Buy community banks on credit, Sell Disney over messaging: Strategist's stock trades

Commerce Street Capital CEO and President Dory Wiley joins Yahoo Finance Live to discuss his preferred stock trades: Buy small, community banks ConnectOne Bancorp (CNOB), Peapack-Gladstone Financial Corporation (PGC), and Texas Capital Bancshares (TCBI), while avoiding Disney (DIS) and Tesla (TSLA).

Wiley states smaller banks are "picking up on the failures" of regional banks like Signature and First Republic. ConnectOne, Peapack-Gladstone, and Texas Capital saw declines in the month of March amid banking woes, but their shares have been on the mend since then. "Those are nice conservative plays in the banking industry just in case things were to go wrong, these banks actually would do better when things go wrong because they're so strong in capital," Wiley says.

Wiley advises investors to avoid Disney as the House of Mouse seems "out of touch" with their customers, the market, and the politics of their own state. Disney has entered into lawsuits against Florida Governor Ron DeSantis after he formed an advisory committee to revoke the theme park's special tax status. Lastly, Wiley finds EV maker Tesla to be a "popularity stock", likening it to a meme stock due to its high volatility, overvaluation, and ability to regularly go against the fundamentals.

Video Transcript

SEANA SMITH: Wall Street also walking back recession talk today. Economists at Bank of America saying that the US will not enter a recession and instead experience a soft landing. This comes after Fed staff also revised their projections saying something similar.

So how should investors navigate their portfolios amid this reversal and also the turmoil that we're seeing play out in the markets today following the downgrade of US credit by Fitch? We want to talk about some picks and some stocks to avoid. For that, we have Dory Wiley, Commerce Street Capital CEO and president.

Dory, it's good to see you here. So I think a lot of investors are trying to figure out where to place their money right now. Let's start with two of your picks, two smaller banks that you like, ConnectOne Bancorp and Peapack-Gladstone. What's the bull case for these two smaller banks?

DORY WILEY: Well, I think there's an industry play here and then a stock-specific play. On the industry of banking, I think you got to weigh in, dive in. You know, we're all cautious about commercial real estate refinance wave, asset liability risk, liquidity risk, et cetera as what happened in April over those kind of things. And the market's clearly telling us in July that it is. Banks have out rallied big tech and did very well in July.

So I think there's some-- I would be real careful in what kind of banks got into. So these two picks I like a lot that are in the New York area and New Jersey. They're smaller community banks. They're picking up on the failures of Signature and First Republic and gathering business, but they're very strong banks as well. They're pushing 8 plus 9% capital, both about 25% to 30% more than the percentage capital that JP Morgan has.

At the same time, they're extremely cheap trading very close to tangible book value. They got great management, great growth prospects. They're very conservative on their credit underwriting. And I think those are nice conservative plays in the banking industry just in case things were to go wrong. These banks actually would do better when things go wrong because they're so strong in capital.

AKIKO FUJITA: Another name that you like, Texas Capital Bank shares, how does that fit into that checklist you just talked about, about which banks are positioned the best?

DORY WILEY: Yeah, so Texas Capital I threw in there for the same reasons. They're very strong in capital. They came into this last year actually shrinking and changing their balance sheet, changing their strategy under a new management team.

But because they're here in Texas and this economy is extremely robust here right now, they're really positioned more than I see a lot of banks that take advantage and grow should things get worse. If things just get better, then they should do fine, too. They just got to keep continuing this transformation that they're going through. And the market seems to be waiting to see if they can do this, but I think they're probably worth the bet that they can do this.

They've got a really good quality people there. They've got a good management team. I expect them to do well. And they trade as cheap as any bank on the market right now pretty close to tangible book value. And they're running just under 10% tangible capital at the holding company, which is fantastic.

SEANA SMITH: All right, so, Dory, you're seeing some opportunity in some smaller banks. Let's talk about what you're saying investors should avoid right now. And one of those names is a name that I think nearly everybody knows-- everybody knows and that's Disney. We're going to hear the results from Disney next week.

Clearly, there's a lot of challenges when it comes to Bob Iger and what exactly he sees as the future of Disney right now. But what's your sell case? Why are you avoiding them at this point?

DORY WILEY: Well, they seem, you know, very out of touch with the politics of their state. They seem to be out of touch with their customers. They seem to be out of touch with their market. And they seem to be losing their touch, you know.

And it's one thing if you can still perform if you're going to isolate and, kind of, play politics, if you will, on the woke business, but they're putting out a stream of succession of movies that are starting to fail. They're just not doing very good. And so they're getting a track record of failure here that really concerns me.

They've had trouble with a lot of cancellations in Disney Plus, a lot of controversy with the governor. I just think it's not a good thing to be caught up in when you've got all this turmoil at Disney. So I would avoid them for a while until they show me that they've got a smooth path to success.

AKIKO FUJITA: And finally, another stock you don't like, Tesla. Is this a valuation concern? If so, at what price point would you get in?

DORY WILEY: Oh, my gosh! I'm not sure you can value Tesla. You know, the thing is, is I hate to say anything negative about them because I'm actually become a reluctant fan of Elon Musk. And I really appreciate him honorably stepping up and being-- well, maybe being forced to do the Twitter deal and he's really going through some massive change. And actually, it's pretty incredible what he's been able to accomplish so far. So I wish him nothing but the best of success.

But that stock is a-- you know, it's popularity stock. It's a trend stock. It doesn't trade on fundamentals. It's way overvalued.

And so I just don't-- I don't play in Tesla. It's too volatile and it doesn't follow any fundamentals at all. It's a popularity contest or meme stock and I just stay away from it. I think it's dangerous.

SEANA SMITH: Meme stock, all right. Dory Wiley, thanks so much for laying out your picks and your icks for us. We look forward to talking to you again soon.