Chief Market Strategist on why investors need to look at a company's balance sheet

Victoria Fernandez, Crossmark Global Investments Chief Market Strategist, joins The Final Round to discuss the recent market volatility and the NASDAQ tops 10,000 for the first time.

Video Transcript

MYLES UDLAND: We're joined now by Victoria Fernandez. She is the chief market strategist at Crossmark Global Investments. And Victoria, I guess let's just start by talking about what you've done in the last couple of months as the market had this precipitous drop and then, obviously, this massive rally.

Was this an active period for you guys? Were you compelled to do a bunch of stuff, or did things move so quickly that being patient was something you were more inclined to be at this time?

VICTORIA FERNANDEZ: So Myles, we kind of did a combination of the two. When the market originally did its drop, we did use that to our advantage. We went in and we bought some names that we wanted to add to. And it's those typical names you would think of-- some Amazon, some Microsoft, some Apple. Those are names we originally bought when the market did its big drop.

But then we shifted at that point in time. And we really said, let's look at names that we think even though they're high flying names, let's look at some that we think have longer term trends associated with them. We didn't want to go in and buy just COVID-19 names or reopening names that you're seeing do a lot of volatility right now.

Find some names in the cloud space, 5G, data infrastructure, even internet businesses that have found new ways to communicate with their clients and we think it will continue going forward, like telemedicine. Look at some of those names.

I will tell you, Service Now is a name we put in our portfolio. Charter Communications is in there-- American Tower. All kind of secular growth names that have longer term trends associated with them and are not just quick term bets for your portfolio.

MYLES UDLAND: And along those lines, Victoria, in terms of, you know, you talk about these secular trends, but some of these names have certainly been swept up in some of what the market has done just on a short term basis.

And in thinking about a valuation framework, have you maybe reorganized or gotten rid of some stricter rules you might have been applying if it was five or six years ago and said, hey, maybe the stock trades at a certain multiple of revenue that I don't love.

But on the other hand, the world is changing very quickly, and I can't be wedded to only liking names under a PE of x or a price to book of y. And I just have to be a little bit more flexible in how I think about it.

VICTORIA FERNANDEZ: I think more flexible more in the way that we are approaching valuation. So we don't have strict rules. Like you said, it has to have a PE of this or a value of this. But what we're looking at is what are the names that have competitive advantages going forward? What are some names that, like I said, have that longer term trend that during some of the pullbacks, we can add to those names? They need to have strong balance sheets.

It's really hard when you have the earning season that we just had and you have companies that aren't really providing guidance going forward to look at a PE and say, yes, this is the correct valuation. So you have to dig in to that balance sheet. Look at the debt loads. We want low debt. We want good cash flow. We want that strong balance sheet.

That really kind of bottom up analysis on companies is where you need to focus right now to determine if it's the right price for you to add it to your portfolio. And we know there's names that have really taken off, but that doesn't mean necessarily you have to avoid them completely.

You can use this as a chance to add a small portion, a tiny component into your portfolio. Then you can take advantage of any movement higher. But if there's a pullback, then you can continue to add.

MYLES UDLAND: And a name I do want to ask you about is S&P. And I'll disclose my brother works there. And he actually flagged to me a couple of days ago that the stock had gone up, like, 4x since he's joined. It's almost-- it's up about 50% from its low. What do you see in that name? You kind of think of it as an under the radar play in this market.

VICTORIA FERNANDEZ: We do, because like I mentioned a moment ago, many people are focused on what is the quick trade right now. And they look at it between a COVID-19 play or a reopening play. This is a name that we feel you can really put in as a foundational name in your portfolio. And that's where we think people are missing right now.

Don't always go after just what the headlines are giving you. Look at names like this that have a strong competitive advantage. They have a very low debt load. So they fit into those tenants that we're looking for when we do that bottom up analysis. And it's a name that people will continue to utilize going forward. It's not going to change when we get through the COVID-19 crisis.

MYLES UDLAND: All right, so I guess don't flip bankruptcy names, is kind of what I'm hearing here, among other things. Victoria Fernandez with Crossmark, thanks so much for joining. We'll talk to you soon.

VICTORIA FERNANDEZ: My pleasure, Myles.