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It's still a bull market and Cisco's a buy: TIAA-CREF's Malik

Michael Santoli
Michael Santoli

Market corrections can be scary – especially when they hit so suddenly after a long stretch of calm. And it’s hard to distinguish a routine pullback from the onset of a bear market.

Yet the way the S&P 500 (^GSPC) bounced twice -- in August and September, off 2015 lows beneath the 1900 mark -- is leading some long-term investors to bet that this was a nasty shakeout that has probably passed.

Saira Malik, head of global active equity portfolio management at TIAA-CREF, is among those putting clients’ money behind the idea that the recent lows should hold.

“We actually do think the market has bottomed and will probably resume an uptrend from here,” Malik says in the attached video interview. “And that’s because investors are going to warm up to the fact that the market’s not too hot or too cold.

“The economy is basically a Goldilocks economy right now,” she adds, employing a phrase for the moderate growth pattern of the 1990s.

Long-running positive trends in domestic job growth and tame inflation have been only partially offset by “mostly transitory” negatives such as the drop in energy prices and an inventory pullback.

While the risk of more economic pain in China and other emerging economies persists, Malik says TIAA-CREF – which oversees nearly $900 billion in retirement and mutual fund assets – believes other developed economies such as Europe’s are improving.

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The 12% setback in the S&P 500 in recent months – and even deeper damage to smaller stocks – has knocked loose some attractive equity opportunities, Malik says.

Among the hard-hit sectors, “We do like energy here,” she says, with an emphasis on companies plying the Permian Basin centered in West Texas. One name she favors there is Diamondback Energy Inc. (FANG), a $5 billion market-cap exploration play, whose shares fell from the low-$80s in June to around $60 in August, before rebounding above $76.

She also likes Berry Plastics Group (BERY), a maker of plastic cups and other packages, which has a careful acquisition strategy and, Malik says, free cash flow production equivalent to 11% of its market value.

And at a time when the giant stalwarts of Old Tech are capturing attention with the planned merger of Dell Inc. and EMC Corp. (EMC), Malik has warmed to Cisco Systems Inc. (CSCO), which she says is a company with its “own levers to pull. In this case, they are a new management team shifting the company to a software-and-services sales approach and a path to increase profit margins to the low-30% range from the high 20% level.

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