WEBVTT - Louis Navellier Sees Oil Price Collapsing: Avoid Sector (Audio)

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<v Speaker 1>Global business news twenty four hours a day. It's Bloomberg

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<v Speaker 1>dot Com, the Radio plus mobile last and on your radio.

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Handquarters,

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<v Speaker 1>Signed Charlie Pallet. Stocks are trading little change equities near

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<v Speaker 1>records as investors continued to debate the FEDS next interest

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<v Speaker 1>rate move s and p five hundred indecks down to

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<v Speaker 1>point now four down less than one tenth of one percent,

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<v Speaker 1>nastack up four points at a record fifty two eighty

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<v Speaker 1>a gain there of one tenth of one percent. Down,

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<v Speaker 1>Industrials down twenty two a drop there of one tenth

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<v Speaker 1>of one percent. Ten Ure yield one point five three percent,

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<v Speaker 1>Gold down five ten the ounce, a drop of four

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<v Speaker 1>tenths of one percent. And crude oil West Texas Intermediat

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<v Speaker 1>up one point three percent, up fifty eight cents of

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<v Speaker 1>barrel forty one right now on West Texas Intermedia Crude.

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<v Speaker 1>I'm Charlie Pallett, and that's the Bloomberg Business w you're

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<v Speaker 1>listening to Taking stock with Kathleen Hayes and Pim Fox

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<v Speaker 1>on Bloomberg Radio. Stocks will soon exhibit a flight to quality.

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<v Speaker 1>The price of oil will soon collapse. While we're very

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<v Speaker 1>happy to welcome someone to the show who when he

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<v Speaker 1>says something like that, when that's something he wants to

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<v Speaker 1>talk about, you must realize that he is widely recognized

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<v Speaker 1>as an expert who translates academic techniques into real market applications,

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<v Speaker 1>a discipline quantitative analysis on stocks on the overall market.

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<v Speaker 1>That's what Louis Navalier is known for. Chairman, founder and

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<v Speaker 1>chief investment officer at Navalier and Associates. LOUI, welcome to

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<v Speaker 1>the show. It's good to be here. So in your words,

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<v Speaker 1>just some up for our listeners who may have not

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<v Speaker 1>followed your analysis over the years. How would you yourself say,

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<v Speaker 1>what is it that you do that you have put

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<v Speaker 1>your whole, your whole career, your whole reputation behind. Well,

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<v Speaker 1>I'm read the original quant but I give my research

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<v Speaker 1>away free in the public domain. So whether it's my

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<v Speaker 1>Stock Greater or divon Greater, they're all out there either

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<v Speaker 1>on my newsletter side or money management site, and folks

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<v Speaker 1>and go there and keep their stocks and I great

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<v Speaker 1>them ABC d F And obviously the dividend models totally

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<v Speaker 1>different than the growth stock model, but they're both two

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<v Speaker 1>very good models. And but what's happened this year that's

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<v Speaker 1>interesting is a lot of low quality stocks of rally,

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<v Speaker 1>especially in July and August. But it's been going on

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<v Speaker 1>since February eleven, and it's largely uh financials and energy.

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<v Speaker 1>And I'm most worried about the energy sector right now

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<v Speaker 1>because I think people confuse seasonal strength with real strength.

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<v Speaker 1>It always goes up in the spring, and it always

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<v Speaker 1>goes down the fall, and we have a glut that's

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<v Speaker 1>not dissipating. And I'm very, very worried that a lot

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<v Speaker 1>of people are gonna get hurt. Louis will this also

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<v Speaker 1>hurt non energy stocks, it hurts the whole market. Um.

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<v Speaker 1>You know, people are buying UM, chasing dividendial, they're buying

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<v Speaker 1>these big baskets of stocks. They have no idea what

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<v Speaker 1>they're buying. In the first quarter, UM, we had a

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<v Speaker 1>lot of dividend cuts were in the energy patch. Second quarter,

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<v Speaker 1>with the price recovery, we didn't have the problem. I

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<v Speaker 1>should add the natural gas prices. It looks very very

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<v Speaker 1>strong because of the hot summer we had and then

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<v Speaker 1>the Farmer's almanecas forecasts a very cool winter and UH

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<v Speaker 1>so natural gases is the exception in the energy patch.

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<v Speaker 1>But I'm very worried about the glad of refined product,

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<v Speaker 1>the glad of crude oil, which is a worldwide phenomena,

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<v Speaker 1>and I'm just worried that we'll get in the seasonal

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<v Speaker 1>swoon and it's going to hurt a lot of these stocks,

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<v Speaker 1>and the dividend cuts may resume. Are you then concerned, Louie,

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<v Speaker 1>that we're going to return what we saw earlier in

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<v Speaker 1>the year where one of the things that you could

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<v Speaker 1>just day to day no the stock market was going

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<v Speaker 1>to trade on more than anything else, was whatever the

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<v Speaker 1>price of oil was doing. You think we're gonna return

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<v Speaker 1>of that kind of volatility, in that kind of lock

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<v Speaker 1>step action. I hope not, but you can see the

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<v Speaker 1>markets are manipulated. Uh, every day there's a new rumor.

