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Europe’s been awful relative to the steamroll in the U.S. market: CEO

Sarah Ketterer, Causeway Capital Management CEO joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript


BRIAN CHEUNG: Well, it is noon here in New York City. Welcome to Yahoo Finance Live. I'm Brian Cheung, alongside Seana Smith here to guide you through the next hour of trading. We're filling in for Zack Guzman and Akiko Fujita, who are off. And let's see what we're working with on this Tuesday afternoon, headed into the holidays.

A mixed bag across the market. The Dow Jones down by about half a percentage, with NASDAQ getting a small bit of just barely above where it closed yesterday. And the S&P 500 down about a quarter of a percentage point.

And tech stocks getting a bit of a bid here, again. We're looking at Microsoft and Apple. Microsoft up, it looks like about 0.5%. But Apple also getting a bid, as we talked about earlier in the show with the rumors of them perhaps interested in getting that electric car project started back up. They were getting a bid, about 2.5%.

And then taking a look at the Mac Pro story, we are getting a little bit of dollar strengthening. Take a look at the US Dollar Index, DXY or DXF. It's actually up about 3/4 of a percent to almost a 91 handle. But a lot to cover in this hour. Again, we'll have all of that here on Yahoo Finance, but we begin with those developments down in Washington DC over passage of the stimulus bill.

We have Sarah Ketterer, she's the CEO of Causeway Capital Management here to join us. Sarah, nice to see you.

SARAH KETTERER: Thanks for inviting me.

BRIAN CHEUNG: So I want to start off broadly. We have over 5,000 pages in that stimulus bill. There's obviously big talking points here, $600 stimulus checks, a re-up of PPP, some critical funding for extra unemployment insurance programs. But probably from a market standpoint, has anything in this bill caused you to rethink or change your views on where investors might be winning or losing in the market in the short term?

SARAH KETTERER: If anything, it's cost us at Causeway to substantiate our view, because we're expecting the Biden administration to be very significant spenders in the environmental area, and that will be a big part of the infrastructure push. And this is very different from the Trump administration, and it coincides with what the European Union is doing in terms of their Green Deal, and as well as China with these extremely aggressive targets to become carbon emission free by, for example, 2030, in the case of Europe, and 2060 in the case of China.

So the Biden administration is likely to jump right in, rejoin the Paris Climate Accord, and the money could be quite significant. In Europe, they've pledged over a trillion euros to get to this goal of being climate neutral by 2050. That's quite a lot of money.

SEANA SMITH: So Sarah, with that in mind then, what companies do you believe are best positioned to benefit from this, and the incoming the Biden administration and their approach to energy?

SARAH KETTERER: Well, there are many beneficiaries, and this is not a new theme. So some of these stocks have raced ahead. So what we like to do at Causeway is find the most undervalued companies, the cheapest stocks that have the greatest potential to take advantage of all the spending. It's going to be absolutely incredible how much money is put toward this extremely important goal.

And for example, there are two European utilities that we have on our client portfolios. Enel, Italian listed, albeit it's a multinational utility in gas and electric power, but a really big renewables business, especially in Latin America, where they are growing super fast, and then we have RWE in Germany. Another that used to be this sort of sleepy coal fired electricity company is now racing to be ahead of the pack in solar and wind and geothermal.

And these stocks, they've got dividend yields. In the case of RWE, it's a couple of percentage points. In the case of Enel, it's over 4 percentage points. That's income that's compounding while you're waiting for the businesses to continue to show tremendous earnings growth. And that's brought about by all of this spending.

BRIAN CHEUNG: Now Sarah, what's interesting is that broadly, that ESG trend might be quite attractive for some of those companies you were just laying out, like utilities that are obviously in that space. But what about maybe traditional value stocks, or historied companies trying to take advantage of ESG initiatives, things like automakers trying to get into electric vehicles. Are you watching those types of spaces?

SARAH KETTERER: They are. Volkswagen would be a prime example. What a pitifully low valuation. I think it trades at something like five times earnings. Just a little electric vehicle excitement could do a lot for that stock, but that company is putting a tremendous amount of financial resources into software in order to be competitive with the likes of Tesla, or at least come close, not to mention their prowess in mass manufacturing automobiles, and their extremely excellent design when it comes to luxury vehicles.

So if anybody could pull it off, and particularly, their strength in China-- all of that together is very promising for VW. And then there's, staying with Europe again, because look at Europe. It's underperformed the US market by 20 percentage points this year. Just crazy. Europe's been awful relative to the steamroller that is the US market. You can get Danone, the French multinational food company, for again, a low multiple. They're out in front when it comes to environmental policies. They have a goal to be completely sustainable in terms of packaging in the next decade, and consumers and consumer groups will pay for this. They want these healthy products, and they want them to be packaged in an environmentally friendly way.

SEANA SMITH: Sarah, let's zoom out real quick and just talk about this stimulus deal more broadly, what it means for the markets, because this is something investors have been watching so closely. Did it meet your expectations, and will it be enough in order to carry this economic recovery? So also on the economic front here, as we head into next year.

SARAH KETTERER: Well, my colleagues and I think so. This is on the back of other major stimulus packages, not to mention the Fed having expanded its balance sheet over the last 15 months by $3 and 1/2 trillion. There's a lot of not just fiscal stimulus, but monetary. And if government stimulus works with a one or two year lag, we haven't even seen the full impact of all of this huge amount of spending.

So it's all a question-- the question is the efficacy, can we get the money? And if these checks are coming out in a couple of weeks, great. To the right individuals, those small and medium sized businesses who sorely need them, especially in areas like transport, hospitality, leisure, tourism, all of those extremely hard hit. We need those businesses to be rescued. Otherwise, it's going to be a little harder to get out of this economic slump, even with vaccines.

BRIAN CHEUNG: All right. Well, Sarah Ketterer, CEO of Causeway Capital Management. Thank you so much for joining us here on Yahoo Finance today.

SARAH KETTERER: Thanks for inviting me.