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Value stocks are 'only starting its outperformance': Analyst on 2021 market outlook

Charlie Bobrinskoy, Ariel Investments Vice Chairman Head of Investment Group joins Yahoo Finance Live to discuss how markets are faring heading into 2021.

Video Transcript

JULIE HYMAN: As we chug a little bit closer to the end of a very eventful 2020, and as we get there, we have seen the debate continue, the discussion continue, over value versus growth and what's going to happen in 2021. Charlie Bobrinskoy is joining us now. He's Ariel Investments Vice Chairman and Head of the Investment Group, and he's a Portfolio Manager there as well.

Charlie, it's great to see you again.


JULIE HYMAN: And I know that you guys are value managers, so you tend to look at things through the value prism. But indeed, we have seen value start to not just gain ground, but sort of maintain it as we have started to see more of a rotation in stocks. And it seems like if we get into 2021 and see a more robust recovery that we could see that continue to play out. I'm guessing that's what you think is going to happen.

CHARLIE BOBRINSKOY: Absolutely. And we'd even state things a little more emphatically, Julie. Value has crushed growth this quarter. The Russell 2000 value index is up 30% this quarter to date, and the S&P, which is, as you know, growth heavy, is only up about 10%. So that's a 20% outperformance.

And we think it absolutely can continue, because value stocks are trading at much more reasonable multiples than growth stocks. We think a strong economy is going to be good for value next year. And we think a little bit of inflation and higher interest rates are going to be bad for growth. So we think value is really only just starting its outperformance.

BRIAN SOZZI: Charlie, we were just having a good discussion on the-- the scope or the size of the stimulus plan and perhaps it not being too much. Would you agree with that?

CHARLIE BOBRINSKOY: Yeah, I'm glad you brought that up. I was kind of wondering what in the world you guys were talking about. This is a $900 billion stimulus plan. That's almost a trillion dollars of stimulus relief spending.

Sure, it's only $600 in direct spending, but it's more than $3,000 per family if you take $900 billion divided by the number of households. There's money in here for the airlines to rehire people. There's money here for states to pay increased benefits. $900 billion is a massive, massive government program that's going to have a significant impact on the economy.

BRIAN SOZZI: Do you still think it's fair to call it a stimulus plan?

CHARLIE BOBRINSKOY: You know, it's a-- the economy's in tough shape because of the restrictions plan. It is-- there's no doubt that we've tightened up some of the closure mechanisms that were coming undone in the latter part of the year. There's no doubt that people are hurting in certain pockets. But the economy has been roaring back.

We, as you all know, had one of the best GDPs in the third quarter this year in the history of the country. The stock market is evidence of the fact that there's a lot of signs when we get to the other side of this vaccine, which we're going to get to the other side of this, that we're going to have a stronger economy. So I would call this an opportunity for the government to do what it loves to do, which is to spend money. And again, $900 billion.

JULIE HYMAN: Is it-- it sounds like you are not really taking the president's, he didn't actually threatened to veto, but his comments on this package seriously. It looks like the market is not fazed by his commentary either.

CHARLIE BOBRINSKOY: Right. His lieutenants were in the middle of this negotiation for months. The idea that he just woke up this morning and saw oh, my gosh, it's only $600 is obviously nonsense. So certainly, personally, if you asked me would I rather have more of the money go directly to families and less of it go through the convoluted programs that the government is actually doing here, sure, I believe that. But it's a little late to be coming up with that the day after they reach an agreement.

JULIE HYMAN: Yeah, I think there's pretty broad agreement on that particular point. To go back to the economic backdrop for just a moment, you were talking about third quarter GDP. I mean, we did get some economic data over the past couple of days that was a little more concerning.

We got consumer confidence yesterday that took a hit and was worse than expected. And this morning, we got those November personal spending numbers down 4/10 of 1%, incomes down 1.1%. So you know, when you talk about sort of the economy roaring back, those kinds of numbers don't necessarily paint that kind of a picture, do they?

CHARLIE BOBRINSKOY: Yeah. No, you're absolutely right. We had, as we all know, a second wave of coronavirus. We had lockdowns in California and New York, our two biggest states who got more aggressive. States like Florida kept the economy open, but states like California definitely closed some things down, and that showed up in some of the economic numbers. There's no doubt about it.

But I think the point is that we are rolling out the vaccine as we speak. I think we are really, right now, at peak hospitalization levels, and those are tragic, absolutely. But I think we can see the other side of that. The other side of that is not far away. It is a matter of a couple of months probably until we start to get some really positive economic numbers, which I expect in March, April, and May.

BRIAN SOZZI: Charlie, why do you like Goldman Sachs?

CHARLIE BOBRINSKOY: Because it was an incredibly cheap stock. It ties into this value concept. It was trading for less than book value and nine times earnings. If you can buy an investment bank, whose book is made up of tradable liquid securities, and you can buy that stock for less than the value of its assets, which is what you could do six weeks ago, then that's just an amazing opportunity.

Now, I will admit, the stock has run a lot since you and I talked about Goldman six weeks ago. But even at this level, it's about 1:1, 1:2 times book, it's trading at 10 times earnings. It's still a wonderful franchise. They lead many of the most important IPO and M&A transactions. It's a great business trading for the value of the securities they own.

JULIE HYMAN: And just to mention for our viewers, indeed, the opening bell rang. We lost video-- or we weren't provided video from the NYSE, but stocks are now trading in the regular session. I just wanted to follow up on Goldman for a sec, Charlie.

You know, I don't recall if we talked about this last time, but Goldman, of course, has been making a pivot more towards the consumer. And I wonder what you think of that endeavor. It hasn't seemed yet to necessarily bear a lot of fruit in terms of profits for the company. But do you think that's going to be a big growth area for them?

CHARLIE BOBRINSKOY: Yeah, I'd call it a smaller pivot. I think it's been, frankly, overplayed, even by management themselves. I think they are absolutely pivoting and emphasizing high-net-worth individuals. That's true. They make-- they have a wonderful market share in Asset Management.

They do business with a very high percentage of the Forbes 400. They are not going to be the investment bank for-- for middle class. I just don't think that's ever going to happen. Sure, there'll be some growth. It's a great brand name. But they are still going to be the investment bank for institutions and high-net-worth individuals.

JULIE HYMAN: Yeah, that makes sense, certainly, given-- given their history. Charlie Bobrinskoy, always great to talk to you. Happy holidays, Charlie, happy New Year. We'll talk to you soon. Ariel Investments Charlie Bobrinskoy there. Thanks.

CHARLIE BOBRINSKOY: Thanks for having me.