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<v Speaker 1>Whether it's pudin Saudi Arabia, rock iron, doesn't matter. You know,

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<v Speaker 1>we live in a world where not everybody has Bloomberg,

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<v Speaker 1>and you know there's blogs out there and people just

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<v Speaker 1>put stuff out to see what happens. And you know,

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<v Speaker 1>crude oil future traders are are pretty interesting characters. Uh,

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<v Speaker 1>It's not unusual for crude oil to move nine and

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<v Speaker 1>three or four days, especially towards the end of the month,

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<v Speaker 1>if they try to cover their positions. So this is

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<v Speaker 1>where the sharks swim on Wall Street, and guys like

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<v Speaker 1>me to calculate volatility just wouldn't go here because it's

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<v Speaker 1>just too hot to handle. And then guys like me

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<v Speaker 1>also check out fundamentals and then they can check out.

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<v Speaker 1>So I've been avoiding this entire sector and been a

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<v Speaker 1>kind of warn everybody all year, and now here comes

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<v Speaker 1>to September swoon, and I'm worried about folks. All right,

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<v Speaker 1>you're worried about folks. And also you posted some weekly

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<v Speaker 1>ratings changes, and wonder if we could just take a

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<v Speaker 1>select few and give get your thoughts on them. Berkshire Hathaway,

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<v Speaker 1>you've rated that a quantitative grade of B with also

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<v Speaker 1>a fundamental grade of B. What about Berkshire Hathway attracts

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<v Speaker 1>you to the company. Well, Berkshire Hathaway rightly wrongly is

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<v Speaker 1>a big reinsurance portfolio, and they've gotten lucky on natural disasters. Uh.

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<v Speaker 1>I always sent a hurricane up the East coast last week,

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<v Speaker 1>but they got they got lucky. And also their benefit

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<v Speaker 1>from the big bond rally so um the it's funny

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<v Speaker 1>and the reinsurance business. Their biggest disaster in recent years

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<v Speaker 1>has been the floods in Taiwan and Jimmy Thailand. Thailand.

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<v Speaker 1>It took out a lot of the destroyed companies. Louis,

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<v Speaker 1>you also have given uh cbs B s across the board.

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<v Speaker 1>You like them. Why, it's just that's where everybody goes.

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<v Speaker 1>Walgreens isn't bad either. It's uh, you know, we all

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<v Speaker 1>need our drugs, even me. All right, tell us about hotels,

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<v Speaker 1>Intercontinental hotels a group bees all around for I h G.

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<v Speaker 1>Is this anything to do with the consumer spending more

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<v Speaker 1>money or is it specific to h G. It's specific

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<v Speaker 1>to them, and some of its business travels from consumer travel,

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<v Speaker 1>but a lot of it's also the acquisitions. You know

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<v Speaker 1>there where's acquisitions out there in the hotel and so

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<v Speaker 1>that's good. So you have also downgraded from by to

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<v Speaker 1>hold a few big names, one of them costsc. It's

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<v Speaker 1>got seas across the ward. That's not so bad. But

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<v Speaker 1>what's going on, Well, I'm glad you brought that up.

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<v Speaker 1>I think Costco. I probably should write their their PR

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<v Speaker 1>stuff for them, uh, their Samester sales aren't bad, but

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<v Speaker 1>a lot of their sales are gasoline related. So I

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<v Speaker 1>guess what happens in gas prices dropped their sales drop.

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<v Speaker 1>And I think they really need to separate that more

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<v Speaker 1>because you know, people react to the headlines and they

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<v Speaker 1>may not look at the details. And I think they

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<v Speaker 1>need to say in a nice way that, um, that

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<v Speaker 1>outside of gasoline, it's not that bad. Now, they did

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<v Speaker 1>have an international expansion that that slowed them down as well.

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<v Speaker 1>And you know, we just live in in a world

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<v Speaker 1>where people will focus on the negative or in the positive,

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<v Speaker 1>And so if I was writing a pr thing, I

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<v Speaker 1>would basically try to have more positiveness. Louis, when do

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<v Speaker 1>you determine to sell us stock when it's poorly performing

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<v Speaker 1>or when it's reached a certain level that you're willing

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<v Speaker 1>to take the profit when they get too hot to handle.

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<v Speaker 1>We keep the least sixty of our portfolios and conservative

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<v Speaker 1>socks molly aggressive and teen percent aggressive. Now, risk tomy

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<v Speaker 1>isn't the angle of sense dispersion. So probably the best

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<v Speaker 1>case study is we thought Facebook was a lot safer

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<v Speaker 1>than Kroger. Now that may not be intuitive to most people.

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<v Speaker 1>They would think, well, my goodness, Facebook, so tech sock

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<v Speaker 1>as high multiple. Uh you know it's it's the people.

