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The most attractive opportunities are at the intersection of growth and cyclicals: Dir. of Market Strategy

Brad Neuman, Alger Director of Market Strategy joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

- Let's turn our attention back to the markets with our next guest. We've got Brad Neuman, Alger Director of Market Strategy. And Brad, you heard our guests. They were talking about what the agenda looks like, legislative agenda is likely to look like, now that Democrats have a very narrow majority in Congress, particularly the Senate.

We had a guest on earlier who said, look, there is a lot of expectation riding on those Georgia Senate wins. There's going to be big stimulus coming. Yet, this weekend we heard some lawmakers move forward and say, maybe I'm not so comfortable with going big, especially on stimulus checks.

How are you looking at the big drivers in the market right now? And how much of that does hinge on this next stimulus package that's likely to be passed under a Biden administration?

BRAD NEUMAN: So you know, at Alger we have over a 50 year history of investing in growth and innovation, one of the pioneers of growth stock investing. And so what we tend to look for is long-term secular drivers. That said, we recognize that this year is heavily influenced by a lot of cyclical factors. There's the reopening of the economy, the stimulus that you mentioned.

This is unusual that you have a recovering or growing economy that will be hit by several hundred basis points, in our estimation, fiscal stimulus as a percent of GDP. And so economic growth could be quite strong this year. And so we feel like the most attractive opportunities are at this intersection of growth and cyclicals.

- It seems to be the wide view that we could see a pretty impressive year in terms of returns as we see price targets continue to get boosted here in the early part of the year.

But when you focus in on where that opportunity is in the growth sector tied to reopening here, give me some examples of where you're looking, because obviously that would seem to be the right way to play it is companies that have been growing, but also stand to gain even more if we should return to normal.

BRAD NEUMAN: Right. I mean, when you look at personal consumption expenditures now versus how they were prior to COVID, there's certain areas of the economy that have done very well and obviously certain areas that have done very poorly. People have spent a lot on their homes fixing up remodeling projects, furniture, people spending on pets and food at home. All those things have grown nicely.

So those are the areas that have less growth ahead of them we think. The end markets that could recover, travel, hotel and leisure, commercial real estate, aerospace. Now I think the difference between Alger and the way of a lot of investors view this is some people use value as kind of a shorthand term for cyclical stocks.

And in our view, that may lead to disappointment, because there are these structural headwinds to value stocks. What we're interested in is playing these recovering and markets in travel, leisure, commercial real estate, even energy, but doing it through growth stocks, which have strong platforms for market share gains and high return on capital, and most importantly, are very innovative.

- So what are some of those growth stocks that you're pointing to?

BRAD NEUMAN: So you know, in travel it would be a digital platform, like Booking.com. In commercial real estate, it would be an information services business, like CoStar. In automobiles, it may be a company that provides voice services, like Cerence.

In energy, it would be a company that provides technology to optimize wells, like Core Laboratories. Those are the types of companies, very kind of asset light, innovative companies that have exposure to these recovering end markets.

- And lastly, too, when we just think about maybe some of the short-term chop here, we've heard from a few guests last week talking about potential issues stemming from DC over all this. I mean, obviously, it's difficult to predict how all of this is going to shake out. But from a market perspective, I mean, how important is it, in terms of where we go and the market pricing in some of this volatility here? What are you making of it?

BRAD NEUMAN: Well, certainly there's a lot of volatility in the market. There's probably even some exuberance in certain areas with SPACs and certain low priced stocks. But the market as a whole looks more reasonably valued, I think, than it would appear on traditional metrics because of very low interest rates and high free cash flow generation.

So you know, we're expecting the volatility to continue. But in our view, if you just focus on the long term and try to find companies that can be much larger over the next several years, we think that's really the way to drive well for our clients.

- All right, Director of Market Strategy at Alger, Brad Neuman, appreciate you coming on here to chat with us today.