Clark Kendall, president and CEO of Kendall Capital, joins Seana Smith on Yahoo Finance to discuss his thoughts on the markets and whether any upward momentum can be transferred to investors in 2021.
Video transcription
SEANA SMITH: Now we want to introduce Clark Kendall to this episode of Yahoo Finance Presents presented by T. Rowe Price. He is the president and CEO of Kendall Capital. And Clark, great to have you on the show. Happy New Year. It’s been a year for the markets to say the least. As we close this year and look forward to 2021, I think the big question is whether the upward momentum we saw in the market this year is not here.
CLARK KENDALL: Well, I think before we could look at 2021, we had to look at the rearview mirror that happened in 2020. In many ways it was an unusual year, but in many ways history repeats itself. Remember, we had the pandemic. We have closed the economy fairly hard.
But what made 2020 so unusual was the dramatic increase in labor productivity. It grew by 10 and 1/2% in the second quarter, by 4 and 1/2% during the third quarter. And on a historical basis, GDP– I mean, labor productivity actually grows only 1% to 2%. It has thus become a bilingual market. Those who worked did well and paid well. Those who did not work said honestly.
SEANA SMITH: Well, Clark, how then are you positioned for next year, considering everything and knowing that history tends to repeat itself? I know you’ve been to Yahoo Finance in July. You recommended at the time that you buy small caps. If you look at the Russell Twins performance since then, it is just over 30% higher. Is there still reason to buy those little caps? And where else do you see opportunity?
CLARK KENDALL: Well, we still see value in the market. Remember, investing comes down to a return to cash flow and predictability. I appeal – sometimes it’s easy to know where not to invest. And I point out one thing not to invest in is the fixed income market. Our Jerome Powell basically said he wants 2% inflation rate, yet we have the treasury for ten years at 0.8%, 0.9%. I call them the COVID success stocks. The Zooms, the Pelotons, the Teslas are praised to perfection in this low interest rate environment.
If they have any hiccups, these stocks fall apart. And remember, I’m going back to history repeating itself. In the 1950s, 1 in 13 women worked as telephone operators. And through technology, labor productivity, they went a decade of women, you know, they lost their jobs – we had the 70s, too. The nifty ’50 shares. We had Eastman Kodak and Coca-Cola, Hewlett Packard, trading today like the Zoom shares. They took more than 20 years to recover.
And I’m going back too just to drive my point home a little bit. In 1999, we had the Y2K shares, the AOL, Ameritrade and Sun Microsystems. Many of us have not recovered. So I answer your question for a very long time. So stay away from the success stocks. Stay away from fixed income.
Where do we see value? The dogs are the Dow, to be honest. No one is talking about underperforming this year. You can buy things like Walgreens, Verizon, Dow Chemical, Amgen, 3M – all have a dividend yield of more than 3%. You know, you can sit back and collect a relatively fat dividend while you wait for these companies to come back.
The second level, kind of like the continuing Russell 2000. The fourth quarter, as you noted, had a strong move. I still think there are some good companies out there. Brunswick Corporation. Yes. They sell fishing boats. Can you believe it? You know, they have strong profit margins. Everyone gets a fishing boat today at only seven times the cash flow. United rent. O’Rielly. There are some good companies that have six, seven, eight times cash flow. There is the opportunity in today’s market.
SEANA SMITH: Clark, there’s just a minute left, but I want to ask you about energy. We only talked about it with our own Jared Blikre a few minutes ago, but the SLE is down this year, only about 35%. We saw it bounce back a bit in the fourth quarter. Do you see any opportunity within the energy sector, and specifically are the expectations for crude?
CLARK KENDALL: Yes. Like I said, I have four cars at home, all cannibals. The kids, my wife rides them. And we still fill them with gas. I still prefer to have a warm house in the winter. So people will continue to use gas, even though I think the Teslas and the EV will be a part of our economy just like 20 years ago, we thought computers and Qualcomm would all be part of our economy.
So yeah, I think there’s a great opportunity. The energy sector is only 1% to 2% of the S&P. You know, I’m going to be very careful. But Chevron, Exxon, believe I still have a very good dividend yield, and there is opportunity. But you have to get it right within reason.
SEANA SMITH: Good. Clark Kendall, President and CEO of Kendall Capital. Lovely to have you on the program. Happy New Year to you.
CLARK KENDALL: Happy New Year.