Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim
Speaker 1: Fox on Bloomberg Radio. Volatility markets around the world that
Speaker 1: are watching central banks very closely reacting to headlines on
Speaker 1: oil so much creating volatility again as summer turns into
Speaker 1: autumn this year, what's an investor to do at a
Speaker 1: time like this? We're going to ask Gregg Woodard today,
Speaker 1: senior analyst at Manning and appeared joining us in our
Speaker 1: New York studio today. Welcome to the show. Thank you
Speaker 1: for having me. So, how does the how do you
Speaker 1: describe right now? You know, the environment for stocks? Is it?
Speaker 1: You know, slow growth, but there's lots of opportunity? Is it?
Speaker 1: What growth isn't so bad? But you have to look
Speaker 1: around the world. What's the Gregg Wodard view of the
Speaker 1: equity markets? We say a very challenging growth environment. You
Speaker 1: combine that with valuations in the equity market um at
Speaker 1: a point that that we think are really priced for
Speaker 1: mediocre returns. So there's nothing to suggest a downturn or
Speaker 1: a bear market. But we just think it's becoming more
Speaker 1: difficult to find kind of businesses and stocks and companies
Speaker 1: that are going to achieve long term investment goals. Having
Speaker 1: said that, Greg, do you believe that when you have
Speaker 1: this slow growth environment you describe that people's reaction to
Speaker 1: negative news is different than if it was a more
Speaker 1: robust economy that we were experiencing. Absolutely, And if you
Speaker 1: look at the nature kind of a volatility, I think
Speaker 1: that that reflects that. I mean, if you if you
Speaker 1: look at typical measures and VIX, it's been a pretty
Speaker 1: complacent market up until the last couple of days. Um,
Speaker 1: But as you mentioned, you know, you combine that slow
Speaker 1: growth and look where we are today. We've leveled off
Speaker 1: and we've improved over the last couple of years, but
Speaker 1: we've leveled off two really levels of growth that we've
Speaker 1: seen at prior recessionary level. So when you get some
Speaker 1: type of exogenous shock, whether it be Brexit or whereas
Speaker 1: of China last year, the talk doesn't turn to is
Speaker 1: it can impact growth? It turns to are we going
Speaker 1: to have a recession? Are we going to have a
Speaker 1: bear market? So I think you get these overreactions and
Speaker 1: you get these bouts of latility and active FLEXI managers
Speaker 1: can use that not to market time, but to be
Speaker 1: able to pick up good companies at good prices and
Speaker 1: be patient and waiting for some of that volatility. Uh,
Speaker 1: I just want and let's flesh out again this is
Speaker 1: basic picture a little bit more because you said, Okay,
Speaker 1: we've got low growth and it's just hard to find opportunities.
Speaker 1: Uh is it? Is it a low growth obstacle from
Speaker 1: the macro standpoint? You just look out across a the
Speaker 1: U S economy, consumers are spending moderately sometimes well sometimes
Speaker 1: less business business investments week. You can run through all
Speaker 1: the things. Or is it more the companies themselves not
Speaker 1: doing what it takes, not having any exciting products or
Speaker 1: services that kind of create the growth. Ye, well, I
Speaker 1: think it's it's more the former, because there's certainly pockets
Speaker 1: of opportunity out there. I mean, you look at some
Speaker 1: of the great technology companies here in the US. You
Speaker 1: look at some, for example, opportunities within the healthcare space.
Speaker 1: So I I think there's companies with great business models
Speaker 1: with you know, for example, trends of of of moves
Speaker 1: of businesses and consumers to the online marketplace. So if
Speaker 1: you can find these companies that can benefit from some
Speaker 1: of these secular growth themes that aren't tightly tied to
Speaker 1: the economy. We think there are plenty of opportunities. Let's
Speaker 1: talk about one of them, in particular, cloud computing. And
Speaker 1: we speak a lot about Salesforce dot Com. We've had
Speaker 1: Mark benning Off, the chief executive of Salesforce dot Com,
Speaker 1: recently on a Bloomberg Amazon, of course is a well
Speaker 1: known name. But you mentioned service Now as a company.
