Target, Chubb Limited: Strategist's summer stock trades

What are this summer's stock moves to consider as consumers look to the second half of 2023? F.L.Putnam Chief Market Strategist Ellen Hazen joins Yahoo Finance Live to discuss her stock winners and losers, as well as the health of the consumer.

Video Transcript

JULIE HYMAN: Well, markets do seem to be off to a good start this summer. But with recession talk looming, investors are looking for the best ways to protect their investments. Our next guest joins us with some stock picks to help spruce up your portfolio. Ellen Hazen is with us-- chief market strategist and portfolio manager at FL Putnam Investment Management. Ellen, it's good to see you as always. And so we are coming off of sort of an unexpectedly strong start for the year here. As we take a breath going into the second half of the year, how are you sort of thinking about what the setup looks like?

ELLEN HAZEN: So we're looking for estimates to be probably flat for the rest of 2023 where they are right now. Six, nine months ago we were looking at estimates that we thought were far too high for 2023. And right now, consensus has the full year at about down 2%, and we think that's probably about right.

The economy is continuing to slow. But what you want to own in a decelerating economy are stocks that are pretty inexpensive, that have a cushion beneath them so that if they disappoint the valuations are not too demanding. And what we want to be doing is cutting back on those companies that have really high multiples.

BRAD SMITH: What are the most cushiony, inexpensive stocks right now Helen-- Ellen?

ELLEN HAZEN: So one example is Chubb. We've been buying Chubb recently. That's an insurance company. You think, wow, insurance, that's pretty boring. But it's trading at under 10 times earnings. They're still growing earnings at 10% to 12%, and it's trading at a 10-year low in terms of forward PE multiple.

So that's a stock that I think you can add to. You could buy it today. And is it going to be the next Tesla? No, it's not going to be the next Tesla. But it's very Steady Eddie, it has a nice dividend yield, and it can provide a cushion in an environment where we see decelerating economic fundamentals, decelerating GDP. And therefore, I don't know how much earnings estimates are going to increase from here.

JULIE HYMAN: You know, one stock maybe you don't think is so cushiony-- and we're showing here some of your recent portfolio activity. You exited-- exited Target. That one really caught my eye, Ellen, because here we are. Amazon Prime Days, right? We're going into the back-to-school season, et cetera. Why are you getting out of Target here?

ELLEN HAZEN: Target was a great company and a great stock for a long time. And I think it's still a great company, but I don't know if it's going to be a good stock from here on in. If you look at the overall economic backdrop and diving into specific sectors as well, what you see is that services are doing really well across the board and goods are really struggling.

You see that, for example, in the airline numbers that you quoted just a few minutes ago. We've seen the airline stocks do really well year to date. Airlines have pricing power. That's a service. People are going on revenge travel. You see it in the PMIs. If you look at the services PMI, it's still well above 50, and so that's showing an expanding economy as people are diverting their money towards services.

But if you look at manufacturing PMI, that continues to struggle. And similarly, a lot of retailers that are dependent on goods-- selling goods, like Target but others as well, we think they're going to continue to struggle as the consumer is spending that saved up COVID savings-- that excess household balance sheet, they're spending that on services. And so even though Target's a pretty inexpensive stock and it is a great company-- I want to own it again at the right price-- I think as we look at the next three, six, nine months, it's harder to see what the catalyst is going to be for those goods part of the economy to reaccelerate.

BRAD SMITH: If the consumer truly is as resilient as some of the guests we've spoken to are anticipating executives to talk about this earnings season, which of those companies would that show up for in their own reports, their own financial statements?

ELLEN HAZEN: Well, one of the first things that I look at to gauge the health of the consumer is the credit card companies and whether or not we are seeing deterioration in delinquencies and defaults. And we're really not seeing it. We are a little bit at the lowest income quintile of households, and so we are seeing a little bit of credit stress there. But we're not seeing it in the main line credit card numbers.

And so that's really where you're going to see the stresses first because people are going to fall behind on their credit card payments. And so we're not seeing it yet. But having said that, we have had very, very low delinquencies for years now, so it's probably just a matter of time until that begins to deteriorate.