WEBVTT - Investor Sees Glass Half Full For 2022: Gilreath 

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<v Speaker 1>I'm roam. Yeah, but you let me drive? No, no, no, no,

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<v Speaker 1>this is not a toy. Please, I'll do the riding gravels.

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<v Speaker 1>I want to drive. It's a good question, but drive.

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<v Speaker 1>This is the Drive to the Clobell on Bluebird Radio.

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<v Speaker 1>All right, folks, just got about ten minutes left in

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<v Speaker 1>today's trading session. Here Doug Krisner breakdown the trade. We're

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<v Speaker 1>just coming off our highs of this session, but nonetheless

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<v Speaker 1>definitely a risk on trade. Feared really too much in

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<v Speaker 1>the markets today. Let's get to it. The Drive to

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<v Speaker 1>the Close with Dave Gilreath. He is managing director, chief

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<v Speaker 1>investment officer and Innovative Portfolios, joining us on the phone

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<v Speaker 1>from Indianapolis. Innovative Portfolios, by the way, a money management

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<v Speaker 1>firm for registered investment advisors. Hey, Dave, good to have

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<v Speaker 1>you here with Katie and myself. It's been an interesting

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<v Speaker 1>couple of days. We're bouncing back here today. How do

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<v Speaker 1>you see the market environment fundamentally? Does it look like

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<v Speaker 1>we are headed for more gains heading into the new

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<v Speaker 1>year or less? Okyl, thanks for having me back, h

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<v Speaker 1>Katie and uh I appreciate the invite and thanks for

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<v Speaker 1>having me on the darkest day of Yeah, it's getting

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<v Speaker 1>getting lighter from here on. So that's the good news, right, Um,

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<v Speaker 1>as far as fundamentally, I mean, COVID is improving. Um,

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<v Speaker 1>I think most of us a lot of year ago

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<v Speaker 1>say that it had been probably in the rear view mirror.

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<v Speaker 1>But it is improving. And you know that it was

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<v Speaker 1>the economy was and a lot of other things were

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<v Speaker 1>in complete chaos on the way into the pandemic. And

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<v Speaker 1>now we're coming out of the pandemic maybe I think,

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<v Speaker 1>at least slowly. Uh. And so I don't know why

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<v Speaker 1>people are surprised that it's chaotic on the way out,

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<v Speaker 1>but you know, there there is some chaos, but there's

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<v Speaker 1>you know, supply chain is improving. I mean even the

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<v Speaker 1>semiconductor people are saying that today, and most big corporations

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<v Speaker 1>are saying that. And inflation is a problem, but um,

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<v Speaker 1>you know, maybe it's not. It might not be here

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<v Speaker 1>to stay. So wait, I'm sorry, are you glass half

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<v Speaker 1>full of glass half empty? I can't tell am I

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<v Speaker 1>what I'm sorry, glass half full or glass half empty

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<v Speaker 1>at this point, glass half full, glass half full? But

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<v Speaker 1>people would tell me I've been class half of all

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<v Speaker 1>my whole life so um, But I mean commodity prices

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<v Speaker 1>will take care of themselves. They always do. And in fact,

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<v Speaker 1>the CRB index, which is you know it's index, are

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<v Speaker 1>like nineteen different commodities that we use all the time.

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<v Speaker 1>It's down from a tie in October, and it seems

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<v Speaker 1>to be going in the right direction. Um. And labor

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<v Speaker 1>labor is they're flexing their muscles right now, which they can,

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<v Speaker 1>and I don't blame them, but union labor is still

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<v Speaker 1>it's only of all the jobs in the US, so

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<v Speaker 1>you know, the union wage pressure isn't what it used

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<v Speaker 1>to be. So the evaluation of the mark it isn't

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<v Speaker 1>cheap um anyway you slice it. But earnings should grow

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<v Speaker 1>pretty well next year. I mean, the estimate for the

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<v Speaker 1>SMP is like two thirty bucks, so you would think

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<v Speaker 1>the SMP could go to without you know, some other

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<v Speaker 1>big surprise coming and hit across the face. And Dave,

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<v Speaker 1>I want to talk more about inflation because you mentioned

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<v Speaker 1>I mean, if you look at results from Micron, from

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<v Speaker 1>Nike just in the past twenty four hours, there were

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<v Speaker 1>maybe some signs that the supply chains are on snarling themselves,

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<v Speaker 1>but the fact that now we're dealing with a macron

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<v Speaker 1>that we could see more variants to come. I mean,

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<v Speaker 1>does that introduce the possibility that supply chains come under

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<v Speaker 1>even more pressure and maybe that feeds into inflation. Um, well,

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<v Speaker 1>good question, Katie. I don't know. The earlier today you

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<v Speaker 1>had someone on that was talking about how the UM

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<v Speaker 1>the movement that you know, I attracked people's movement and

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<v Speaker 1>all that in Asia and how it's been going up

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<v Speaker 1>and up and up every month. Where tells you? That

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<v Speaker 1>kind of tells me the supply chains are probably improving

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<v Speaker 1>and not getting worse. So and I think they will.

