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Clark Kendall, President and CEO of Kendall Capital, joins Seana Smith of Yahoo Finance to discuss her thoughts on the markets and whether upward momentum can be postponed into 2021 for investors.
Video transcript
SEANA SMITH: Join us now for this episode of Yahoo Finance Presents presented by T. Rowe Price, We Want To Bring In Clark Kendall. He is the Chairman and CEO of Kendall Capital. And Clark, nice to have you on the schedule. Happy New Year. This is the least we can say for the markets. As we close this year and look to 2021, I guess the big question is whether the upward momentum we’ve seen in the market this year is here to stay.
CLARK KENDALL: Well I think before we could look to 2021 we had to look in the rearview mirror for what happened in 2020. In many ways it was an unusual year, but also in many ways the history repeats itself. Remember, we had the pandemic. We shut down the economy pretty hard.
But what has made 2020 so unusual is the dramatic increase in labor productivity. It grew 10 and 1/2% in the second quarter, 4 and 1/2% in the third quarter. And on a historical basis, the GDP – I mean, labor productivity really only increases by 1% to 2%. So there was a bifurcated market. Those who worked did well and were paid well. Those who didn’t work were left behind, quite frankly.
SEANA SMITH: Well, Clark, how do you do for next year then, taking all of that into account and knowing that history tends to repeat itself? I know you were on Yahoo Finance in July. You recommended buying small caps at that time. If you look at the performance of the Russell Twins since then, up just over 30%. Is there still a reason to buy these small caps? And where do you see another opportunity?
CLARK KENDALL: Well, we continue to see value in the market. Remember, investing all comes down to a return to cash flow and predictability. I’m calling – sometimes it’s easy to know where not to invest. And I would point out that one thing you should not invest in is the fixed income market. Our Jerome Powell basically said he wanted an inflation rate of 2%, but we have the 10-year Treasury at 0.8%, 0.9%. I call them COVID hit stocks. Zooms, Pelotons, Teslas are priced perfectly in this low interest rate environment.
If they have any kind of hiccups, those stocks are going down. And remember, I’m going back to the – history repeats itself. In the 1950s, 1 in 13 women worked as a telephone operator. And thanks to technology, to labor productivity, there was a decade of women, you know, lost their jobs in – we had the 70s too. The smart actions of the 50s. We had Eastman Kodak and Coca-Cola, Hewlett Packard, which traded like Zoom shares today. They took over 20 years to recover.
And I’m also coming back just to make my point. 1999 we had year 2000 stocks, AOL, Ameritrade, and Sun Microsystems. Many of us have not recovered. So I look forward to answering your question. So stay away from successful stocks. Stay away from fixed income.
Where do we see the value? Dogs are the Dow, quite frankly. No one is saying they have underperformed this year. You can buy products like Walgreens, Verizon, Dow Chemical, Amgen, 3M – all of them have a dividend yield of over 3%. You know, you can sit down and collect a relatively large dividend while waiting for these companies to come back.
The second tier, sort of a continuation of the Russell 2000. It had a strong move, as you pointed out, in the fourth quarter. I still think there are big companies there. Brunswick Corporation. Yeah. They sell fishing boats. Can you believe this? You know, they have big profit margins. Everyone has a fishing boat today at only seven times their cash. United rental. O’Rielly. There are just some really good companies six, seven, eight times the cash flow. There is an opportunity in the current market.
SEANA SMITH: Clark, we only have about a minute left, but I want to ask you about the energy. We were talking about it a few minutes ago with our own Jared Blikre, but the SLE is off, what, about 35% this year. We saw it rebound a bit in the fourth quarter. Do you see opportunities in the energy sector, and in particular the expectations relate to crude?
CLARK KENDALL: Yeah. Like I said, I have four cars at home, all of them gas-hungry. The children, my wife leads them. And we always fill them with gas. I always prefer to have a warm house in winter. So people will continue to use gas, although I think Teslas and EV will be part of our economy, just like 20 years ago, we thought computers and Qualcomm would all be part of our economy.
So yes, I think there is a great opportunity. The energy sector is, what, only 1% to 2% of the S&P. You know, I would be very careful. But Chevron, Exxon, I still believe I have a really good dividend yield, and there are opportunities. But you have to manage it within reason.
SEANA SMITH: Okay. Clark Kendall, President and CEO of Kendall Capital. Great to have you on the schedule. Happy New Year to you.
CLARK KENDALL: Happy New Year.
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