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Annandale Capital CEO on his outlook for oil stocks

George Seay, Annandale Capital CEO, joined Yahoo Finance Live to discuss his market outlook and his long term outlook for oil and gas stocks.

Video Transcript

ADAM SHAPIRO: We've got about 10 minutes left in the trading session with everybody in the green right now. The Russell 2000 is actually up about 10 points, and that's the opening to bring in George Seay. He's Annandale Capital CEO. And the reason I mentioned that is you say that people should have exposure to small cap among other investments right now. Make the case as to why.

GEORGE SEAY: Well, it's a pretty simple case to make, actually, and thank you for having me on. There's been about a 12-year outperformance of mega cap growth over small cap, mid-cap value stocks, international developed stocks, and emerging market stocks. And one of the truisms and one of the few truisms of investing is that everything along a multi-decade historical norm reverts to the mean eventually. And we're going to see sometime in the next five years, and it may already be happening, I think it probably is, a reversion to the mean in terms of performance from small caps vis a vis mega cap tech stocks.

And I think we're starting to see that now. And I think investors would behoove themselves well right here at the end of the year to pivot 5% to 10% that direction in their portfolio so they're more balanced. Everyone has been so overweight mega cap tech for so long, and trades don't work forever. And you saw Warren Buffett reduce his Apple position, which is still gigantic, by about 5% in the third quarter. And that's a tip of the hat to reality-- that that stock and its peers have rallied so hard for so long, that gravity is going to take over at some point. And when it does, you're going to want to have some exposure to other things that are clearly undervalued on a historical basis.

SEANA SMITH: So, George, you like small caps. Anything in particular? Is there are certain theme that you're looking for when you're identifying certain opportunities?

GEORGE SEAY: Well, that's the right question, Seana. And I hope you're having a good day so far. I would really emphasize again the combination of small cap and value both, because they've both been out of favor for so long. And for someone with a lot of willingness to take on risk and take a little bit more high beta type exposure, I would look at upstream natural gas producers. The trade for natural gas started up a couple of months ago, and the price of natural gas doubled in five months. And it's given back about 23% recently as people bite their fingernails so to speak over slightly warmer winter rather than they're expecting.

But we're going to have a historically significant gap between supply of natural gas and demand over the next year. And we're going to cut into our supply of that significantly. And I think investors are looking at about a 12-month bull run in those stocks. I'd look specifically at that and more generally, at just small cap value.

ADAM SHAPIRO: George, very quickly, in the natural gas call that you just made, would you include the oil producers? Because I mean, they're trading at levels we haven't seen-- you know, 50% offerances like Royal Dutch Shell. I'm not asking you to pick a stock, but what about big gas, big oil?

GEORGE SEAY: Yeah, that's another good question. If you've got a four-year time horizon. I would definitely include large petroleum stocks, especially the integrateds since they're safer, as well as the Permian Basin independents in that category. But I'm not as convicted in the short term. I think that oil is going to take longer to play out, and it still has an oversupply problem to some degree with OPEC always being a wildcard. So I'm much more convicted on the natural gas call. I think that's a really good one, and I think it's going to really play out strongly over the next 12 months.

ADAM SHAPIRO: George Seay is Annandale Capital CEO. Thank you very much for being here.