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With stimulus we need something that’s reasonable and unfortunately it’s difficult to target stimulus: Portfolio Manager

Josh Wein, Portfolio Manager Hennessy Funds joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

AKIKO FUJITA: Welcome to Yahoo Finance Live. I'm Akiko Fujita, along with Zack Guzman. Taking a look at where the markets are trading right now, a bit of a breather today after posting that six-day win streak, but we did see the NASDAQ hitting a new high in the session yet again right now. That's the only one in positive territory right now, at least among the three majors there. The Dow is down 32 points, and the S&P 500 trading pretty flat, down 5.

Bitcoin continuing its march to 50,000, although we've seen a bit of a pullback in this session. This coming after Tesla's $1 and 1/2 billion investment. Which company is likely to follow? We'll discuss.

Plus inflation risk ahead-- the debate over President Biden's $1.9 trillion COVID relief bill. Why some lawmakers say it risks overheating the economy. And Qualcomm unveils new 5G modems, promising ultrafast internet speeds. We'll be joined by senior vice president [INAUDIBLE] of 5G, Durga Malladi, who will be joining us to discuss the chipmaker's 5G ambitions.

Let's begin with our attention on the markets, though, today. As we mentioned, taking a bit of a pullback compared to where we've seen it over the last six sessions. Boeing, UnitedHealth Group, as well as Walgreens, leading the Dow right now, with Boeing the biggest gainer, up about 1.6%. Let's bring in Josh Wein. He is portfolio manager at Hennessy Funds.

Josh, there's a number of moving pieces that we've been talking about, largely, though, focused around this discussion about a $1.9 trillion stimulus that is yet to be passed over in Washington. How are you looking at the dynamics at play? And what's the biggest concern as you see the markets push higher?

JOSH WEIN: Sure, yeah. Good to be with you. Thank you. Yes, stimulus, it's going to take a while. And I think there's going to have to be a big compromise. I think, you know, Main Street certainly has fallen quite behind. They're not trading on the stock market. And if they were, they would still likely be down quite a bit. I think that, you know, consumer confidence, consumer spending rests squarely on the shoulders of a stimulus bill.

So certainly stimulus. We need-- you know, we need something that's reasonable. It's unfortunately difficult to target stimulus, so it seems like it's a broad brush. And I think that's where the pushback always is, is we're giving perhaps money to people who don't need it as much as others.

So it'll take a while. I think the market cares a lot. You know, I think it's more about timing than it is the amount. I think anything that comes out will be beneficial. And it's a matter of how long it takes.

ZACK GUZMAN: Josh, the other thing we've been watching is earnings season. Obviously, results have been pretty strong. Earnings per share beat on average so far about 12%, pretty noticeable outperformance among the consumer discretionary names in technology. I mean, what do you make of maybe which sectors are performing the best here, since there have been some names that we haven't necessarily seen a pop kind of come after some of those beats. So what do you make of how we're looking here, as we get farther into 2021?

JOSH WEIN: Sure, yeah, it's been a great earnings season. And I think that a couple of takeaways-- certainly, I think the sell side that is publishing estimates on companies, they've been quite conservative, and that makes sense. There have been so many unknowns with the vaccine rollout and things of that nature. I think that we're seeing lots of beats, as you mentioned. I think we're also seeing a little bit of revenue growth year over year.

So I think we're tracking for this current quarter that's being reported at about 2% revenue growth on the S&P 500. So it's nothing to get too excited about, but, you know, it could be a lot worse. So, you know, we are, in our Midcap 30 Fund, are very much exposed to consumer discretionary and staples. And so far, so good. But we definitely need some stimulus, you know, in our back to keep that going forward.

AKIKO FUJITA: You mentioned midcaps. Two specific names that you have highlighted in your notes-- BJ's Wholesale Club, as well as Big Lots. What makes these two stocks particularly attractive for you right now?

JOSH WEIN: Sure, yeah, so in our Midcap 30 Fund at Hennessey, we look at earnings growth, valuation, and momentum, stock price momentum. And in each case, they fit squarely in within that construct. So Big Lots trading at about 11 times forward earnings.

It's a nice story that I think gets overlooked because it's a relatively small midcap name or a large small cap name, whatever you might want to look at it as. And they did well throughout the pandemic. They pivoted toward grocery and curbside pickup and what everyone else has been doing, a solid balance sheet, strong dividend. So I think Big Lots is interesting.

And BJ's, the same thing. They're growing store count. Trades at about 16 times forward earnings. So in both cases, quite a discount to a market multiple, which stands at about 23 times. And as I mentioned, growing store count, strong growth, it's not double digit type growth, but it's consistent and generating free cash flow and strong balance sheet. And it's a great valuation story, great earnings growth story, and great stock price momentum of late. And we'll see what happens.

ZACK GUZMAN: Josh, there's another one of your ideas here that caught my eye. We were talking about commodities a little bit earlier. But no doubt, dividend plays have been an interesting play here. You highlight the Southern Company as one of those.

I mean, Bill Gross was highlighting the opportunity in Master Limited Partnerships, specifically talking about the pipeline play earlier this year. That was one of his ideas. Right now, it so far hasn't necessarily played out. I know it's early, but what do you like when you look at a company like the Southern Company?

JOSH WEIN: Sure, yeah, so Southern Company, it's definitely different than what we tend to talk about a lot. It's a little bit more old school, but I think it's as exciting as anything that's new school. So in our Hennessy Gas Utility Fund, the Southern Company is one of our larger holdings.

And as you mentioned, you know, to be sure, it's a dividend play, about a 4% yield. The dividend of late has grown at about a 3% clip, so just above the rate of inflation. And, you know, utilities have not participated in this rally to the extent the market has, obviously.

And we think it's interesting. It's certainly a great counterbalance to some of the more high growth, highly competitive names that have done well of late. But I think that a company like Southern Company deserves people's attention.

They're certainly, with their footprint, mainly in the southeastern United States. There's a little bit of a catalyst there, which is demographic trends and population growth in the south and certainly a steady grower. And I think electric and gas utilities, they're not on people's minds. But I would encourage people to think twice about them. I think they're very interesting.

AKIKO FUJITA: And finally, you've talked about some concerns around potential microbubbles that could be forming. And obviously, we're a week or so removed from sort of the height of the Reddit trade, but if we're talking strictly fundamentals and valuations right now, what are your concerns? Is the concern around some of these tech names? Or where do you see some of the overheating happening right now?

JOSH WEIN: Sure, yeah. I mean, I think, you know, very bullish on the market. And when I try to play devil's advocate in my head, I do think about the prospect of inflation and the prospect of tax reform, raising corporate tax rates. In terms of bubbles, I don't see any bubbles now. I think what went on with the Reddit stocks is, you know-- is certainly as of now more interesting than it is important.

But certainly, if that were to happen again and it seems inevitable that that type of thing will happen from time to time, I just think to myself that it can feed on itself. It does, in the minds of individual investors, kind of has the effect of perhaps diminishing their confidence in the market. And nothing makes me cringe more than the idea that the market is a casino or that it's rigged. And I think it's neither.

But I think that those episodes are-- I don't know if there are victims, there are losers. And you know-- and it's unfortunate. I don't see those as typical bubbles because they're not predicated on, you know, this is the next big thing, like we saw in 2000 with some of these dot com names. I think this is pure opportunism and momentum plays and not based on fundamentals at all, as we know. But yeah, I think that that is a distraction that could become material if it were to happen again and more frequently.

AKIKO FUJITA: Yeah, something a lot of investors certainly keeping a close watch on. Josh Wein, portfolio manager at Hennessy Funds, it's good to talk to you today.