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We see a ‘rotation’ on the horizon similar to the 2000’s: Scharf Investments President on markets

Scharf Investments President Brian Krawez joins Yahoo Finance Live to discuss how markets are faring as coronavirus cases continue to spike across the world.

Video Transcript

ZACK GUZMAN: Welcome back to "Yahoo Finance Live." Right now, we are seeing stocks, a mix today with the NASDAQ. The loan index in the green, up by about 4%. The Dow still up by about a half a percent. But the theme continues to be much of what we've been talking about the past couple days here.

The question of this continued rotation away from growth stocks into some cyclical names. Let's break that down a little bit more here with our next guest, Brian Krawez, the Scharf Investment President. And he joins us right now. Brian, thanks for taking the time to chat here. I mean, we've been talking with all of our guests, repeatable question here, on the show about their thesis around this rotation.

Because, of course, there have been a few names that have been hard hit in 2020, you think about cruise lines, airlines, retail we've been talking a lot about. What's your thesis here in where we go over the next couple months, and what this recovery looks like when you break that down in growth versus value?

BRIAN KRAWEZ: Yeah, I mean, you know, the market's really reminiscent to us a little bit of the late 1990s' tech bubble. It's really been driven by just a few top tech names as I know everyone's been talking about, you know, the top five names are up 45% this year, where the median stock is barely up. So we really on the horizon a rotation similar to what you saw in the early 2000s.

And we're continuing to find compelling opportunities outside of the scorching hot tech names. You know, especially when you compare the fact that we got near zero interest rates right now.

AKIKO FUJITA: I mean, Brian, when you talk about the late 90s, early 2000s, a lot of people are going to say, we all know how that ended. Is there a reckoning waiting on the other end, just given how frothy some of these big tech names have become?

BRIAN KRAWEZ: Well, you know, possibly there is, yeah. I mean, if you look at the extended run of some of the big tech names, it's starting to look-- you know, it's not the same, but it rhymes with the 2000s. And in fact, when you think about a company like Berkshire Hathaway, we've started to see plenty of articles within the last few months talking about how the Oracle of Omaha is dead.

And he's getting no credit for his Apple ownership. In a year to date, Berkshire's bought back $18.5 billion of stock. So he's bullish on the stock. The last time I remember, distinctly in 1999, there was a "Barron's" article, what's wrong with Warren? The big cover story at the end of '99.

And they basically top-ticked it. The NASDAQ 100 collapsed 80% from there, where Berkshire went up 30%. So, you know, we really look at stock like Berkshire that's trading one of the most attractive valuations in nearly a decade. And if he's bullish on the stock, then we are too.

ZACK GUZMAN: You know, let's talk about another one of those opportunities out there. Because CVS Health is one that you're watching here, and that's interesting, considering the fact that we saw that stock under pressure when Amazon announced its pharmacy push with the unveiling of Amazon Pharmacy, going to let people buy medications on there, with or without insurance.

What kind of pressure does that put on a CVS, and why would you be enthusiastic about that name as they face Amazon?

BRIAN KRAWEZ: Yeah, well, a lot of people say the same thing. How can you be enthusiastic when Amazon's coming right at you? Well, you know, first of all, this is not new in 2018. They bought Whole Foods, they bought PillPack, and there was a lot of talk about them getting into the pharmacy area, that is the Amazon.

So CVS has been preparing for this for a while. They just announced Karen Lynch was going to become the new CEO in February. We think her background in that will help the company with its strategy, becoming the front door of health care. And remember, they didn't own Aetna before. CVS is not just a retail, it's insurance, it's PBM.

They have 450 HealthHUB locations already across 30 states. They're planning to open another 1,300 by the end of 2021. They've been selected by the CDC as a primary outlet that's going to do flu vaccinations. And we think the COVID-19 vaccinations alone could add an additional billion in revenue to CBS.

So we actually think this is a tremendous opportunity, the selling pressure we saw the last few days, puts them now at, you know, under 9 times earnings with 60% upside to their median high and below their median lows.

ZACK GUZMAN: Yeah, you think about the push here to get the vaccine out when it comes available to hundreds of millions of people here in the US. It's a lot of stops to make here if it is. If it's going to be at a CVS, you can think about the rev--