Why Six Flags is an attractive investment amid the pandemic

Partner & Portfolio Manager at Advisors Capital Management, JoAnne Feeney, joins Yahoo Finance to discuss the Delta variant, China’s crackdown, and the potential for growth stocks post-pandemic.

Video Transcript

MYLES UDLAND: Let's stay on the markets here, bring in JoAnne Feeney, Partner and Portfolio Manager at Advisors Capital Management, for more on her market outlook. JoAnne, thanks for jumping on this morning. I want to start with something you said over in our notes about the biggest risks.

Is it COVID? Is it inflation? China? Rates? Or is it staying out of the market? And I would ask, are you still talking to folks who are relatively underinvested, kind of worried for the next shoe to drop, even with the S&P, as we saw last week, having officially doubled from that COVID low?

JOANNE FEENEY: I love that you landed on that last risk of staying out of the market. I think that is what a lot of folks are afraid of. We do hear that from clients who have some cash on the sidelines and are wondering if this is the right time to bring it in. Those other risks are not to be ignored, though, either.

I mean, clearly, the Delta variant is causing havoc, not just here in the United States, but the report out of Malaysia this morning, that's potentially going to interfere further with the semiconductor final packaging, and that's going to further interfere with our supply chains. Inflation, I think we're getting some signals that that's coming back down, right. As we see some of those shortages ease, we still have to worry about wages going up, though, potentially causing a longer-term problem.

And then obviously we have the Fed meeting in Jackson Hole later this week. And folks are really on the edges of their seats waiting to see what Chairman Powell is going to say. China remains an issue with their regulatory crackdowns. But we've seen this before out of China. And we've also seen the big important growth driver companies out of China bounce back from prior regulatory crackdowns.

So that potentially is an area for folks to start to invest in. People need to remember at this point that the economic recovery is really in its early innings and that there's a lot more places to go to capture that in your stock portfolio. So this would be a bad time, I think, to be out of the market so long as you're selective about finding companies with good attractive valuations and being careful not to just own the really popular stocks where the valuations have gotten a little bit steep.

BRIAN SOZZI: JoAnne, yesterday I talked with DoubleLine's founder Jeffrey Gundlach about potential risk to the market from a Fed taper. Take a listen to what he said. I'd love to get your reaction on the back end.

JEFFREY GUNDLACH: Certainly would be negative for the stock market. As I pointed out, the expansion of the Fed's balance sheet goes in lockstep with the capitalization of the S&P 500. And when we saw when they tried to taper in 2018, the stock market had a sort of a mini crash, actually went into a very compressed bear market in the fourth quarter of 2018. And it forced the Fed to completely change their activity.

BRIAN SOZZI: JoAnne, do you see-- do you see a Fed taper as destabilizing to equities?

JOANNE FEENEY: No, maybe short-term volatility. But this is a really different situation than the previous tapers that people have focused on. Gundlach was focused on the 2018 comment that Powell made about interest rates are far from normal. But earlier than that, right, in 2013, 2015, we also saw some concerns about Fed tapering. Clearly the balance sheet is very large, but as an economist, I can tell you that we're in a really different situation now than we were in either of those times.

Number one, we're at the beginning of an economic recovery. And it's really in the hands of firms to continue to invest, which they are doing, and consumers to continue to bounce back in terms of their spending not just on services, but also on different kinds of goods. And third, global recovery is just barely getting underway. Delta is a bigger problem for them, and they're struggling with it. But as we go through the quarters and the years coming up, we're going to see global demand recover and supply.

So we're in a really different situation fundamentally in terms of production. And that means that we can see sales and profits continue to expand for companies really based just in fundamentals. The Fed was really critical in providing the liquidity during the depths of the crisis. Their continuing accommodation is no longer as necessary.

So when they begin to cut back on those bond purchases, there's still a lot of liquidity in the system. They don't need to be adding more. And so I don't expect the same kind of disruption to the stock market that we've had in the past, at least not in a long-term way. People are obviously on their edge of their seats worrying about what's going to happen and when they're going to start to taper.

But again, fundamentally, if we look at the production side of the economy, labor's going to come more back to the market after Labor Day when kids are back in school, where more folks are vaccinated, right, when those unemployment benefits run out. So we have a lot of good fundamentals in place for continued economic growth. And so I think that's what makes this situation really different from previous concerns about tapering back in the mid to, you know, 2015 and 2018.

JULIE HYMAN: So JoAnne, it's Julie here. So it's one thing to say that we are in the beginning of this economic recovery. It's another to bet on companies that are reliant on people being out and about right now. And I say that because Six Flags caught my eye in your list of stock picks. And I just wonder, you know, at a time when we are seeing the numbers of people who are out and about in gathering places like that go down a little bit, Disney seems to be a little bit resistant to that, but do you think-- where do you think Six Flags falls?

JOANNE FEENEY: Yeah. Well, the advantage that Six Flag does has over, say, restaurants or airlines or brick and mortar, at least during this COVID spike, where is that they are outdoors, right. And even though we have seen outbreaks and we've seen Disney pull back, for example, on some attendance numbers, that outdoor nature of their business does give them an advantage. And we should in this country, right, see the COVID hit its peak sometime in the next few weeks, according to the experts.

And so we should see their earnings grow over time. So it's not a bad time to buy something like Six Flags because, in some ways, things are as bad as they're going to get in terms of people being concerned about the pandemic. And so we should actually see them recover nicely. And their outdoor nature obviously gives them a big leg up over some of the indoor service activities where we are seeing people pull back. They're not going to movie theaters as much, for example. They're not traveling as much.

So there is some advantage that Six Flags has there. And that's one of the reasons why we think this is a good time to get into that stock. We've owned it for a while, since sort of late last year. We decided to get into that re-opening activity early, and it's worked out pretty well for our clients. But we do think there's more room for this company to go up and to see their earnings grow as people get back out there.