Market Monitor: Ernesto Ramos

NBR: 5/4

Guest: Ernesto Ramos, BMO Capital Markets, Chief Investment Strategist

Topic; Market Monitor

Market environment

  • Since the beginning of 2017, the market has favored growth with large cap growth stocks up about 34% vs large cap value stocks only up 10% which is a difference of 24% largest in a very long time
  • Valuations have moderated with Growth sells for at 20x 2018 earnings and Value at 14x. This spread is as large as it’s been in the last 10 years, not to mention that Value pays twice the dividend than growth does
  • The biggest difference between Growth and Value is owning more Technology instead of financials and more consumer discrete (Netflix, Amazon) over Energy
  • Risks are policy mistakes (Fed, trade protectionism) as well as volatility caused by chaotic administration management style.

The theme that connects the stocks together is value over growth.

Stock Picks

United Rentals: URI

Tremendous presence in the equipment rental industry gives it competitive advantages that include “more purchasing leverage, a wider range of equipment and services, and the convenient movement of assets between locations. Trades cheaply at 10x 2018 earnings.

Citigroup: C

Benefits from improving economy and rising interest rates. Very focused on returning capital to investors with payout (dividends plus stock buybacks) steadily increasing since March 2015. Also benefits from potential deregulation of the financial sector and a strong international presence. Higher market volatility has had a positive effect on trading revenues. Trades at 11.5x 2018 earnings

Bank of America: BAC

Benefits from improving economy and rising interest rates. Very focused on returning capital to investors with payout (dividends plus stock buybacks) steadily increasing since June of 2014. Also benefits from potential deregulation of the financial sector. Higher market volatility has had a positive effect on trading revenues.

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