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Delphi Management Chairman Scott Black on why he believes the most opportunity for investors is in the S&P 500 in today’s market.
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For at least the year well now may be a good time to move into certain stocks according to Scott blacked out by management chairman of president.
Because Scott thinks the S -- has more room to run it's got great to have you why do you feel that way when we're looking at a 16% gain that's pretty healthy pretty exciting and and we shouldn't.
Want to much in life perhaps.
Well he actually look at just statistically the -- -- a little of a 14100.
They're gonna do about 101 point five -- earnings this year as a fourteen point one multiple and given the low level of interest rates by historical standards.
The stock markets cheap if you look at the post war era the peace normally fifteen to sixteen times.
That's really the large cap index I want to make this -- If you look at small cap like the Russell 2000 and midcap Brussels when he 500 they're roughly 177.
-- seventeen times expected earnings respectively.
Those homogeneous risk class a lot more expensive I mean their individual stocks such as why -- give -- little -- -- but for the most part small and midcap been well picked over on this route so.
It is the S&P where you feel it's not too expensive right now there's the opportunity.
Right I mean obviously is a deceleration and earnings we -- in the last quarter that revenues were only up about one point 9% earnings dropped to two and if you had to stop apple -- probably negative.
Realistic basis probably corporate earnings in the quarter that just ended September 30 going to be quite probably swept up want to -- -- best.
But -- on an absolute basis -- are an expense and.
OK so let's say we've got a -- and we've got a basket and we are looking to fill that basket with stocks.
How is Scott do you look for the best possible stocks right now what are those metrics teach our viewers.
Firstly we look at return on equity we like companies -- -- higher RO we each year -- route like 15% or more up.
Companies have strong balance sheets with positive cash flow and the most important thing that distinguish us from just regular investors where absolute value.
We like buying companies with single digit multiples that you don't pay out.
It's what Benjamin Graham returned referred to was the margin of safety when you're buying stocks under ten.
We should not pay enough for the privilege of owning so what.
Lest you think when you see Citigroup today which did beat our estimates but yet the -- we was -- not nearly as healthy as some people would have liked to have seen in the stock is jumping 5%.
You don't get hooked into something like that.
Not wish I had owned banks that are really well Ryan that a fully Missouri -- I'll be happy to tell you that you US banks may only you would US Bancorp -- -- -- Wells Fargo.
And also well reserved against the nonperforming assets and other real estate on the not really turnaround situations that pretty consistent -- -- good management's.
OK so you like Wells Fargo US Bancorp but let's now get to a name -- energy.
Which you like that a lot of people might not have heard of and and and this name which I find so interest staying.
Is that at an annual -- guess would be around 24 dollars but it's not quite there yet nonetheless what is it what you love it.
It's -- bonanza -- it's a tiny little company in the Wattenberg and I'll bring -- -- the hearings are exploding nation -- close to two dollars and fifty to 260 next year which is an eight -- the -- Have a strong balance sheet net debt equity ratios only point one in the production and growing at about a 150%.
It's also more heavily oil -- -- 72%.
Liquids and only 28% gas and obviously you want on liquids and -- -- 50% of its oil production is -- the next year above ninety dollars a barrel she don't have -- -- commodity risk if oil prices tank.
Next -- -- we -- let people know I mean Stifel -- just raise the price target today the thirty dollars or six -- -- 22 to thirty will be watching for that it let's get attacked plan to other.
Texas -- behind the S&P 500 although the that NASDAQ looks pretty healthy overall it's not all technology much to us what some people think it is it's not necessarily that but.
Let's talk about some names that you really like in the technology world because you feel.
Still good opportunity here.
Yes checkpoint is a terrific -- pain -- -- network security.
-- spyware.
I'm if you have a big corporation a fortune 1000 anyone that defend your service in the nodes like laptops and PCs -- really the company of choice the company has over three billion an excess cash which is fifteen dollars a share absolutely no doubt that top line continues to grow at 9% the bottom line through buybacks and margin improvement twelve and 13%.
I if you back out the cash from the stock -- like two points -- the -- the year you're paying eight point nine times earnings for great great company.
And you're in the sweet spot everybody's looking at cyber warfare and a hacking computers.
And I think this is a terrific company.
They continue to grow one of the negatives is that roughly 35 to 38%.
Of the businesses in Europe -- we're all worried about currency and European slowdown.
But it's priced into the stock this is a great entry opportunity for people that don't know the compound one.
Get people's I want get to people the two names that you say stay away from and those happen to be semiconductor equipment makers you know you're saying that managers.
Are looking at spending less perhaps in that manufacturing is is somewhat kind of pulling back a bit so.
You say applied materials people should stay away from the Lam Research as well correct.
Right yes I would say all the other companies still in that space and I'm not just picking on them would be MK US instruments -- -- -- 128.
KLA they got great balance sheets but unfortunately.
We haven't come to the inflection point yet where earnings are gonna -- trending up the earnings comparisons are still way down.
Wafer fab equipment demand is down.
It probably gonna take another six to nine months before -- -- All right I just wanna be clear for our viewers because we put up a chart we didn't say avoid -- saying avoid Lam Research avoid applied materials Scott nice to see a -- If you want what is your head like in the middle of the night -- you just -- it through all these statistics he doesn't.
-- -- -- Well I always study for you Liz is -- a good -- when you asked -- good questions I wanna be -- To your audience good answer sorry about the Red Sox.
Based think thank you very much could enhance go to my Indians all right Scott Black Delphi management next year for about the that's right good to see it's got.
Thank you six.
