Greg Woodard Discusses the Equity Market (Audio)

for having me. So, how does the how do you describe right now? You know, the environment for stocks? Is it? You know, slow growth, but there's lots of opportunity? Is it? What growth isn't so bad? But you have to look around the world. What's the Gregg Wodard view of the equity markets? We say a very challenging growth environment. You combine that with valuations in the equity market um at a point that that we think are really priced for

mediocre returns. So there's nothing to suggest a downturn or a bear market. But we just think it's becoming more difficult to find kind of businesses and stocks and companies that are going to achieve long term investment goals. Having said that, Greg, do you believe that when you have this slow growth environment you describe that people's reaction to negative news is different than if it was a more

robust economy that we were experiencing. Absolutely, And if you look at the nature kind of a volatility, I think that that reflects that. I mean, if you if you look at typical measures and VIX, it's been a pretty complacent market up until the last couple of days. Um, But as you mentioned, you know, you combine that slow growth and look where we are today. We've leveled off and we've improved over the last couple of years, but we've leveled off two really levels of growth that we've

seen at prior recessionary level. So when you get some type of exogenous shock, whether it be Brexit or whereas of China last year, the talk doesn't turn to is it can impact growth? It turns to are we going to have a recession? Are we going to have a bear market? So I think you get these overreactions and you get these bouts of latility and active FLEXI managers can use that not to market time, but to be able to pick up good companies at good prices and

be patient and waiting for some of that volatility. Uh, I just want and let's flesh out again this is basic picture a little bit more because you said, Okay, we've got low growth and it's just hard to find opportunities. Uh is it? Is it a low growth obstacle from the macro standpoint? You just look out across a the U S economy, consumers are spending moderately sometimes well sometimes less business business investments week. You can run through all

the things. Or is it more the companies themselves not doing what it takes, not having any exciting products or services that kind of create the growth. Ye, well, I think it's it's more the former, because there's certainly pockets of opportunity out there. I mean, you look at some of the great technology companies here in the US. You look at some, for example, opportunities within the healthcare space.

So I I think there's companies with great business models with you know, for example, trends of of of moves of businesses and consumers to the online marketplace. So if you can find these companies that can benefit from some of these secular growth themes that aren't tightly tied to the economy. We think there are plenty of opportunities. Let's talk about one of them, in particular, cloud computing. And

we speak a lot about Salesforce dot Com. We've had Mark benning Off, the chief executive of Salesforce dot Com, recently on a Bloomberg Amazon, of course is a well known name. But you mentioned service Now as a company. How did you find service Now and maybe just tell us a little bit about your thinking about how that

came to be part of the portfolio. Certainly, I think they they are a bit under the radar screen, let's say, relative to a Salesforce dot Com, But this is a company that that we think has a lot of recurring revenue, has a subscription revenue model, and has been transitioning towards that. So that's given us a little bit of an opportunity, uh in terms of evaluation. And look, let's be clear, there's not a lot of really good growth companies that

you're going to find at extremely extremely cheap prices. So UM we certainly won't argue that any company within the space UM is incredibly cheap, but we think if you can find these companies against secular growth uh More movement to cloud computing, a company like Service now makes makes for an interesting investment. Well, and how about you know some of them favorites. You know, you got Google, you

got Facebook, you got Amazon, even got price Line. But are these at least become like sort of the steady you can eat something out kind of a stock as opposed to woo jump on board and go for that wild ride. But again, if there's not that much growth, I guess you should be happy even to eke out just some steady, modest growth and reliable names like that?

Is that it? I think that's exactly right. And in the four names you mentioned we would view as kind of core holdings, Um, we've hold we've held all four of those for some time now, and then we will manage the position around valuation. So you know, a great example during Brexit, there was a lot of concern about Europe. Uh, price Line has a lot of exposure, um, you know within the European hotel space. So um, there's an example of where you get a pull back in a great company.

