WEBVTT - Greg Woodard Discusses the Equity Market (Audio)

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<v Speaker 1>You're listening to Taking Stock with Kathleen Hayes and Pim

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<v Speaker 1>Fox on Bloomberg Radio. Volatility markets around the world that

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<v Speaker 1>are watching central banks very closely reacting to headlines on

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<v Speaker 1>oil so much creating volatility again as summer turns into

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<v Speaker 1>autumn this year, what's an investor to do at a

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<v Speaker 1>time like this? We're going to ask Gregg Woodard today,

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<v Speaker 1>senior analyst at Manning and appeared joining us in our

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<v Speaker 1>New York studio today. Welcome to the show. Thank you

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<v Speaker 1>for having me. So, how does the how do you

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<v Speaker 1>describe right now? You know, the environment for stocks? Is it?

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<v Speaker 1>You know, slow growth, but there's lots of opportunity? Is it?

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<v Speaker 1>What growth isn't so bad? But you have to look

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<v Speaker 1>around the world. What's the Gregg Wodard view of the

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<v Speaker 1>equity markets? We say a very challenging growth environment. You

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<v Speaker 1>combine that with valuations in the equity market um at

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<v Speaker 1>a point that that we think are really priced for

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<v Speaker 1>mediocre returns. So there's nothing to suggest a downturn or

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<v Speaker 1>a bear market. But we just think it's becoming more

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<v Speaker 1>difficult to find kind of businesses and stocks and companies

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<v Speaker 1>that are going to achieve long term investment goals. Having

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<v Speaker 1>said that, Greg, do you believe that when you have

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<v Speaker 1>this slow growth environment you describe that people's reaction to

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<v Speaker 1>negative news is different than if it was a more

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<v Speaker 1>robust economy that we were experiencing. Absolutely, And if you

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<v Speaker 1>look at the nature kind of a volatility, I think

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<v Speaker 1>that that reflects that. I mean, if you if you

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<v Speaker 1>look at typical measures and VIX, it's been a pretty

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<v Speaker 1>complacent market up until the last couple of days. Um,

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<v Speaker 1>But as you mentioned, you know, you combine that slow

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<v Speaker 1>growth and look where we are today. We've leveled off

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<v Speaker 1>and we've improved over the last couple of years, but

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<v Speaker 1>we've leveled off two really levels of growth that we've

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<v Speaker 1>seen at prior recessionary level. So when you get some

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<v Speaker 1>type of exogenous shock, whether it be Brexit or whereas

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<v Speaker 1>of China last year, the talk doesn't turn to is

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<v Speaker 1>it can impact growth? It turns to are we going

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<v Speaker 1>to have a recession? Are we going to have a

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<v Speaker 1>bear market? So I think you get these overreactions and

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<v Speaker 1>you get these bouts of latility and active FLEXI managers

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<v Speaker 1>can use that not to market time, but to be

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<v Speaker 1>able to pick up good companies at good prices and

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<v Speaker 1>be patient and waiting for some of that volatility. Uh,

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<v Speaker 1>I just want and let's flesh out again this is

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<v Speaker 1>basic picture a little bit more because you said, Okay,

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<v Speaker 1>we've got low growth and it's just hard to find opportunities.

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<v Speaker 1>Uh is it? Is it a low growth obstacle from

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<v Speaker 1>the macro standpoint? You just look out across a the

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<v Speaker 1>U S economy, consumers are spending moderately sometimes well sometimes

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<v Speaker 1>less business business investments week. You can run through all

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<v Speaker 1>the things. Or is it more the companies themselves not

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<v Speaker 1>doing what it takes, not having any exciting products or

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<v Speaker 1>services that kind of create the growth. Ye, well, I

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<v Speaker 1>think it's it's more the former, because there's certainly pockets

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<v Speaker 1>of opportunity out there. I mean, you look at some

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<v Speaker 1>of the great technology companies here in the US. You

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<v Speaker 1>look at some, for example, opportunities within the healthcare space.

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<v Speaker 1>So I I think there's companies with great business models

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<v Speaker 1>with you know, for example, trends of of of moves

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<v Speaker 1>of businesses and consumers to the online marketplace. So if

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<v Speaker 1>you can find these companies that can benefit from some

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<v Speaker 1>of these secular growth themes that aren't tightly tied to

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<v Speaker 1>the economy. We think there are plenty of opportunities. Let's

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<v Speaker 1>talk about one of them, in particular, cloud computing. And

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<v Speaker 1>we speak a lot about Salesforce dot Com. We've had

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<v Speaker 1>Mark benning Off, the chief executive of Salesforce dot Com,

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<v Speaker 1>recently on a Bloomberg Amazon, of course is a well

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<v Speaker 1>known name. But you mentioned service Now as a company.

