Clark Kendall, president and CEO of Kendall Capital, joins Seana Smith of Yahoo Finance to discuss his ideas about the markets and whether any upward momentum can be carried forward to 2021 for investors.
Video transcription
SEANA SMITH: Joining us now in this episode of Yahoo Finance Presents presented by T. Rowe Price, we want to bring Clark Kendall. He is the president and CEO of Kendall Capital. And Clark, how nice to have you on the show. Happy New Year. It’s been quite a year for the markets, to say the least. As we closed this year and look at 2021, I think the big question is whether this upward momentum we saw in the market this year is here to stay.
CLARK KENDALL: Well, I think that before we can look at 2021, we have to look in the rearview mirror until what happened in 2020. In many ways, it was an unusual year, but also, in many ways, it’s history repeating itself. Remember, we had the pandemic. We had the economy closed quite strongly.
But what made 2020 so unusual was the dramatic increase in labor productivity. It grew 10 and 1/2% during the second quarter, 4 and 1/2% during the third quarter. And on a historical basis, GDP – I mean, labor productivity actually grows only 1% to 2%. So there it was, it became a forked market. Those who worked well and were paid well. Those who did not work were left behind, frankly.
SEANA SMITH: Well, Clark, how do you position yourself for the next year, taking all this into account and knowing that history tends to repeat itself? I know you were at Yahoo Finance in July. You recommended buying small caps back then. If you look at Russell Twins’ performance since then, just over 30%. Is there still a reason to buy these small caps? And where else are you seeing opportunity?
CLARK KENDALL: Well, we continue to see value in the market. Remember that all investments are about a return to cash flow and predictability. I call – it is sometimes easy to know where not to invest. And I point out one thing that should not be invested in the fixed income market. Our Jerome Powell basically said he wants an inflation rate of 2%, but we have the 10-year treasury at 0.8%, 0.9%. I call them successful actions by COVID. Zooms, Pelotons, Teslas are perfectly priced in this low interest rate environment.
If there is any kind of hiccup, these actions will be undone. And remember, I go back to – history repeats itself. In the 1950s, one in 13 women worked as a telephone operator. And through technology, labor productivity, they had a decade of women losing their jobs back, you know, we also had the 70s. The cool ’50 stocks. We had Eastman Kodak and Coca-Cola, Hewlett Packard, who traded like Zoom’s shares today. They took more than 20 years to recover.
And I also come back just to emphasize my point of view. 1999, we had Y2K, AOL, Ameritrade and Sun Microsystems. Many of us have not recovered. Therefore, I am being wordy in answering your question. So stay away from successful stocks. Stay away from fixed income.
Where do we see value? Dogs are Dow, frankly. No one talks about their underperformance this year. You can buy things like Walgreens, Verizon, Dow Chemical, Amgen, 3M – they all have more than 3% dividends. You know, you can sit back and get a relatively high dividend while you wait for these companies to come back.
The second level, more or less the continuation of Russell 2000. It had a strong movement, as you pointed out, the fourth quarter. I still think that there are some big companies there. Brunswick Corporation. Yes. They sell fishing boats. Can you believe that? You know, they have strong profit margins. Everyone is winning a fishing boat today for just seven times the cash flow. United location. O’Rielly. There are some excellent companies six, seven, eight times the cash flow. There is an opportunity in today’s market.
SEANA SMITH: Clark, we only have one minute left, but I want to ask about energy. We were talking about this a few minutes ago with our own Jared Blikre, but SLE is off, which is only about 35% this year. We saw this recover somewhat in the fourth quarter. Are you seeing any opportunities in the energy sector and, specifically, are the expectations for crude oil?
CLARK KENDALL: Yes. As I said, I have four cars at home, all gas drinkers. The children, my wife takes them. And we still fill them with gas. I still prefer to have a warm home in the winter. So people will continue to use gas, although I think Teslas and VE will be as much a part of our economy as they were 20 years ago, we thought computers and Qualcomm would be part of our economy.
So, yes, I think there is a great opportunity. The energy sector is, what, only 1% to 2% of S&P. You know, I would be very careful. But Chevron, Exxon, still believe that they have a very good dividend yield and there is an opportunity. But you have to manage it within reason.
SEANA SMITH: All right. Clark Kendall, president and CEO of Kendall Capital. It’s great to have you on the show. Very happy new year to you.
CLARK KENDALL: Happy New Year.