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Investment officer: 'Be wary of the FAANGs'

Victoria Greene, G Squared Private Wealth's Chief Investment Officer, joined Yahoo Finance to discuss why FAANG stocks aren't moving signifcantly higher despite positive earnings results.

Video Transcript

ZACK GUZMAN: Welcome back to Yahoo Finance Live as earnings season rolls on. And Amazon impresses with their results. Maybe it's worth comparing the way that we've seen some of the mega tech companies start to advance here in relation to the cyclical rotation that we've been seeing play out over the last few months, of course sparked by the moves that we've seen in yields on the 10-year. So breaking it all down for us, I want to bring in our next guest here, Victoria Greene, G Square Private Wealth chief investment officer joins us right now.

And Victoria, I mean, it's been impressive the earnings that we got this week from the big tech companies. And we've seen some of those rewarded, maybe some less so. But talk to me about where you put us here in that rotation as they continue to impress.

VICTORIA GREENE: Yeah, so you've really seen a lot-- I mean, look at Apple was just record smashing. And I don't know how they had that much profits. I didn't even buy a new iPhone this quarter, so, but apparently, everybody else did. Apple and MacBooks and all of the sales were fantastic. But they didn't get rewarded. Amazon's barely getting rewarded. Facebook got a little bit of reward for fantastic sales.

But you look around, and you got to wonder how long they can keep up this pace. The markets seem to be saying, that's all well and good, but what are you going to do for me going forward? Is the chip shortage going to hurt Apple? What's Facebook going to do with privacy? You know, and with Amazon, I don't know how you could get much better results than that. And obviously, it's still very well loved on the Street, most people raising their price targets. And yet, you're really not seeing a huge return today, even after blow-out earnings.

I think that just shows a little bit of fatigue on the growth side. And, you know, we've been telling people to be a little wary of the FAANGs and the big tech. You know, and we are a proponent of the value rotation. And I think you have to look at this and say, going forward, can they actually increase their pace of earnings beats? Or is this maybe going to be the topping out at some point? And I think that's a valid question to ask.

AKIKO FUJITA: Well, Victoria, is the flip side that the expectations just ran up way too high? If you look at some of these numbers we've gotten from a Facebook or an Apple, I mean, it seems to point to the momentum continuing. And yet, to your point, we're not seeing the stock necessarily get rewarded. I wonder what that says in terms of how you would look at these individual stocks and the potential for those stocks to move, not necessarily the business case.

VICTORIA GREENE: Sure, and I think the thing you have to look at is the pace of growth, right? Can they continue to increase the pace of growth? They're going to continue to be growth stocks. But I think investors are starting to question, can they really keep up this transformative growth they've had? And obviously, Amazon and Apple and all these guys are really integrated into our lives. And I think the bulk of us, obviously, use them. You can see from their earnings.

But is the pace of earnings going to be really able to keep up with this growth? I'm not sure about that. And so, we look at that and say, it's not bad to be a little bit of a profit taker. You know, you've got to have profits in these stocks by now. And be looking for something maybe with a little bit more upside. I'm not calling for the death of the FAANG stocks at all. I think they're fantastic stocks. But at the same point, maybe there's some cheaper opportunities across the market with more upside. Because at some point, you just have to step back and say, wow, can they really keep up this pace of expansion? And that's going to be hard to do.

ZACK GUZMAN: Let's talk a little bit more about those cheaper opportunities out there. Because even despite the fact that energy has been the best performing sector in the S&P 500, interesting to see one of the picks that you got, Chevron on the list here. And that's a company, I mean, the stock's been flat, basically, for the last five years. But we keep hearing about this supercycle in the price of oil, Goldman Sachs still predicting about 80 bucks a barrel by the summer. If that were to play out, I mean, I imagine that would be quite some upside here still for Chevron. So talk to me about that thesis and where you see energy going.

VICTORIA GREENE: Yeah, and Chevron disappointed a little bit, I think mostly on their buyback news. And people are very impatient. And I think they wanted to get more clarification on when share buybacks would start. And they waffled a little bit there. They wouldn't give an exact date. I think they're interested in starting. I mean, they had great cash flow, record cash flow since the pandemic started, raising their dividend $0.05.

You know, they've got a lot of things to love. They snapped up Noble last year for a steal. You know, and that is fantastic Permian acreage. So you have to look at them being very well positioned to benefit from oil, hopefully, more normalizing in the 60s and 80s. And I may not be quoting this 100% correctly, but I believe, for every $1 increase in the price of oil, that's about a $50 million increase to Chevron on its cash flows. Because-- and it's hugely impactful because of the acreage they have in Colorado and in the Permian. And they've got to be looking around and liking where they sit.

You know, and I think you have to look at them and their balance sheet, and there's a lot to love. And I do think at some point, they will start with share buybacks. But look across the energy sector, you had a bunch of beat. Exxon, profitable-- surprised everybody. You know, BP, Total, Shell. All of the big guys, they have good things to say and they had good earnings. And so you look around here and say, what is cheaper and what has upside? And you got to like the energy market right now.

AKIKO FUJITA: Another one of your stock picks, IBM, which you say is a rare value tech stock. What do you see that you like?

VICTORIA GREENE: Yeah, nobody loves big blue. And I've been talking about IBM now for a year or two. And I think I've been laughed out of the room a few times. But it is a stock I really like. It trades at, like, a 14, 15 times PE. It has a 5% dividend. It has a new transformative CEO. He just got started last year. And they're really moving this company forward in a brand new direction.

Don't underestimate IBM's ability to reinvent itself. Remember, it kind of saw the death of the PC business coming a little bit, spun that off to the Lenovo, came more about the services. And now they're spinning off services and looking more at the hybrid cloud on the AI side. And they have a huge lead in the AI side. You know, Watson's been around forever, ever since it was the first person to be a human grandmaster at chess back in, I think, the '90s.

They've been working on AI. And AI coming forward in the healthcare business and AI coming forward in how people run their business is going to be a huge opportunity. But remember, if you're a company and now, all of a sudden, you want to use AI for analytics or growth or logistics, it's not necessarily intuitive how to set it up in your company. And IBM has a lot of experience helping companies actually integrate AI to make the new company more successful.

AKIKO FUJITA: It may not be a popular pick, Victoria, but I applaud the conviction

VICTORIA GREENE: It's not.

AKIKO FUJITA: --there. Victoria Greene, G Squared Private Wealth chief investment officer.