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<v Speaker 1>How did you find service Now and maybe just tell

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<v Speaker 1>us a little bit about your thinking about how that

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<v Speaker 1>came to be part of the portfolio. Certainly, I think

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<v Speaker 1>they they are a bit under the radar screen, let's say,

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<v Speaker 1>relative to a Salesforce dot Com, But this is a

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<v Speaker 1>company that that we think has a lot of recurring revenue,

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<v Speaker 1>has a subscription revenue model, and has been transitioning towards that.

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<v Speaker 1>So that's given us a little bit of an opportunity,

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<v Speaker 1>uh in terms of evaluation. And look, let's be clear,

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<v Speaker 1>there's not a lot of really good growth companies that

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<v Speaker 1>you're going to find at extremely extremely cheap prices. So

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<v Speaker 1>UM we certainly won't argue that any company within the

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<v Speaker 1>space UM is incredibly cheap, but we think if you

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<v Speaker 1>can find these companies against secular growth uh More movement

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<v Speaker 1>to cloud computing, a company like Service now makes makes

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<v Speaker 1>for an interesting investment. Well, and how about you know

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<v Speaker 1>some of them favorites. You know, you got Google, you

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<v Speaker 1>got Facebook, you got Amazon, even got price Line. But

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<v Speaker 1>are these at least become like sort of the steady

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<v Speaker 1>you can eat something out kind of a stock as

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<v Speaker 1>opposed to woo jump on board and go for that

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<v Speaker 1>wild ride. But again, if there's not that much growth,

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<v Speaker 1>I guess you should be happy even to eke out

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<v Speaker 1>just some steady, modest growth and reliable names like that?

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<v Speaker 1>Is that it? I think that's exactly right. And in

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<v Speaker 1>the four names you mentioned we would view as kind

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<v Speaker 1>of core holdings, Um, we've hold we've held all four

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<v Speaker 1>of those for some time now, and then we will

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<v Speaker 1>manage the position around valuation. So you know, a great

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<v Speaker 1>example during Brexit, there was a lot of concern about Europe. Uh,

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<v Speaker 1>price Line has a lot of exposure, um, you know

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<v Speaker 1>within the European hotel space. So um, there's an example

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<v Speaker 1>of where you get a pull back in a great company.

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<v Speaker 1>There's a price that you want to own a little

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<v Speaker 1>bit more of it, and you can manage that position

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<v Speaker 1>and add to it. So that's really how we view

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<v Speaker 1>kind of those core positions. The disposition of the SMP

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<v Speaker 1>five in terms of industry groups UH is changing and

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<v Speaker 1>instead of just being ten, there are going to be

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<v Speaker 1>eleven industry groups. And Dave Wilson are stocks Commist has

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<v Speaker 1>noted this previously, but they're reclassifying real estate. It's going

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<v Speaker 1>to be its own sector. Talk about how that may

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<v Speaker 1>offer opportunity. Sure, I think, you know the world is

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<v Speaker 1>looking for yield, and it's kind of interesting. Fixed income

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<v Speaker 1>investors are relying on capital appreciation for yield. They're buying

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<v Speaker 1>at zero and sometimes below zero interest rates. Equity investors

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<v Speaker 1>are are seeking out kind of income. So it's kind

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<v Speaker 1>of a you know, the world is on its on

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<v Speaker 1>its head, so um, you know, but I think that

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<v Speaker 1>does provide some opportunities. And it's interesting they're breaking out

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<v Speaker 1>the resector from financials. Reats historically have provided a good

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<v Speaker 1>inflation hedge for investors UM, and it's interesting, UM, if

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<v Speaker 1>you're kind of active and selective within that space, UM,

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<v Speaker 1>I think there'll be more of an effect on the

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<v Speaker 1>mid and small cap names within that space UM in

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<v Speaker 1>terms of asset flows going into that area. And I

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<v Speaker 1>think to be an active kind of flexible manager. Um,

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<v Speaker 1>you can really add some value in that space. Interesting

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<v Speaker 1>that there retail is one area that you like on

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<v Speaker 1>a very selective basis. Interesting because we're overstored, We've got

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<v Speaker 1>weak retails sales today. I mean, so many people are

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<v Speaker 1>just its department stores. It's just a tough time to

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<v Speaker 1>be a retailer. So who do you look for in

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<v Speaker 1>a space like that? So that goes back to that

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<v Speaker 1>that concept of slow growth. I mean, we think of

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<v Speaker 1>the retail world as a fixed pie, and we want

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<v Speaker 1>to own the companies who can who can gain a

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<v Speaker 1>greater piece of that stagnant pie. So you look at

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<v Speaker 1>an Amazon, Um, you know, they're a terrific example of

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<v Speaker 1>a company that is able to take market share kind

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<v Speaker 1>from traditional retailers. Um. You know, the e commerce are

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<v Speaker 1>certainly growing as a percentage of total retail, and then

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<v Speaker 1>they're taking market share within e commerce, so they have

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<v Speaker 1>a lot of ways to win. And I think that's

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<v Speaker 1>how you have to approach the traditional retail market. How

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<v Speaker 1>do you approach the market having to do with healthcare?

