JOHN BUCKINGHAM
CHIEF PORTFOLIO MANAGER
AL FRANK FUND

COMPANY: Tsakos Energy
TICKER: TNP (NYSE)
PRICE: $39.50 (as of 4 p.m. yesterday)
52-WEEK RANGE: $31.65-$46.10
MARKET CAPITALIZATION: $759.66M

John Buckingham is the chief portfolio manager of the California-based Al Frank Fund (VALUX), with about $305 million under management. Tsakos is a worldwide oil-shipping company based in Athens. Mr. Buckingham spoke to David Dalley of The New York Sun about why he believes the company’s stock could increase by 90% over the next three to five years.

Why do you like the stock?

We like the entire tanker sector right now, primarily because valuations are so attractive. That’s because this is a business that has been notoriously cyclical. Pricing is all over the map in terms of shipping. Much has to do with supply and demand for oil, more so than the actual price of oil.There needs to be enough demand for oil to handle all of their shipping capacity. It doesn’t matter what the actual price is, as such.

We believe and most of the research shows that worldwide oil demand is expected to continue to grow, especially with the growing demand by the Asian tigers. Most people expect demand to remain strong for the next couple years at least.

Strong demand has caused many tanker operators to want to buy more ships, which they’ve been doing. Capacity has grown, and this has concerned investors. They’re worried that pricing will collapse, but we don’t think that’ll happen.

Why not?

Firstly, demand is very strong right now. Second, there is a phase out process of single hulled tankers currently underway. Most of the ships that Tsakos has are double-hulled so they’re not very affected by it, but it’ll tighten supply in the industry general ly.Third, shipyards are basically full. You can’t really build many more ships. And the price of steel and other commodities have gone through the roof, so it’s not as cost-effective anymore to build new ones.

But the real reason we like it is the valuation. The stock is yielding 5%, it’s trading today at a little less than seven times earnings and at 1.3 times book value – all very attractive.

What do earnings look like going forward?

They’re forecast to decline slightly in 2007, but the absolute number is still fantastic. And that’s where most investors make the mistake. They only want growing earnings, regardless of what the earnings actually are. The joke is that if the company could throw some money away this year, they’d get a higher valuation.

What do you think the stock’s worth?

We think it’ll get to about $76 over the next three to five years.

What are the risks?

The big risk is overbuilding. Or demand for oil not being as strong. But basically, it all comes back to supply and demand. I believe that the world will remain dangerous politically and that energy prices will remain high. I think that tanker rates will remain fairly robust. And the phaseout of the single hull tankers is an important part of the control in supply.