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<v Speaker 1>It should be acting a nervous manner. No, No, it

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<v Speaker 1>was going up in a much smoother manner than than

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<v Speaker 1>than Kroger. And and Kroger did miss by a penny

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<v Speaker 1>one quarter so that a while back, so they probably

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<v Speaker 1>you know, affected it. But uh, you know, when we

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<v Speaker 1>do our quantitative screens, we naturally gravitate towards ever is

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<v Speaker 1>going in a very smooth city manner. Risk to us

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<v Speaker 1>isn't the angle of sentence dispersion. And in our case,

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<v Speaker 1>Facebook still looks safer than Kroger at this moment, just

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<v Speaker 1>on your your weekly list of changes. But I'm wondering

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<v Speaker 1>how you rank and rate Apple, especially after they've come

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<v Speaker 1>up with their latest iPhone iterations today. Yeah, Apple is

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<v Speaker 1>a dividend stock right now. Obviously it's a very low

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<v Speaker 1>PA stock. It's UM. It sells a ton of debt

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<v Speaker 1>to UM just sustained that healthy dividend and as well

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<v Speaker 1>as by its stock back last I look, I think

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<v Speaker 1>the second biggest stock by back company out there. Um.

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<v Speaker 1>You know, I'm a little worried about him, but I

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<v Speaker 1>think that the there you know, they have a cult

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<v Speaker 1>and a lot of people upgrade the iPhone seven. I'm

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<v Speaker 1>mostly worried about them in emerging markets, um, where they

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<v Speaker 1>haven't been as a successful. But let's face it, that

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<v Speaker 1>little Sampson problem they have with the battery exploding was

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<v Speaker 1>probably the best thing ever happened to Apple on the iPhone. So, uh,

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<v Speaker 1>you know, I think they had a six US to

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<v Speaker 1>launch today. Now we just got to make sure the

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<v Speaker 1>orders are there. Um. You know, Apple, you know hasn't

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<v Speaker 1>had earnings growth for a couple of quarters, so let's

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<v Speaker 1>hopefully have real sales, real earnings moving forward. But if

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<v Speaker 1>you want to lopee and nice David Niel, that's fine.

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<v Speaker 1>Right now. Apple shares up about a half a percent

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<v Speaker 1>right now at five with the yield of two percent. Louis,

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<v Speaker 1>what's the biggest mistake that you've made over the last

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<v Speaker 1>twelve months? Um, basically not trimming stocks as they get

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<v Speaker 1>too volatile. I mean I do trim them, but sometimes

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<v Speaker 1>they move a little faster than I can. If there's

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<v Speaker 1>an extraordinary event and something gaps down that that that's

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<v Speaker 1>what happens. Um. I think the main thing I like

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<v Speaker 1>to stress to your to your viewers. Is that the

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<v Speaker 1>market is actually dying on us. You know, the actual

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<v Speaker 1>stock market is physically shrinking. The stocks that seemed to

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<v Speaker 1>rank the highest in my system are the ones that

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<v Speaker 1>buy their stock back and we had record that issuance

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<v Speaker 1>in August. That's gonna mean a lot of buy backs. Um.

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<v Speaker 1>Normally a lot of my stocks pulled back after earning season,

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<v Speaker 1>but lately the buybacks are so navy um that they

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<v Speaker 1>firm up after any season. So I'm very, very bullish

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<v Speaker 1>on the on the market. As long as you have

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<v Speaker 1>these low rates and fairly low price raage racials, companies

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<v Speaker 1>are going to contain to borrow by this dock back,

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<v Speaker 1>and Gilead and Apple are leading the way. Uh. How

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<v Speaker 1>do you connect the dotsley? Just quick final question. When

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<v Speaker 1>you look at something like the Institute for Supply Management

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<v Speaker 1>and Manufacturing the services, do you ignore that is in

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<v Speaker 1>your kind of analysis? There is the way you connect

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<v Speaker 1>the dots to yours dot com. Well, I talked about

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<v Speaker 1>all that because they're right for a living and and

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<v Speaker 1>basically that creates more uncertainty and it's creating a more

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<v Speaker 1>narrow market. September is a flight to quality month, and

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<v Speaker 1>our big pitch in our client correspondence is that we

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<v Speaker 1>had a bit of a low quality rally in July

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<v Speaker 1>and in August, and although we did okay, but we

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<v Speaker 1>expect that a lot of the energies will leave the

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<v Speaker 1>way down in September and they'll be these huge flights

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<v Speaker 1>of quality. And we are especially excited at the last

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<v Speaker 1>week in September because the professional managers have to make

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<v Speaker 1>their portfos really pretty poorly in the quarter, so they'll

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<v Speaker 1>kick out the stuff that's not going to earn and

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<v Speaker 1>buy our stuff, hopefully by the the last week of September.

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<v Speaker 1>Although last week we know one of my funds will

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<v Speaker 1>stop one percent, so you know, the flights of quality

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<v Speaker 1>is definitely underway in September. We've got to leave it there.

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<v Speaker 1>Louis Navalier, chairman, founder Navalier Associates