Speaker 1: How did you find service Now and maybe just tell
Speaker 1: us a little bit about your thinking about how that
Speaker 1: came to be part of the portfolio. Certainly, I think
Speaker 1: they they are a bit under the radar screen, let's say,
Speaker 1: relative to a Salesforce dot Com, But this is a
Speaker 1: company that that we think has a lot of recurring revenue,
Speaker 1: has a subscription revenue model, and has been transitioning towards that.
Speaker 1: So that's given us a little bit of an opportunity,
Speaker 1: uh in terms of evaluation. And look, let's be clear,
Speaker 1: there's not a lot of really good growth companies that
Speaker 1: you're going to find at extremely extremely cheap prices. So
Speaker 1: UM we certainly won't argue that any company within the
Speaker 1: space UM is incredibly cheap, but we think if you
Speaker 1: can find these companies against secular growth uh More movement
Speaker 1: to cloud computing, a company like Service now makes makes
Speaker 1: for an interesting investment. Well, and how about you know
Speaker 1: some of them favorites. You know, you got Google, you
Speaker 1: got Facebook, you got Amazon, even got price Line. But
Speaker 1: are these at least become like sort of the steady
Speaker 1: you can eat something out kind of a stock as
Speaker 1: opposed to woo jump on board and go for that
Speaker 1: wild ride. But again, if there's not that much growth,
Speaker 1: I guess you should be happy even to eke out
Speaker 1: just some steady, modest growth and reliable names like that?
Speaker 1: Is that it? I think that's exactly right. And in
Speaker 1: the four names you mentioned we would view as kind
Speaker 1: of core holdings, Um, we've hold we've held all four
Speaker 1: of those for some time now, and then we will
Speaker 1: manage the position around valuation. So you know, a great
Speaker 1: example during Brexit, there was a lot of concern about Europe. Uh,
Speaker 1: price Line has a lot of exposure, um, you know
Speaker 1: within the European hotel space. So um, there's an example
Speaker 1: of where you get a pull back in a great company.
Speaker 1: There's a price that you want to own a little
Speaker 1: bit more of it, and you can manage that position
Speaker 1: and add to it. So that's really how we view
Speaker 1: kind of those core positions. The disposition of the SMP
Speaker 1: five in terms of industry groups UH is changing and
Speaker 1: instead of just being ten, there are going to be
Speaker 1: eleven industry groups. And Dave Wilson are stocks Commist has
Speaker 1: noted this previously, but they're reclassifying real estate. It's going
Speaker 1: to be its own sector. Talk about how that may
Speaker 1: offer opportunity. Sure, I think, you know the world is
Speaker 1: looking for yield, and it's kind of interesting. Fixed income
Speaker 1: investors are relying on capital appreciation for yield. They're buying
Speaker 1: at zero and sometimes below zero interest rates. Equity investors
Speaker 1: are are seeking out kind of income. So it's kind
Speaker 1: of a you know, the world is on its on
Speaker 1: its head, so um, you know, but I think that
Speaker 1: does provide some opportunities. And it's interesting they're breaking out
Speaker 1: the resector from financials. Reats historically have provided a good
Speaker 1: inflation hedge for investors UM, and it's interesting, UM, if
Speaker 1: you're kind of active and selective within that space, UM,
Speaker 1: I think there'll be more of an effect on the
Speaker 1: mid and small cap names within that space UM in
Speaker 1: terms of asset flows going into that area. And I
Speaker 1: think to be an active kind of flexible manager. Um,
Speaker 1: you can really add some value in that space. Interesting
Speaker 1: that there retail is one area that you like on
Speaker 1: a very selective basis. Interesting because we're overstored, We've got
Speaker 1: weak retails sales today. I mean, so many people are
Speaker 1: just its department stores. It's just a tough time to
Speaker 1: be a retailer. So who do you look for in
Speaker 1: a space like that? So that goes back to that
Speaker 1: that concept of slow growth. I mean, we think of
Speaker 1: the retail world as a fixed pie, and we want
Speaker 1: to own the companies who can who can gain a
Speaker 1: greater piece of that stagnant pie. So you look at
Speaker 1: an Amazon, Um, you know, they're a terrific example of
Speaker 1: a company that is able to take market share kind
Speaker 1: from traditional retailers. Um. You know, the e commerce are
Speaker 1: certainly growing as a percentage of total retail, and then
Speaker 1: they're taking market share within e commerce, so they have
Speaker 1: a lot of ways to win. And I think that's
Speaker 1: how you have to approach the traditional retail market. How
Speaker 1: do you approach the market having to do with healthcare?
