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Election may provide 'great buying opportunities' for investors: Portfolio Manager

Concerns for investors continue to mount as the presidential election looms. Villere Balanced Fund Portfolio Manager Lamar Villere joins the On the Move panel to discuss.

Video Transcript

ADAM SHAPIRO: We're going to be talking about the stimulus and its impact on the airlines in just a few minutes. But we want to talk about its impact also on the economy and on markets. And to help us do that and to break it down, we invite into this stream our guests right now, who is Market Outlook's Lamar Villere from the Villere Balanced Fund portfolio manager.

Good to have you here. Wanted to ask you several questions about the flow we're watching in and out of, for instance, equities this week with several weeks of decline. But first, let's talk about the economic impact from the political stalemate and the stimulus stalemate that we're witnessing. What do you make of this?

LAMAR VILLERE: You know, obviously, there's a lot of moving parts as far as what's going on with DC. You know, we're bottoms-up investors here at Villere & Co., so we're really more focused on the individual names. You know, I think they're going to get something sorted out. But that's not really where we're spending our time.

JULIE HYMAN: And Lamar, it's Julie here, even though you guys are, you know, bottoms-up investors, surely, when you look at what's happening in the economy and the prospect of stimulus or no stimulus, that's got to then affect the bottom lines of some of the companies that you're watching. So-- or are you trying to look for stuff that's agnostic of all of this?

LAMAR VILLERE: For the most part, we're picking things that are agnostic. Now, there are opportunities where you see valuations really drop. There's a company called First Hawaiian Bank, where it's down 50% this year. If you believe that no one's ever going to travel to Hawaii again and that tourism market and real estate market are going to be disastrous forever, obviously, that's a place to avoid.

But something that's down 50% this year with a 7% dividend yield, that's an opportunity. So where things get unreasonably cheap, we think those are opportunities. But generally, what we'd like to look for is things where, you know, the stimulus isn't going to have an outsized impact. And, you know, do we think there's going to be no-- there's going to be a stimulus.

The Fed's going to stay low, some of these basic things are going to happen. If, you know, if you'd look beyond, kind of, the noise coming out of DC, it gets a little easier to make long-term decisions.

JARED BLIKRE: Jared Blikre here. You just mentioned dividends, and you take a company like Exxon, their dividend yield is approaching 10%. Does it concern you that a company like that may have to cut its dividend as many other energy companies have done? Is there some kind of threshold there that you look at?

LAMAR VILLERE: Yeah, I mean, it's not as-- you know, you look at the payout ratio, and basically, Exxon can't afford its dividend. So they're going to have to cut it. As a matter of fact, I think investors will cheer when they do cut it because generally, investors who are doing their homework can see that it's not sustainable. You can't keep borrowing money to just pay it out to your shareholders. That's not going to work over the long term.

You know, we're actually pretty bearish on energy, which no real surprise. And we think there are lots better-- lots of better ways to invest your money. You don't have to invest in energy. There are safer ways, we think, to get returns. Yeah, that dividend yield at Exxon jumps out at you. You know, anybody can run a screen and say what looks cheap in terms of dividend yield.

But you really have to look a little further at the underlying business fundamentals.

DAN ROBERTS: Lamar, Dan Roberts here. You mentioned the noise coming out of DC. I feel like for months we've parsed, you know, what might happen to markets if it's Trump again, what might happen to markets if it's Biden. But the latest that you hear is that it could be a contested election, where there is maybe a high chance that we don't actually have a final answer the night of the election, that it might take a few days to work out.

What would that do to markets? I would imagine that would quickly become kind of the biggest overhang and cause a lot of turmoil.

LAMAR VILLERE: Without a doubt. Now, that said, you know, that's already-- we think that's already priced into the market. I think it's not going to stun anybody if there is, you know, lagging mail in ballots, et cetera. Things may take a little while to shake out. But I don't think that's going to stun anyone at this point.

But you look back at the last election. There was a huge surprise, right? No one expected Donald Trump to be elected. The-- overnight, the markets plummeted. By the next day, things sort of shook out. So I think, yeah, that a brief unexpected event causes a shock and can unearth some opportunities, candidly.

But, you know, we're expecting, you know, come inauguration time, there's going to be a new president-- or a new president or a reelected president, but a duly elected president in office. And so whatever happens during that period, we think, hey, that may produce some great buying opportunities for us, which we've been waiting for.

ADAM SHAPIRO: So Lamar, when you talk about the 22.8 billion as one bank is telling us, the flow out of equities that we've witnessed recently, that money is just sitting on the side. You would put it to use with small cap, but you'd be careful with small cap, right?

LAMAR VILLERE: Well, that's right. You know, with any stocks, it's important which ones you buy. We don't believe in the just sort of throwing-- throwing money at an index and hoping that it works out, particularly if you don't understand what's really in that index. So with small caps, even more so, there's a huge dispersion, and there's a huge difference in the quality of the different names and how attractive they are.

That's where we think the opportunity is. So if you're very focused and do your homework, we think that's where you can find really interesting opportunities. Even in a market like we had at, you know, several weeks ago, where things have just gone straight up for so long. That's where you can still find some interesting opportunities for long-term investments.

JULIE HYMAN: Hey, Lamar, one of the things I haven't heard you mentioned is something that people are also throwing a lot of their money at and have been consistently, and that's large cap technology. But you think there's a lot of risk there. Why are you avoiding that? Obviously, it's very, very popular right now. Why are you not attracted?

LAMAR VILLERE: Well, that's the number one reason, right, is that they are very popular. So there are some great companies, the Fang stocks, the Facebook, Apple, Amazon, Netflix, Google, and so forth. Tesla, obviously, has been on everybody's mind as of late, given the incredible performance. And a lot of those are great companies and great businesses that I'm happy to be customers of.

That said, there's been a huge run up in their valuations over the last several years and even more so this year, where it's really crazy. You know, you look at how the NASDAQ has done relative to even the S&P or much even more so the Russell 2000, which measures small caps. I mean, there's just been this huge difference in the performance of those stocks.

And a lot of that, I think, is just driven by people putting their money in the passive S&P funds, not realizing that they're pumping up these stocks even more. And we think that's a huge risk. And, you know, to your point, they're popular. Anytime something's popular, that makes us very nervous.

ADAM SHAPIRO: OK, Lamar Villere is Villere's Balanced Funds portfolio manager. It was good to have you here.