Speaker 1: Global business news twenty four hours a day. It's Bloomberg
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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Handquarters,
Speaker 1: Signed Charlie Pallet. Stocks are trading little change equities near
Speaker 1: records as investors continued to debate the FEDS next interest
Speaker 1: rate move s and p five hundred indecks down to
Speaker 1: point now four down less than one tenth of one percent,
Speaker 1: nastack up four points at a record fifty two eighty
Speaker 1: a gain there of one tenth of one percent. Down,
Speaker 1: Industrials down twenty two a drop there of one tenth
Speaker 1: of one percent. Ten Ure yield one point five three percent,
Speaker 1: Gold down five ten the ounce, a drop of four
Speaker 1: tenths of one percent. And crude oil West Texas Intermediat
Speaker 1: up one point three percent, up fifty eight cents of
Speaker 1: barrel forty one right now on West Texas Intermedia Crude.
Speaker 1: I'm Charlie Pallett, and that's the Bloomberg Business w you're
Speaker 1: listening to Taking stock with Kathleen Hayes and Pim Fox
Speaker 1: on Bloomberg Radio. Stocks will soon exhibit a flight to quality.
Speaker 1: The price of oil will soon collapse. While we're very
Speaker 1: happy to welcome someone to the show who when he
Speaker 1: says something like that, when that's something he wants to
Speaker 1: talk about, you must realize that he is widely recognized
Speaker 1: as an expert who translates academic techniques into real market applications,
Speaker 1: a discipline quantitative analysis on stocks on the overall market.
Speaker 1: That's what Louis Navalier is known for. Chairman, founder and
Speaker 1: chief investment officer at Navalier and Associates. LOUI, welcome to
Speaker 1: the show. It's good to be here. So in your words,
Speaker 1: just some up for our listeners who may have not
Speaker 1: followed your analysis over the years. How would you yourself say,
Speaker 1: what is it that you do that you have put
Speaker 1: your whole, your whole career, your whole reputation behind. Well,
Speaker 1: I'm read the original quant but I give my research
Speaker 1: away free in the public domain. So whether it's my
Speaker 1: Stock Greater or divon Greater, they're all out there either
Speaker 1: on my newsletter side or money management site, and folks
Speaker 1: and go there and keep their stocks and I great
Speaker 1: them ABC d F And obviously the dividend models totally
Speaker 1: different than the growth stock model, but they're both two
Speaker 1: very good models. And but what's happened this year that's
Speaker 1: interesting is a lot of low quality stocks of rally,
Speaker 1: especially in July and August. But it's been going on
Speaker 1: since February eleven, and it's largely uh financials and energy.
Speaker 1: And I'm most worried about the energy sector right now
Speaker 1: because I think people confuse seasonal strength with real strength.
Speaker 1: It always goes up in the spring, and it always
Speaker 1: goes down the fall, and we have a glut that's
Speaker 1: not dissipating. And I'm very, very worried that a lot
Speaker 1: of people are gonna get hurt. Louis will this also
Speaker 1: hurt non energy stocks, it hurts the whole market. Um.
Speaker 1: You know, people are buying UM, chasing dividendial, they're buying
Speaker 1: these big baskets of stocks. They have no idea what
Speaker 1: they're buying. In the first quarter, UM, we had a
Speaker 1: lot of dividend cuts were in the energy patch. Second quarter,
Speaker 1: with the price recovery, we didn't have the problem. I
Speaker 1: should add the natural gas prices. It looks very very
Speaker 1: strong because of the hot summer we had and then
Speaker 1: the Farmer's almanecas forecasts a very cool winter and UH
Speaker 1: so natural gases is the exception in the energy patch.
Speaker 1: But I'm very worried about the glad of refined product,
Speaker 1: the glad of crude oil, which is a worldwide phenomena,
Speaker 1: and I'm just worried that we'll get in the seasonal
Speaker 1: swoon and it's going to hurt a lot of these stocks,
Speaker 1: and the dividend cuts may resume. Are you then concerned, Louie,
Speaker 1: that we're going to return what we saw earlier in
Speaker 1: the year where one of the things that you could
Speaker 1: just day to day no the stock market was going
Speaker 1: to trade on more than anything else, was whatever the
Speaker 1: price of oil was doing. You think we're gonna return
Speaker 1: of that kind of volatility, in that kind of lock
Speaker 1: step action. I hope not, but you can see the
Speaker 1: markets are manipulated. Uh, every day there's a new rumor.
