Market Monitor: Craig Hodges

NBR: 2/11

Guest: Craig Hodges, Hodges Capital Management, CEO

Topic: Market Monitor


The sell-off in U.S. stocks over the past couple of months has helped reset investor sentiment, which is no longer complacent.  
Although this has created some short-term turbulence as macroeconomic factors, trade, and interest rate worries have received a good deal of attention, we see this as a long-term opportunity. 
Although this weakness has been fairly broad-based across sectors, this correction has especially taken a toll on technology, healthcare, and many economically sensitive industrials.  
It is also worth noting that value has significantly trailed growth over the past several years and that, over the long-term, value stocks tended to outperform after growth stocks undergo a period of selling that changes investors risk tolerance.  
Furthermore, we are looking for opportunities based on our own proprietary valuation work on the earnings power of individual companies throughout a business cycle. 
Contrary to popular opinion, we see opportunities in some cyclical stocks and technology and believe many of these stock have already priced in a slowdown or potential recession. .  

Small Caps

We believe the opportunities for small cap stocks is tremendous.
Small caps corrected over 35% from September to year end. Small caps are still down well over 20% –from the September highs.
The extreme volatility and lack of buyers has created as many mispriced stocks as we’ve seen in decades.
This is where active portfolio management and good old fashion stock picking comes into play.

Stock Picks:

Commercial Metals (CMC): Most mispriced stock I see in the market today. The company is hitting on all cylinders, has made a game changing, very accretive acquisition making them a 50% market share player in the  US rebar business. Stock trading at the lowest valuation in the 20 years we have followed it.

At Home (HOME): Home decor superstore concept with 120 stores growing to a potential of over 600. Stock down 50% from last summer and should be a stable 20-25% grower over the next 5 years.

Helmerich & Payne (HP): Provides drilling rigs equipment and contract drilling services to the oil industry. They are flex rigs are the industry standard for their quality and efficiency. Stock down over 30% over the last few quarters. The dividend is 5.3% and has consistently paid and raised its dividend for over 45 years

Disclosures:  I personally own all of these stocks indirectly though our mutual funds.  The firm owns all of these stocks directly or indirectly though our mutual funds.  No Investment banking

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