Speaker 1: I was noting earlier in the week we got some
Speaker 1: news out of the chief financial officer of McKesson, the
Speaker 1: pharmacy benefits management firm, saying that you're gonna see very
Speaker 1: muted price increases at least until perhaps, let's say, after
Speaker 1: the election cycle. Because the media attention political attention on
Speaker 1: price increases for a drugs, A lot of the stocks
Speaker 1: took a tumble, including express Scripts, and the stock is
Speaker 1: down like twenty so far this year. Is that the
Speaker 1: kind of opportunity that you're saying an active manager can
Speaker 1: get involved with. Absolutely, And I think it goes back
Speaker 1: to some of the themes that I had mentioned earlier,
Speaker 1: where you're looking for themes that aren't tied to kind
Speaker 1: of economic growth or less tightly tied to economic growth.
Speaker 1: So UM, rather than make an investment bay based on
Speaker 1: who's gonna somebody's gonna win in November, we know that
Speaker 1: not a lot of people like it, but they but
Speaker 1: we know that UM, so we want to make an
Speaker 1: investment into themes that are persistent and and will occur
Speaker 1: irrespective of what happens in November. And think about some
Speaker 1: themes and healthcare related to cost containment, and we think
Speaker 1: a company like express Scripts UM is very well aligned
Speaker 1: with planned sponsors, with employers, UM, with providers, to really
Speaker 1: help squeeze costs out of the overall healthcare system. And
Speaker 1: that theme is going to be persistent next year, the
Speaker 1: year after UM and I think, you know, some of
Speaker 1: the uncertainty caused by the election can be a benefit
Speaker 1: or can be an opportunity to step into a name
Speaker 1: like that. You know, AMC Networks under a bit of
Speaker 1: pressure today there was a downgrade and people are looking
Speaker 1: at some of their new show line ups and ad sales, etcetera,
Speaker 1: etceter More broadly, when you look at companies UM in
Speaker 1: the media world, UM there are you definitely have some
Speaker 1: names you like. Why we liked some of the larger
Speaker 1: diversity by names like like a Time Warner, like a
Speaker 1: Fox UM that had diversified revenue bases and they have
Speaker 1: a lot of their revenue derived from content. So this
Speaker 1: tends to be recurring in nature. UM content. We think, look,
Speaker 1: there's a war going on in terms of where you're
Speaker 1: going to consume this, whether it's online, whether it's on TV.
Speaker 1: Were agnostic to that. We want to own the companies
Speaker 1: who will provide that content and provide in a recurring manner.
Speaker 1: So that's why we like those types of companies. I
Speaker 1: can't let you go without getting your thoughts on Apple
Speaker 1: and what you've been hearing. Are you surprised by the
Speaker 1: increase in Apple related to the release of the new
Speaker 1: iPhones seven, Well, you always get volatility and noise. I
Speaker 1: think around that, we try to step back and focus
Speaker 1: long term, and the thing that we're focused on with
Speaker 1: Apple is they're just continuing to increase their installed base.
Speaker 1: So everyone looks at how many do they sell this quarter?
Speaker 1: Next quarter, we look more at what is the installed base,
Speaker 1: whether you're looking at particularly iPhones, but UM and that
Speaker 1: turns into a service model and then they're able to
Speaker 1: sell into that in the future. So we think that
Speaker 1: they're moving UM to a company that's going to be
Speaker 1: much more recurring in in nature, and you can buy
Speaker 1: it at a very decent price. I want to thank
Speaker 1: you very much for spending time with this, grego Is
Speaker 1: said Greg Woodward is senior analyst Manning and Napier and
Speaker 1: shares of Apple up three and a half percent. We
Speaker 1: take you through it's the close next