Speaker 1: Whether it's pudin Saudi Arabia, rock iron, doesn't matter. You know,
Speaker 1: we live in a world where not everybody has Bloomberg,
Speaker 1: and you know there's blogs out there and people just
Speaker 1: put stuff out to see what happens. And you know,
Speaker 1: crude oil future traders are are pretty interesting characters. Uh,
Speaker 1: It's not unusual for crude oil to move nine and
Speaker 1: three or four days, especially towards the end of the month,
Speaker 1: if they try to cover their positions. So this is
Speaker 1: where the sharks swim on Wall Street, and guys like
Speaker 1: me to calculate volatility just wouldn't go here because it's
Speaker 1: just too hot to handle. And then guys like me
Speaker 1: also check out fundamentals and then they can check out.
Speaker 1: So I've been avoiding this entire sector and been a
Speaker 1: kind of warn everybody all year, and now here comes
Speaker 1: to September swoon, and I'm worried about folks. All right,
Speaker 1: you're worried about folks. And also you posted some weekly
Speaker 1: ratings changes, and wonder if we could just take a
Speaker 1: select few and give get your thoughts on them. Berkshire Hathaway,
Speaker 1: you've rated that a quantitative grade of B with also
Speaker 1: a fundamental grade of B. What about Berkshire Hathway attracts
Speaker 1: you to the company. Well, Berkshire Hathaway rightly wrongly is
Speaker 1: a big reinsurance portfolio, and they've gotten lucky on natural disasters. Uh.
Speaker 1: I always sent a hurricane up the East coast last week,
Speaker 1: but they got they got lucky. And also their benefit
Speaker 1: from the big bond rally so um the it's funny
Speaker 1: and the reinsurance business. Their biggest disaster in recent years
Speaker 1: has been the floods in Taiwan and Jimmy Thailand. Thailand.
Speaker 1: It took out a lot of the destroyed companies. Louis,
Speaker 1: you also have given uh cbs B s across the board.
Speaker 1: You like them. Why, it's just that's where everybody goes.
Speaker 1: Walgreens isn't bad either. It's uh, you know, we all
Speaker 1: need our drugs, even me. All right, tell us about hotels,
Speaker 1: Intercontinental hotels a group bees all around for I h G.
Speaker 1: Is this anything to do with the consumer spending more
Speaker 1: money or is it specific to h G. It's specific
Speaker 1: to them, and some of its business travels from consumer travel,
Speaker 1: but a lot of it's also the acquisitions. You know
Speaker 1: there where's acquisitions out there in the hotel and so
Speaker 1: that's good. So you have also downgraded from by to
Speaker 1: hold a few big names, one of them costsc. It's
Speaker 1: got seas across the ward. That's not so bad. But
Speaker 1: what's going on, Well, I'm glad you brought that up.
Speaker 1: I think Costco. I probably should write their their PR
Speaker 1: stuff for them, uh, their Samester sales aren't bad, but
Speaker 1: a lot of their sales are gasoline related. So I
Speaker 1: guess what happens in gas prices dropped their sales drop.
Speaker 1: And I think they really need to separate that more
Speaker 1: because you know, people react to the headlines and they
Speaker 1: may not look at the details. And I think they
Speaker 1: need to say in a nice way that, um, that
Speaker 1: outside of gasoline, it's not that bad. Now, they did
Speaker 1: have an international expansion that that slowed them down as well.
Speaker 1: And you know, we just live in in a world
Speaker 1: where people will focus on the negative or in the positive,
Speaker 1: And so if I was writing a pr thing, I
Speaker 1: would basically try to have more positiveness. Louis, when do
Speaker 1: you determine to sell us stock when it's poorly performing
Speaker 1: or when it's reached a certain level that you're willing
Speaker 1: to take the profit when they get too hot to handle.
Speaker 1: We keep the least sixty of our portfolios and conservative
Speaker 1: socks molly aggressive and teen percent aggressive. Now, risk tomy
Speaker 1: isn't the angle of sense dispersion. So probably the best
Speaker 1: case study is we thought Facebook was a lot safer
Speaker 1: than Kroger. Now that may not be intuitive to most people.
Speaker 1: They would think, well, my goodness, Facebook, so tech sock
Speaker 1: as high multiple. Uh you know it's it's the people.
