A recent article in Barron’s shares insights from top value managers who during a virtual meeting earlier this month said they have been “snapping up a wide-range of stocks during the coronavirus-induced volatility.”
Most of the seven managers—including Gamco’s Mario Gabelli, Bill Miller and Ariel co-CEO John Rogers, Jr.—said they expect the Dow to rise in 12 months although the U.S. markets are a bit overvalued, and predict a U-shaped economic recovery, the article reports.
Here are highlights from the discussion:
- The recovery will be either U-or W-shaped as people are “very concerned about their income level and are being very frugal.” New incidents of infections in Wuhan and South Korea make a second wave likely, some said.
- Regarding airlines, the group noted that while the industry has taken a hit, “people will fly again.” Specifically, Southwest was cited as a business with a low cost network and a strong balance sheet: “It’s in position to bounce back and take market share.” Miller argued that “all the bad news is in the airlines right now. If you don’t own airlines, you are making a bet against a vaccine. If there’s a vaccine, it will eliminate the issues people have with flying.”
- Healthcare: The group cited several favored healthcare businesses, including dental supplier Envista Holdings, Teva Pharmaceuticals (“The CEO is one of the best we’ve ever seen.”), Anthem, and Novartis (“one of the best pipelines in the industry.”).
- Banks: UBS is favored for its low credit exposure and high-quality mortgage portfolio, and BNP Paribas was mentioned because it is currently trading at a third of book value (and should be able to do 10% return on equity”).
- The value strategy is expected to undergo a “violent mean reversion.” According to Rogers, “This is like an internet bubble bursting. There is going to be a violent turn that gives value investors the greatest opportunity over the next decade.”