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US markets (^DJI, ^GSPC, ^IXIC) end the trading day in the green amid weaker than expected consumer confidence data.
Villere & Co. Portfolio Manager George Young joins Market Domination Overtime to discuss how why investors should be looking at small-cap stocks and some individual stock picks Young recommends.
To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime here.
George, I'm most curious to get your take on small cap stocks. You argue here George that they're looking cheap.
Yep, I do think so. They're looking cheap and also they've underperformed. If you look at last year, the S&P was up about 25%, small cap stocks were up 11%. That logic tells you at some point there's a regression to the mean. So at some point there's going to have to be a recognition that stocks are cheaper on a valuation stock standpoint, PE ratio, etc. The small cap stocks have been cheap for some time. Last year is illustrative. All of a sudden this year, in the first quarter of this year, the S&P is down about 2%, right now, on the other hand the S&P minus the magnifi seven stocks is up about 2%. So there's been a big sea change in that, and that's not atypical, stocks go through rotation.
Um, and so to go back to what you were talking about as well about, you know, sort of the long-term, steady things that you want to be invested in right now. Um, give us some examples there, you know, small caps as a sector, but I know that you have some individual picks too. What do you think sort of epitomizes those characteristics you're talking about?
Well, I'll give you a good example. One is Atlas Energy. Uh, they operate in the Permian Basin. They have the most boring product possible, sand. What could be great about sand? Sand is a necessary component to be able to frac wells in West Texas in the Permian Basin specifically. Right now to move sand, it's obviously very heavy, you need a lot of it, it's got to move from place to place, it's expensive to move, it's dangerous. So what they did is come up with a brilliant solution to to create something called Dune Express. It's a 42-mile conveyor belt, the largest one in the United States. They move sand safely, cheaply, and efficiently to a place that needs it. So, uh, wonderful cheap stock, selling like 10 times next year's earnings and it pays about a four and a half percent dividend while you wait.
How about Freeport McMoRan, George? Why is that one I want my portfolio?
There is no substitute for copper. So if somebody needs copper, whether it's for an electric car, a dishwasher, whatever it may be, for utilities that need to be rebuilt after fires, for instance, you have to have copper. And unfortunately, copper is in the worst places you can imagine, but it's got a 90-year reserve life generally speaking. So copper is necessary, copper is used, there's no substitute. Freeport happens to be one of the largest in the world. It pays about a one and a half percent dividend while you wait. Uh, yes it is a commodity, so it's subject to the volatility of commodities and yes, there's a question how much demand there's going to be longer term if there is a recession, but there's no substitute for it.