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Tech pullback 'is more than healthy': Expert

Kramer Capital Research Chief Investment Officer Hilary Kramer joins Yahoo Finance's Kristin Myers to discuss her outlook on the markets as the tech sector extends its selloff following a record run.

Video Transcript

KRISTIN MYERS: The sell off, as we had been mentioning, continues, largely led lower by tech, which is down right now over 2.5%. Looking over the XLK, again, down 2.65%. So for more on the market moves over the last 48 hours, particularly tech, we're joined now by Hilary Kramer, Chief Investment Officer for Kramer Capital Research.

So Hilary, first I want to ask probably the big question that everyone is asking, which is why now? Why now are we starting to see this pullback, and do you think that this pullback is healthy?

HILARY KRAMER: The pullback is more than healthy, it's just a shame that pullbacks have to happen that way that they seem like, you know, they're a skier going downhill out of control when they happen, but that's just the nature of how the market goes down. It goes down, and it goes down real fast when it does. We needed for this bubble in these large megacap tech stocks to start to deflate, because it really wasn't built based upon the earnings potential of the next 60 years of Apple, it was really based on many millions of 20 somethings and 30 somethings staying at home, starting to day trade, and companies explaining to them or making them think that the market only goes up, you know, and Wall Street has been around a long time and knows what it's doing. You know, kind of the big, fast money. We needed that.

If you think about it, the financial ETF, like the index of the financials, is down 30% on the year, and yet, the financial stocks have actually done very well. These banks have been making money on trading, on restructuring, on the equity markets, ITOs. So it was really, there was really an imbalance here.

Also, you know what's so incredible that happened since March 23 since we had the low in the market for the year 2020 is that then suddenly it was tech and NASDAQ that took off. OK, and that's because rates were so low and the way we do a valuation and discount in terms of creating, you know, with the value of a stock, and there was no, you know, debt isn't as important in the tech companies as equity is. But as long as you can't even get, you know, 0.5% from a CD or money in a checking account.

It was kind of incredible how many of these mid-cap large caps and sort of large small caps that provide income and are real stalwarts, you know, stalled out and didn't keep pace on any level, you know, with something like, you know, Tesla was up 1,100% in the last 52 weeks until it dropped 25%, you know, in the last 72 hours. So there's just so much opportunity that we see if one were to be buying stocks like Valvoline because people need oil changes and their windshield wipers changed and they need antifreeze, because they're driving more, and they're not buying new cars, so therefore, they're not buying a car that comes with an oil change already in it, and there's a 3.2% dividend yield.

You know, or why companies like Ingredion, if you look at any of the smartest sell side research analysts on Wall Street, they all say Ingredion, INGR, is one of the absolute best income and growth stocks to buy. Ingredients, supplies, all the sweeteners, the starches to everything from the companies that make chewing gum to cosmetics, a very important base foundation in industry today. And so, or even 3M, you know, it's just, it's obvious. I mean, there's many divisions of 3M from orthodontists to paints, but they're in the ventilator business. You know, they supply sanitation equipment, sanitizers to hospitals, to medical facilities.

You know, a company like 3M, and you have this dividend yield of 3.6%, and yet, the market was busy, "the market" meaning investors were busy saying Apple, that has really for the past been flat since 2017, and even the 5G phone and all of the new accouterments that come with it, 5G is going to take a little time. It's going to be amazing, but it's like biotech. 20 years ago, we were excited about biotech, and it took 20 years before, you know, many of these biotechnology companies really had therapeutics that make a difference and really heal and solve into diseases.

KRISTIN MYERS: Right. Well, I mean, you honestly hit a bunch of different points--

[LAUGHTER]

I wanted to ask you. I didn't even want to interrupt. I was going to like let you go. And no, you hit so many different things, so we're going to leave that there. Hilary Kramer, Chief Investment Officer for Kramer Capital Research. Thanks for joining us.