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China Evergrande Group 'won’t affect a large part of the U.S. stock market': Momentum Advisors CIO

In this article:
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Allan Boomer, Momentum Advisors Chief Investment Officer, joined Yahoo Finance Live to break down today's market action.

Video Transcript

ADAM SHAPIRO: OK, welcome back to Yahoo Finance Live, with an hour-- less than an hour to go until the closing bell. We are watching the sell-off. It picks up some speed, and then it pulls back slightly. The Dow at this point is off 880 points. You see that the S&P 500 is off roughly 114 points. And you've got the NASDAQ down 465 points.

When you look at the Dow and where things are headed, the-- those leading to the downside, Caterpillar off more than 5%, Goldman Sachs down almost 5%, JPMorgan Chase off about 4%. And then you've got Dow Inc is off about 3.7%.

We want to talk about all of this. And help us understand how this issue in China with Evergrande, the giant property developer, is impacting perhaps sentiment across the globe. And we bring into the stream right now Allan Boomer. He is Momentum Advisors Chief Investment Officer.

And it's good to have you here, Allan. Help us understand what might be driving US equity markets right now. Is it the fear of what we don't know about China, or is it the fact that we've enjoyed a really good run, and we've got an FOMC meeting where they may actually pull the punchbowl away from us and start talking about it?

ALLAN BOOMER: That's a great intro. I think it's all of the above, right? Like, we've had really, really strong markets this year. We're up almost-- if you just look at the S&P 500, coming into today, up almost 20% for the year without a single 5% pullback, right? And we might be approaching that point with today's action. When you have really strong performance, the market was priced to perfection coming into today, right? Any bit of bad news is going to cause alarm.

And so, you know, the news over in China today, coupled with, you know, we have, you know, Janet Yellen writing an op-ed in "The Wall Street Journal" this weekend asking for an increase in the debt ceiling in the US. This is the sort of news that'll spook the market. But I do think this is more of a buy on the dip opportunity than something to really be concerned about.

SEANA SMITH: So, Allan, then, when you're looking for areas to buy in this type of environment, I think investors are struggling because we're certainly seeing this risk-off sentiment take hold today. Where are you putting money to work on a day like today?

ALLAN BOOMER: So I'm buying the market broadly today. In particular, you know, I just look at it like this. I think that in the US in particular, we have a lot of really strong things going on that even if this Evergrande thing is a catastrophe, it really won't affect a large part of the US stock market, right? Like, they've borrowed money from a lot of different folks. But a lot of the lenders are Chinese institutions and Chinese investors, right?

And so I don't see this as a global phenomenon. So if I can buy even just the S&P 500 at a 3% discount today, why not? But I also want to buy things that are cheap. Right now, the valuation on the market is really very, very stretched. But there's some segments of the market that are trading at a deep discount. And that's where I want to focus personally.

ADAM SHAPIRO: Can we talk about those discounts? Because when some of us are very passive investors and we buy an index fund, like the S&P 500, but within the S&P 500, for instance, the S&P Small Cap stocks, 48% of them, there was a recent analysis, are off from their 52-week highs by almost 20%. So it would seem to me, if you're looking for cheap, the place to look is those S&P small caps.

ALLAN BOOMER: Well, small caps, you could look at. The challenge to buying, let's say, a small cap index is that, yes, 50% of those companies are trading at a-- off their high, but that means 50% are trading above the high, right? I think this is the sort of environment you want to look kind of beyond just the indexes and really look for some individual names. Like, there's certain parts of the market where I think there's a lot of value.

Like, for instance, I like the regional bank. There's Citizens' Financial, which is trading at less than 1 times book value. Like, if you were to buy, let's say, the financial sector ETF, you might get a little bit of Citizens' Financial, but right now, it's a great time to do some stock picking, looking for value.

SEANA SMITH: And you also like a name like-- I'm looking at some of your other picks here-- Activision Blizzard, right? What stands out to you about this name? Because I guess you could also make the argument that it could get caught up in maybe some of that risk-off type of sentiment, or, again, hit, I should say, by that risk-off type of sentiment that we're seeing today.

ALLAN BOOMER: Sure, I think a name like Activision Blizzard, I mean, they're in the video game space, right? So, again, whatever is happening in China won't have a material impact on this company. What might happen with the Delta variant and future shutdowns won't be a negative for this company because folks are playing video games, whether the economy is open or whether it's closed.

What I like about this company is I can buy this stock today for a lower multiple than the overall market. And I expect that Activision Blizzard will grow at a faster rate than the overall economy, and then the overall S&P 500. So this is the perfect example of a stock that's trading at a lower valuation than the market and has some really good growth prospects as well.

ADAM SHAPIRO: I had hoped to ask you about Activision and the Chinese crackdown on gaming because they don't want their kids playing these games. But I think we're trying it out right now with what's going on with other issues. So let's talk about FedEx, because when you look at a company, I mean, their PE right now is at 12. So they're below what you would expect. But there are other things that are attractive about them. What are they?

ALLAN BOOMER: Yeah, I think it's just the continuation of the e-commerce story, right? Like, you're getting FedEx at a valuation discount that's almost half of the market. They're even trading at a 20% discount to their biggest competitor, United Parcel Service, which is another stock that I love. And you're getting the e-commerce story. E-commerce works whether the economy is open or closed, right?

And with people experiencing the COVID shutdowns of last year, a lot of folks got accustomed to ordering things online. And not just from the Amazon, but from a lot of smaller sellers. And so FedEx, I see a FedEx delivery in my building probably three times a day, right? And again, I think FedEx is one of those names that is really levered to just continued positive trends in e-commerce.

ADAM SHAPIRO: All right, Allan Boomer is Momentum Advisors Chief Investment Officer. We appreciate your being--