There's a price that you want to own a little bit more of it, and you can manage that position and add to it. So that's really how we view kind of those core positions. The disposition of the SMP five in terms of industry groups UH is changing and instead of just being ten, there are going to be eleven industry groups. And Dave Wilson are stocks Commist has noted this previously, but they're reclassifying real estate. It's going to be its own sector. Talk about how that may

offer opportunity. Sure, I think, you know the world is looking for yield, and it's kind of interesting. Fixed income investors are relying on capital appreciation for yield. They're buying at zero and sometimes below zero interest rates. Equity investors are are seeking out kind of income. So it's kind of a you know, the world is on its on its head, so um, you know, but I think that does provide some opportunities. And it's interesting they're breaking out

the resector from financials. Reats historically have provided a good inflation hedge for investors UM, and it's interesting, UM, if you're kind of active and selective within that space, UM, I think there'll be more of an effect on the mid and small cap names within that space UM in terms of asset flows going into that area. And I think to be an active kind of flexible manager. Um, you can really add some value in that space. Interesting that there retail is one area that you like on

a very selective basis. Interesting because we're overstored, We've got weak retails sales today. I mean, so many people are just its department stores. It's just a tough time to be a retailer. So who do you look for in a space like that? So that goes back to that that concept of slow growth. I mean, we think of the retail world as a fixed pie, and we want to own the companies who can who can gain a

greater piece of that stagnant pie. So you look at an Amazon, Um, you know, they're a terrific example of a company that is able to take market share kind from traditional retailers. Um. You know, the e commerce are certainly growing as a percentage of total retail, and then they're taking market share within e commerce, so they have a lot of ways to win. And I think that's how you have to approach the traditional retail market. How do you approach the market having to do with healthcare?

I was noting earlier in the week we got some news out of the chief financial officer of McKesson, the pharmacy benefits management firm, saying that you're gonna see very muted price increases at least until perhaps, let's say, after the election cycle. Because the media attention political attention on price increases for a drugs, A lot of the stocks took a tumble, including express Scripts, and the stock is

down like twenty so far this year. Is that the kind of opportunity that you're saying an active manager can get involved with. Absolutely, And I think it goes back to some of the themes that I had mentioned earlier, where you're looking for themes that aren't tied to kind of economic growth or less tightly tied to economic growth.

So UM, rather than make an investment bay based on who's gonna somebody's gonna win in November, we know that not a lot of people like it, but they but we know that UM, so we want to make an investment into themes that are persistent and and will occur

irrespective of what happens in November. And think about some themes and healthcare related to cost containment, and we think a company like express Scripts UM is very well aligned with planned sponsors, with employers, UM, with providers, to really

help squeeze costs out of the overall healthcare system. And that theme is going to be persistent next year, the year after UM and I think, you know, some of the uncertainty caused by the election can be a benefit or can be an opportunity to step into a name

like that. You know, AMC Networks under a bit of pressure today there was a downgrade and people are looking at some of their new show line ups and ad sales, etcetera, etceter More broadly, when you look at companies UM in the media world, UM there are you definitely have some names you like. Why we liked some of the larger diversity by names like like a Time Warner, like a Fox UM that had diversified revenue bases and they have a lot of their revenue derived from content. So this

tends to be recurring in nature. UM content. We think, look, there's a war going on in terms of where you're going to consume this, whether it's online, whether it's on TV. Were agnostic to that. We want to own the companies who will provide that content and provide in a recurring manner. So that's why we like those types of companies. I can't let you go without getting your thoughts on Apple

and what you've been hearing. Are you surprised by the increase in Apple related to the release of the new iPhones seven, Well, you always get volatility and noise. I think around that, we try to step back and focus long term, and the thing that we're focused on with Apple is they're just continuing to increase their installed base. So everyone looks at how many do they sell this quarter?

Next quarter, we look more at what is the installed base, whether you're looking at particularly iPhones, but UM and that turns into a service model and then they're able to sell into that in the future. So we think that they're moving UM to a company that's going to be much more recurring in in nature, and you can buy it at a very decent price. I want to thank you very much for spending time with this, grego Is said Greg Woodward is senior analyst Manning and Napier and

shares of Apple up three and a half percent. We take you through it's the close next