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<v Speaker 1>And as far as variants go, I mean, we're going

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<v Speaker 1>to have it seems like we're going to have more

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<v Speaker 1>and more variants all the time. Um. But we're starting

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<v Speaker 1>to learn to live with it. I mean, in the

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<v Speaker 1>Midwest anyway, the malls, you know, they couldn't find a

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<v Speaker 1>parking lot at lunch today and or parking space in

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<v Speaker 1>the parking lot at Wench today, and office buildings they're

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<v Speaker 1>may be not full, but there's quite a few people

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<v Speaker 1>in them. So it seems like we're learning to live

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<v Speaker 1>with all of this. Um. It does feel like we

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<v Speaker 1>understand we've seen the playbook we've got some tools. But

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<v Speaker 1>I'm curious though, Dave is, all right, where are you

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<v Speaker 1>putting money to work? From my understanding, you guys, you know,

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<v Speaker 1>are really leaning in big time when it comes to industrials,

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<v Speaker 1>names like snap On, like commins um talk to us

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<v Speaker 1>little bit about that play right. So our firm we

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<v Speaker 1>kind of focus on downside risk of a stock versus

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<v Speaker 1>the upside potential UM. And in one of the strategies

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<v Speaker 1>when you're mentioning, we combine the divot into Chiever's index,

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<v Speaker 1>which is the fifty or so stocks that have raised

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<v Speaker 1>are diving into every year for a decade at least,

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<v Speaker 1>and then we score them with these downside risk risk metrics,

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<v Speaker 1>and then we buy fifty stocks and we reconstitute the

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<v Speaker 1>list twice a year UM and right now and so

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<v Speaker 1>the stocks kind of fall through the funnel. We don't

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<v Speaker 1>necessarily make conscious decision to buy certain groups or anything,

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<v Speaker 1>but right now half of the positions are industrials UM,

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<v Speaker 1>which to me is interesting given the fact that there's

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<v Speaker 1>been so much uncertainty of the market, so um, you know,

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<v Speaker 1>right now. And then over and above just buying the

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<v Speaker 1>stocks and holding them, we do an option overlay using

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<v Speaker 1>SMP index options to uh, we use set credit spreads

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<v Speaker 1>and add a little bit of income like three or

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<v Speaker 1>four d basis points a year. So right now, the

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<v Speaker 1>industrial I think, are very cheap. If you look at

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<v Speaker 1>the x l I, which is the spider for the industrials, Uh,

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<v Speaker 1>that chart, if you look at it, it's been building

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<v Speaker 1>this bay for months and months and months. Uh. And

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<v Speaker 1>the industrials as a group have a pretty low forward pe.

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<v Speaker 1>And the ones that I had mentioned to you, snap

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<v Speaker 1>On Cummins a b M Industries, which is a stock

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<v Speaker 1>not a lot of people have heard of, all have

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<v Speaker 1>really low pees forward pees like in the you know,

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<v Speaker 1>thirteen fourteen twelve kind of area. Um. And and if

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<v Speaker 1>not really if, I mean, I think it's pretty evident

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<v Speaker 1>that the global economies are starting to chug back to

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<v Speaker 1>life in a pretty good way. Um, the industrial should

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<v Speaker 1>continue to pick up steam. And Dave just quickly curious

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<v Speaker 1>how you feel about tech, because I mean, I don't

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<v Speaker 1>think anyone would accuse that sector of being inexpensive or chief,

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<v Speaker 1>but it just seems like you can't keep that sector

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<v Speaker 1>down for too long. Yeah, the big tech isn't all

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<v Speaker 1>that expensive quite honestly, Some of the small to the

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<v Speaker 1>unprofitable tech. I guess you might call it um you know,

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<v Speaker 1>the ones that don't have really earnings, those have those

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<v Speaker 1>got really expensive and they've been falling back to earth

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<v Speaker 1>pretty rapidly. But the big tech, you know, I mean

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<v Speaker 1>the big ones that everybody you know, the uh, Microsoft

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<v Speaker 1>and the Google and Facebook and those kind of things,

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<v Speaker 1>those are not particularly expensive right now, and they're continuing

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<v Speaker 1>to gain market share and make money. And they've got

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<v Speaker 1>you know, the zillion dollars of cash on their balance sheets,

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<v Speaker 1>and they're buying back stocks. I mean, that's another thing

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<v Speaker 1>that supports the market, is is the stock buybacks at

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<v Speaker 1>the end of the third quarter was the biggest, you know,

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<v Speaker 1>there's an all time record. So corporate executives got a

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<v Speaker 1>lot of heat. And but it's it's certain it's certainly

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<v Speaker 1>what makes stocks moves. And whenever we see it, you know,

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<v Speaker 1>they cross, whether it's on an earnings announcement or other,

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<v Speaker 1>you definitely see a lot of action on the stock

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<v Speaker 1>when when they talk about buybacks. Hey, listen, we've got

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<v Speaker 1>to run. Dave, thank you so much. Happy New Year's

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<v Speaker 1>Stay safe. Dave Gilreathi's maging director, Chief investment Officer over

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<v Speaker 1>at Innovative Portfolios,