FBB's Bailey Likes Consumer Staples, Looking at Tobacco (Audio)

US consumer. We get retail sales numbers Friday morning today, Macy's punging fifteen percent, Disney down four point three percent. Here's where we stand, a two hundred point loss now for the down Jones Industrial Average at seventeen thousand, seven hundred twenty eight, down one one percent, SMP five hundred index down seventeen, a drop of eight tents of one percent. Has stacked down forty two points, a drop of nine

tenths of one percent. Gold up fourteen ten, the ounce to twelve seventy eight, a gain of one point one percent. Crude picking up three point two percent and hired by a dollar forty three a barrel O nine. I'm Charlie Pellett and that's sub Bloomberg Business Flash. Charlie Pellett, thank

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F form At a conference last week. Unlock called buying mortgage read e t F s a no brainer. Bloomberg intelligence analyist Eric do Tunis sounds a cautionary note. Keep in mind this is not your grandfather's read. These aren't companies that hold real estate and properties and physical properties. Instead, says bell Tunis, these are financial firms that land out at short term rates and then buy mortgage securities at the long term rates, so they make money on the

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has total assets of nine one million dollars. That's your Bloomberg ETF report. I'm Catherine Cowlery. This is taking stock with Kathleen Hayes and Pim Fox on Bloomberg Radio. So far this year, the sm P five hundred has produced a return of one point two percent. The dividend yield is two point two percent. Here to help us make sense of this and what to do with our money, is Mike Bailey, Director Research at F b B Capital Partners,

helping to manage eight hundred and fifty million dollars. Joining us from Washington, d C. Home to Bloomberg one and one oh five point seven h D two F M. Mike Bailey, give us your strategy your thesis right now for investments, given uh, the paltry returns that people can expect by investing in bonds, but also it seems the performance of the stock market this year. Absolutely and thanks

to Pam and Kathleen for having me back on. So yeah, in terms of taking a look at the markets and kind of what would we expect for perhaps the remainder of the year, I would think it's going to be you know, kind of load of mid single digit returns. That's kind of what we've seen year to date, although it's certainly been a bit of a roller coaster. But you know, we look at if you sort of strip out energy and some some parts of the market that

have happened they're having a tough time. Uh, you know, I think just look at earnings growth. Then you know, you call it mid single digit. You've got some companies with some nice dividend yields that gets you kind of mid to high single digit it um. I think that's that's a fairly reasonable sort of yardstick in terms of

what to expect for for the full year. So might might not be too exciting for the last last a few months, but I think, you know, we may end a year sort of look back at maybe a five seven percent return for the full year, which was roughly in line with what you've seen historically. Let's check some factors off the list, and of course I'll start with the FED, because I'm such a Fed nerd Is it

kind of asymmetric at this point? If the Fed doesn't raise rates until the end of the year, if at all, does that not help stocks much because it's kind of priced in right now and people are doubting the federal move. Whereas the Feds surprises all the people who don't think they're going to move in June and does raise the key rate again, would that be detrimental to stocks great point?

You know, I think, you know, you could argue that that's kind of a you're looking at probabilities to think investors right now are thinking there's a very low probability of a rate hike UM, and say if that does happen, I think there's a there's some validity there. So especially if you get you know, two or maybe three hikes UM, certainly I think that that would keep a lid on stocks. But I think at this point, just looking at at

the data it's been coming out my my sense. I guess I tend to go along with with some of those other broader views that were like unlikely to see a hike for a while. I think, you know, as we get into election season, although they said that tries to be separate from from politics and such, you know, we may see them pushed until after the election. Perhaps

you'll see a ray hike in November or December. And I think even with that kind of upside and downside sort of scenarios we're talking about, I think there's still room for equities to move up another three or four in the back half the year. Well, equities have moved up what about twelve thirteen percent since that drop that

took place I guess the middle of February. Can you explain what you would be putting the money into now if you believe, first of all, that the market is going to continue to perform as it has at least

since the end of February. Certainly so, our our client base is a little bit more on the lower end of the risk return a curve, so uh, you know, with that kind of in mind, we typically would look a little bit more towards some of the defensives, although you know, when I say defensive, we've got some kind of more aggressive picks within that that sort of theme. So, you know, in general, healthcare is the name that that we like, although within that we've certainly got some high

