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‘Inflation is generally accepted by stock market buyers’: Portfolio Manager

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George Young, Portfolio Manager with Villere & Co, joins Yahoo Finance’s Kristin Myers and Alexis Christoforous to discuss the outlook on the market amid economic recovery.

Video Transcript

KRISTIN MYERS: All right, I want to turn now to the broader markets. We're joined by George Young, portfolio manager with Villere and Company. So George, as we were highlighting at the top, we're seeing markets right now rebounding. Actually, the NASDAQ just flipped into the red. However, we've got some good economic data. And this week, we've been doing a lot of conversations around how optimistic is too optimistic for the economy. How do investors guard against some of the headwinds coming from the economy right now overheating?

GEORGE YOUNG: Now that's a very good question. The biggest problem ahead of us is inflation. And everybody's been talking about the possibility of inflation, what it will do with bonds, but also, what's it going to do to stocks. The good news is that inflation is generally accepted by the stock market buyers. And so there are a good number of opportunities out there right now. I won't argue that the stock market isn't a little bit expensive at present. But we're bottom-up investors at Villere and Company. And we find that in our mutual funds, our Villere balanced fund, we can often find plenty of opportunities for those companies as bottom-up investors have gotten beaten up. So I'm happy to share a couple of those with you if you'd like.

ALEXIS CHRISTOFOROUS: Yes, George, we'd love for you to. But first, let me just ask how you are helping clients hedge against inflation. You know, we were talking the other day with an analyst who said, you know, it's interesting. Gold, which has sort of been the historic hedge for inflation, hasn't been doing much. And it seems as though people are treating Bitcoin and other cryptocurrencies as that hedge. How are you recommending your clients do that?

GEORGE YOUNG: Well, we tend to stay away from, one, commodities, and also, we tend to avoid popular trends. That's something that can get you in trouble. So what we'd rather look for is consistent sort of plays. One of those would be eHealth, which I would think few of your viewers have heard of. But here's the interesting thing. eHealth is a company that supplies Medicare supplements. There are 10,000 Americans turning 65 every day. What that means is they're going to be on Medicare, but they're going to need the Medicare supplement, which isn't that expensive, but it's extremely complicated. So companies like eHealth are great at guiding unsophisticated purchases of insurance. And that can be everybody, including doctors, surprisingly.

Medicare is very complicated. The important thing is that they know how to market to seniors. And the other interesting fact is that right now, they're getting some capital from a well-known company called HIG that's going to close shortly. That's public knowledge. With that knowledge comes HIG's background within the health insurance industry. And also, maybe to complicate things, but it make it interesting, there are two activist investors who have taken sizeable positions in eHealth. Don't know how that's going to end up, but it's a great company that has a lot of catalysts. And a lot of people don't know about that. That's what we try to do, is find undiscovered companies, kind of diamonds in the rough, if you will, in the small and mid-cap territory. And I still think there's value there, irrespective of the market being somewhat expensive.

KRISTIN MYERS: So George, speaking of value, I'm, again, looking at the three majors right now. The NASDAQ in the red. The S&P 500 and the Dow, of course, still in the green right now. And I feel like we've constantly had this conversation, as we see that rotation out of some of those tech stocks around that value versus growth.

We've had a couple of different folks tell us a couple of different approaches, the barbell approach looking more towards value, looking more at some of the cyclical names. How are you approaching that debate going forward, especially as we see investors still glomming on to some of these more speculative moves? We're still talking about GameStop. We still have those conversations around cryptocurrency.

GEORGE YOUNG: Right, right. Oh, it's a great argument. And we'll take the value side of it. Because I think at the end of the day, the market responds. And buyers should be respectful of the metrics in valuation and mind those metrics when they're buying stocks. So you want to look for cash that the company is generating. You want to look for a relatively reasonable earnings multiple. So that involves PE versus growth, and there should be a balance between those two.

The difficulty is that there's a lot of popular stocks that aren't making sense from a metric standpoint. I've been in business here at Villere since 1986. It's a family run firm. We've seen a lot of trends come in and a lot of trends go out. Unfortunately, this is sort of reminiscent of 2000 when you had the internet bubble. And every stock was grossly overvalued. And we all know what happened. That didn't turn out well. It's like a bad game of musical chairs, where, all of a sudden, there's no chair to sit on. And that's not the way that investors should be approaching.

Unfortunately, a lot of people think of this as sort of a casino game where you need to add up by the end of the day, see how your winnings have turned out. This is a long-term haul. And then, again, as I think all your viewers know, tax rates are going to go up with this administration, for better or worse. And that means that if you are a short-term trader, you're going to pay through the nose for short-term trading. So we're long-term investors. I would caution everybody that's the appropriate way to do it. This is an investment, not a gamble.

KRISTIN MYERS: All right, definitely wise words-- investment, not a gamble. George Young, portfolio manager at Villere, thanks so much for joining us today.