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<v Speaker 1>I was noting earlier in the week we got some

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<v Speaker 1>news out of the chief financial officer of McKesson, the

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<v Speaker 1>pharmacy benefits management firm, saying that you're gonna see very

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<v Speaker 1>muted price increases at least until perhaps, let's say, after

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<v Speaker 1>the election cycle. Because the media attention political attention on

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<v Speaker 1>price increases for a drugs, A lot of the stocks

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<v Speaker 1>took a tumble, including express Scripts, and the stock is

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<v Speaker 1>down like twenty so far this year. Is that the

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<v Speaker 1>kind of opportunity that you're saying an active manager can

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<v Speaker 1>get involved with. Absolutely, And I think it goes back

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<v Speaker 1>to some of the themes that I had mentioned earlier,

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<v Speaker 1>where you're looking for themes that aren't tied to kind

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<v Speaker 1>of economic growth or less tightly tied to economic growth.

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<v Speaker 1>So UM, rather than make an investment bay based on

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<v Speaker 1>who's gonna somebody's gonna win in November, we know that

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<v Speaker 1>not a lot of people like it, but they but

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<v Speaker 1>we know that UM, so we want to make an

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<v Speaker 1>investment into themes that are persistent and and will occur

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<v Speaker 1>irrespective of what happens in November. And think about some

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<v Speaker 1>themes and healthcare related to cost containment, and we think

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<v Speaker 1>a company like express Scripts UM is very well aligned

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<v Speaker 1>with planned sponsors, with employers, UM, with providers, to really

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<v Speaker 1>help squeeze costs out of the overall healthcare system. And

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<v Speaker 1>that theme is going to be persistent next year, the

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<v Speaker 1>year after UM and I think, you know, some of

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<v Speaker 1>the uncertainty caused by the election can be a benefit

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<v Speaker 1>or can be an opportunity to step into a name

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<v Speaker 1>like that. You know, AMC Networks under a bit of

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<v Speaker 1>pressure today there was a downgrade and people are looking

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<v Speaker 1>at some of their new show line ups and ad sales, etcetera,

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<v Speaker 1>etceter More broadly, when you look at companies UM in

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<v Speaker 1>the media world, UM there are you definitely have some

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<v Speaker 1>names you like. Why we liked some of the larger

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<v Speaker 1>diversity by names like like a Time Warner, like a

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<v Speaker 1>Fox UM that had diversified revenue bases and they have

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<v Speaker 1>a lot of their revenue derived from content. So this

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<v Speaker 1>tends to be recurring in nature. UM content. We think, look,

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<v Speaker 1>there's a war going on in terms of where you're

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<v Speaker 1>going to consume this, whether it's online, whether it's on TV.

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<v Speaker 1>Were agnostic to that. We want to own the companies

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<v Speaker 1>who will provide that content and provide in a recurring manner.

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<v Speaker 1>So that's why we like those types of companies. I

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<v Speaker 1>can't let you go without getting your thoughts on Apple

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<v Speaker 1>and what you've been hearing. Are you surprised by the

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<v Speaker 1>increase in Apple related to the release of the new

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<v Speaker 1>iPhones seven, Well, you always get volatility and noise. I

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<v Speaker 1>think around that, we try to step back and focus

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<v Speaker 1>long term, and the thing that we're focused on with

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<v Speaker 1>Apple is they're just continuing to increase their installed base.

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<v Speaker 1>So everyone looks at how many do they sell this quarter?

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<v Speaker 1>Next quarter, we look more at what is the installed base,

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<v Speaker 1>whether you're looking at particularly iPhones, but UM and that

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<v Speaker 1>turns into a service model and then they're able to

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<v Speaker 1>sell into that in the future. So we think that

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<v Speaker 1>they're moving UM to a company that's going to be

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<v Speaker 1>much more recurring in in nature, and you can buy

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<v Speaker 1>it at a very decent price. I want to thank

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<v Speaker 1>you very much for spending time with this, grego Is

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<v Speaker 1>said Greg Woodward is senior analyst Manning and Napier and

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<v Speaker 1>shares of Apple up three and a half percent. We

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<v Speaker 1>take you through it's the close next