growth of biotech. We've got you know, HMOs for example, that those are pretty interesting. United Health has done well. We think that that continues. UH. And there's some others in there, for example, even a Shire, which is a company that's a fairly high growth and certainly has moved around a bit, but I think that one's got some

acquisitions that could drive it. UH. Some other areas that we're looking at utilities and certainly one of the UH more kind of slow moving sectors traditionally, although it's had a great run. We still like utilities for the back half of the year, although we're trimming a bit following the out performance we've seen here to date. UH. And then another couple of areas again we're looking at the

consumer space UM. Despite kind of the carnage we've seen today, I think more in the consumer discretionary side, we're a little more interested in this apples a business, so m you know, we like you know, sort of if you want to call it the baby large caps Clorox and Church and Dwight for example, those those look pretty interesting. Um. Even tobacco names, uh look look pretty interesting, especially yield. Can I ask you about tech stocks textings with long

growth tails? Absolutely so one of the areas that I mean, I sort of started out with some more of the defensive sides, but in tech we're still a bit sort of below weight in tech, we're looking to add some things. One of the areas we're looking at is cybersecurity, and that that's certainly all over the news, but our senses looking at some of the companies that are growing a little more quickly, and I think basically looking at market penetration. One of the names that we've looked at is pala

Alto Networks. UM. Certainly uh, pretty high growth company. But basically they they've given some interesting clues um for example, a recent investor meeting and if you sort of triangulate what they're talking about. UM, as long as people keep spending money on cybersecurity, which in our minds is kind

of just attacks on business these days. Uh, and a company like a pile out the networks continue to gain share, I think it looks pretty interesting, and you do have to go out a few years, but as long as they keep tracking towards the market share goals, companies like that looks pretty compelling. I mean you could put certainly five even ten years of a sort of long growth tail on a business like that. Mike, what is some of the common questions that you're being asked by your

customer base? Yeah, I think one of the bigger ones is just valuations. So you know, we take a look at the SMP for example, I think on on our metrics of training about eighteen times earnings, that's basically the recent high. So if you go back, you know, a year or two, that's that's kind of where we are. And the question is, you know, where do we go from here? Um So I certainly would agree that that I think I mentioned earlier keeps a bit of a

lid on on equities. UM I think we're unlikely to see a repeat of kind of the glory days of twenty twelve, thirteen or fourteen, but I think you're likely see a bit more out performance here. You know, again, just very nice sort of beating and raising by a lot of companies. You've got some nice growing dividend deal and that type of thing. Uh, And I think that can keep you know, multiples of continuing a bit higher.

The flip side here, we haven't quite talked about bonds yet, but really, you know, if you're looking to get some fairly stable returns, and bond yields are really just almost you know, essentially negligible, you can look at some high qualities equities and get some very nice dividendnields there. And I think investors may see flow funds continuing into equities

that can drive theres a bit higher. Even some bond guys say that big dividend payers are the new the new bonds, right, So speaking a little yields though, do you see broadly are you strictly um sticking to a US centric strategy, any opportunities you consider overseas? Yeah, I think in general we are askewed a bit more to the US and developed markets, but that we're certainly keeping our eyes wide open, uh, you know, to two opportunities outside.

I think certainly other developed areas. Europe. A lot of folks are are pointing there. We own a few individual equities based in Europe, so I think we've got a bit of a toe hold. They're still a little a little bit of concern. Yeah, I think, um, you're just a lot of issues there. Demographics, you've got immigration, you've got currency maybe going against Europe this year as opposed to being a tail win last year. So some concerns

in Europe. Um other areas, China certainly lots of volatility there. We're still a bit cautious on China. We we tremmed our positions last year where we're not quite ready to jump back in the water at this point. But do you want to be wide open. You know, it could be some opportunities and it could be some areas to take a look at. But I think what we're still a bit more cautious at this point. All right, Mike Bailey,

thank you so very much for joining us today. He is, of course, director of Research and see f A at f BB Capital Partners uh EITHER in fifty million dollars of assets under management, located in the nation's capital, Washington, d C, home of Bloomberg One. What has certainly been an interesting day in the stock market. Almost every retailer in the country getting pounded, except up for the giant

online retailer whose name you know so well. Dave Wilson way back, our stocks editor to look at movers and shakers. I'm caffeine Haze, along with Pim Fox taking stock on Bloomberg Radio