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‘I would look at machinery that is levered to an economic recovery’: 1847 financial partner

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Greg Branch, 1847 Financial Partner, joins Yahoo Finance’s Julia La Roche and Adam Shapiro to to discuss his thoughts on the market, how he’s investing, and what will impact the markets going into 2021.

Video Transcript

ADAM SHAPIRO: Let's talk about the question a lot of people are asking. What do you predict for 2021? Let's start to look at that with Greg Branch. He is 1847 financial partner and he's joining us now. And Greg, you've been calling for a while, almost six months now, for the rotation to value that we've been witnessing. Is that going to continue going into 2021?

GREG BRANCH: I think so. And to be fair, I am employing a barbell strategy right now, but I expect 2021 to look a lot like 2010 to 2012. In those years out of a recession, what we saw are other sectors that actually grew faster than tech and growth. And so next year, the S&P is calling for-- or analysts are calling for around 35% growth, [? x-tech, ?] and I honestly believe that that's probably light, while most tech sectors are going to grow around 15%. And so it's hard to maintain a premium multiple to the extent that we've seen this year when your earnings just aren't growing as fast as the other sectors.

And so I think that there's a few sectors that are particularly well positioned to rebound and show much faster EPS growth over the next couple of years, particularly as we move up the vaccination curve.

JULIA LA ROCHE: Well, Greg, let's jump off on that point of this barbell strategy and where you're allocated and where you actually see those opportunities as we head into 2021. What specific areas are you looking at?

GREG BRANCH: Sure. So on the one side, I agree with most of what Jharonne said, that e-retail is the sector in tech that will continue to see a significant tailwind. I'll use a difference statistic than she used. Up until now-- in fact, December 2019, as a specific example-- we saw the e-retailers have about 19% share growing at about 1% per year. It's now over 30%. So they've managed to pack about a decade's worth of share gain into about 10 months. And like Jharonne indicated, I don't think that all of that's going to retract or retrench as we go about moving up the vaccination curve.

And so you'll see very powerful, robust earnings from companies leveraged to e-commerce in this calendar fourth quarter. Not only the e-retailers themselves like Amazon and Wayfair, but all of the conjunctive companies as well, like Shopify or FedEx. All of those companies are going to show very powerful earnings growth as they weaponize that share gain in this calendar quarter. So that's one side of the barbell.

The other side of the barbell are the traditional things that rebound when we see a cyclical rebound in the economy. So banks usually lead us out of a recession, and there's still good value to be had there. While much of the low-lying fruit was consumed in November and December, you still have diversified financials trading at a significant discount to their price to tangible book based on their history, as well as on a relative basis. And so I focus in on those banks that are diversified, that can derive earnings from multiple sources, that are well-capitalized, that have been aggressive in the provisioning.

There are also consumer discretionaries that I think are poised for a massive rebound as well. So when you look at, for example, in gaming. Wynn, and Las Vegas Sands, which are more leveraged to Asia, which is probably ahead in their recovery where we are, they've demonstrated already massive resiliency, massive pent-up demand. Even here in the US, when a regional opens, they're often to capacity most nights. And so you're going to see those companies move from a loss this year to $3 a share in earnings as well as $3 a share in dividends next year.

And so stock picking is important. But I do expect this rotation to continue into 2021, particularly as we move up the vaccination curve.

Hello?

JULIA LA ROCHE: All right, well I'll-- I think Adam--

ADAM SHAPIRO: Sorry about that. Greg, very quickly, when you talk about machinery being well-poised, are you talking about machinery used in automation in factories, or the huge machinery that's used in mining? We only have about a minute, by the way.

GREG BRANCH: Right. And so I think I would look at machinery that is levered to an economic recovery. And this is more of a back half of the year theme, but there's a lot of pent-up demand in terms of replacement. Lots of businesses have held their capital budgets in, in terms of replacing machinery that they need. And so names like Cat and Deere, machinery that is inherent to our economy getting back to a normal level of production, I think that you'll see a lot of that pent-up demand in capital budgets released in the back half of this year as those businesses start to be reassured that their consumers are back returning.

ADAM SHAPIRO: All right. We want to thank Greg Branch for joining us here on Yahoo Finance Live. He is 1847 financial part--