wake up, which has become an important catalyst.

Barron Weekly: what other energy companies do you own?

Eli Salzman: $ConocoPhillips (COP.US) $and $Chevron Corp (CVX.US) $. ConocoPhillips is one of the energy companies with the strictest controls on capital expenditure and continues to return cash to shareholders. Chevron Corp has a strong balance sheet and a huge stock buyback program.

Barron Weekly: Pfizer Inc is also a stock in which you hold a large position. what is the reason for being optimistic?

Eli Salzman: $Pfizer Inc (PFE.US) $is a company that has really achieved transformation and has spun off a lot of non-core assets. Like Exxon Mobil Corp, Pfizer Inc's stock has been outperforming the market for the past 20 years, but we won't buy it just because of that. Pfizer Inc also has a catalyst: novel coronavirus. The company plays a central role in the epidemic, and novel coronavirus will continue to exist for many years to come.

There is no doubt that Pfizer Inc is a leader in this field, both in terms of reputation and the study of novel coronavirus, which is an important driving force for the company's continued growth for many years to come. We have great confidence in Pfizer Inc, which is in line with our investment principle, that is, lack of momentum but suddenly have a catalyst, and this catalyst can change the whole world.

Barron Weekly: what other value stocks are you optimistic about?

Eli Salzman: banking, metal and mining stocks. We like $JPMorgan Chase & Co (JPM.US) $very much, the stock valuation has fallen sharply, the stock has risen to $165s, which is outrageous, and then it has also fallen a lot, and now the share price is $114s.

We first became interested in JPMorgan Chase & Co many years ago because Jamie Dimon took over as CEO and he built a first-class management team.

Barron Weekly: which metal stocks and mining stocks do you like?

Eli Salzman: the management of $McMoran FCX.US $has done a good job operationally over the past few years. This is a typical unnoticed value stock. We bought it at about $10 and the stock price is now $30. We think the stock will outperform the market in the next few years.

The reason for betting on this stock is that it is very cheap in terms of mid-cycle earnings. It is also an attractive acquisition target for large diversified miners looking to expand their copper business. We are very optimistic about copper. Freeport-McMoRan is the world's leading copper miner.

Barron Weekly: what are your heavy and light stocks?

Eli Salzman: we have heavy positions in utilities stocks, health care stocks and consumer necessities stocks, as well as metal stocks and mining stocks. Positions in energy stocks are close to market weights, but we are very optimistic about the prospects for energy stocks over the next five years, only because we have reconfigured our portfolio, so the allocation of energy stocks may be closer to market weights. We light technology stocks, banking stocks, non-essential consumer goods stocks and communications services stocks.

Our current allocation is defensive because next year is likely to be a very challenging period, and overall, many of our light positions will experience a very severe earnings slowdown.

Barron Weekly: do you recommend other investors to do the same?

Eli Salzman: I suggest investors take a defensive strategy and allocate utilities and consumer necessities, such as $Procter & Gamble Co (PG.US) $, because people still need to wash their clothes and brush their teeth in a tough economy.

You should buy these non-cyclical stocks when the economic situation is tough, because after all, you don't have to buy a new Apple Inc iPhone every year. But people still have to wash clothes, still need electricity, and so on, and so do health care. If they are sick, they have to see a doctor and take medicine. These are all the reasons why I am optimistic about health care and pharmaceutical units such as Pfizer Inc.

I am also optimistic about basic materials stocks, especially metal stocks and mining stocks, as well as energy stocks. All stocks on the stock market are rising in 2020 and 2021, and investors' risk appetite is very high, and now we are entering a period of declining risk appetite, so investors should be cautious.

Barron Weekly: what do you think is the biggest risk facing the market?

Eli Salzman: a lot of people think that the Fed can achieve a soft landing, which is impossible. The Fed achieved this goal in the mid-1980s and in the mid-1990s, because the US economy was in a deflationary environment, and now, on the contrary, we are in an environment of economic deceleration. the Fed is raising interest rates because of high inflation.

Don't forget that inflation is a lagging indicator, so the Fed will continue to raise interest rates because they are determined to control and keep inflation down. As the Fed tightens policy, I think risk aversion will rise in 2023, but that doesn't mean investors shouldn't invest, but they have to know what they hold, which is no longer the period when everything has been going up in the past two years.

Barron Weekly: it sounds like you think a recession is coming.

Eli Salzman: I think the chances of the US economy falling into recession are close to 100%.

Barron Weekly: thank you for the interview.