Speaker 1: It should be acting a nervous manner. No, No, it
Speaker 1: was going up in a much smoother manner than than
Speaker 1: than Kroger. And and Kroger did miss by a penny
Speaker 1: one quarter so that a while back, so they probably
Speaker 1: you know, affected it. But uh, you know, when we
Speaker 1: do our quantitative screens, we naturally gravitate towards ever is
Speaker 1: going in a very smooth city manner. Risk to us
Speaker 1: isn't the angle of sentence dispersion. And in our case,
Speaker 1: Facebook still looks safer than Kroger at this moment, just
Speaker 1: on your your weekly list of changes. But I'm wondering
Speaker 1: how you rank and rate Apple, especially after they've come
Speaker 1: up with their latest iPhone iterations today. Yeah, Apple is
Speaker 1: a dividend stock right now. Obviously it's a very low
Speaker 1: PA stock. It's UM. It sells a ton of debt
Speaker 1: to UM just sustained that healthy dividend and as well
Speaker 1: as by its stock back last I look, I think
Speaker 1: the second biggest stock by back company out there. Um.
Speaker 1: You know, I'm a little worried about him, but I
Speaker 1: think that the there you know, they have a cult
Speaker 1: and a lot of people upgrade the iPhone seven. I'm
Speaker 1: mostly worried about them in emerging markets, um, where they
Speaker 1: haven't been as a successful. But let's face it, that
Speaker 1: little Sampson problem they have with the battery exploding was
Speaker 1: probably the best thing ever happened to Apple on the iPhone. So, uh,
Speaker 1: you know, I think they had a six US to
Speaker 1: launch today. Now we just got to make sure the
Speaker 1: orders are there. Um. You know, Apple, you know hasn't
Speaker 1: had earnings growth for a couple of quarters, so let's
Speaker 1: hopefully have real sales, real earnings moving forward. But if
Speaker 1: you want to lopee and nice David Niel, that's fine.
Speaker 1: Right now. Apple shares up about a half a percent
Speaker 1: right now at five with the yield of two percent. Louis,
Speaker 1: what's the biggest mistake that you've made over the last
Speaker 1: twelve months? Um, basically not trimming stocks as they get
Speaker 1: too volatile. I mean I do trim them, but sometimes
Speaker 1: they move a little faster than I can. If there's
Speaker 1: an extraordinary event and something gaps down that that that's
Speaker 1: what happens. Um. I think the main thing I like
Speaker 1: to stress to your to your viewers. Is that the
Speaker 1: market is actually dying on us. You know, the actual
Speaker 1: stock market is physically shrinking. The stocks that seemed to
Speaker 1: rank the highest in my system are the ones that
Speaker 1: buy their stock back and we had record that issuance
Speaker 1: in August. That's gonna mean a lot of buy backs. Um.
Speaker 1: Normally a lot of my stocks pulled back after earning season,
Speaker 1: but lately the buybacks are so navy um that they
Speaker 1: firm up after any season. So I'm very, very bullish
Speaker 1: on the on the market. As long as you have
Speaker 1: these low rates and fairly low price raage racials, companies
Speaker 1: are going to contain to borrow by this dock back,
Speaker 1: and Gilead and Apple are leading the way. Uh. How
Speaker 1: do you connect the dotsley? Just quick final question. When
Speaker 1: you look at something like the Institute for Supply Management
Speaker 1: and Manufacturing the services, do you ignore that is in
Speaker 1: your kind of analysis? There is the way you connect
Speaker 1: the dots to yours dot com. Well, I talked about
Speaker 1: all that because they're right for a living and and
Speaker 1: basically that creates more uncertainty and it's creating a more
Speaker 1: narrow market. September is a flight to quality month, and
Speaker 1: our big pitch in our client correspondence is that we
Speaker 1: had a bit of a low quality rally in July
Speaker 1: and in August, and although we did okay, but we
Speaker 1: expect that a lot of the energies will leave the
Speaker 1: way down in September and they'll be these huge flights
Speaker 1: of quality. And we are especially excited at the last
Speaker 1: week in September because the professional managers have to make
Speaker 1: their portfos really pretty poorly in the quarter, so they'll
Speaker 1: kick out the stuff that's not going to earn and
Speaker 1: buy our stuff, hopefully by the the last week of September.
Speaker 1: Although last week we know one of my funds will
Speaker 1: stop one percent, so you know, the flights of quality
Speaker 1: is definitely underway in September. We've got to leave it there.
Speaker 1: Louis Navalier, chairman, founder Navalier Associates