(Bloomberg) -- Investors shouldn't count out the potential for more plain-vanilla stocks to rally, according to Cambiar Investors LLC.
In a normal year, the advice would probably be to sell 10% to 20% of one's portfolio after such a big rally and just hold some cash, according to Chief Investment Officer Brian Barish. But the “nearly Argentinian levels” of growth in money supply, likely vaccines or treatments for Covid-19 and high levels of short interest means it is a bad idea to take too much out of the market.
“There is a ‘Nasdaq 1999' feeling to certain stocks which are evidently worth billions but have never made money or even a physical product,” Barish said by email. “The presence of these doesn't mean that old-school industrial companies should be sold. There are a lot of dollars out there willing to chase crazy stuff, and eventually these will find their way to more vanilla stocks.”
The S&P 500 is up 39% from its March 23 bottom, as the Federal Reserve and governments globally added stimulus to help counter the economic devastation caused by the pandemic. But there's a wide dispersion in performance -- the Energy sector has soared 65% and Info Tech 48%, while Consumer Staples has gained 21%.
The rebound has fueled questions about whether valuations are too high. Still, Barish isn't alone in seeing potential for selective gains -- JPMorgan Chase & Co.'s John Normand also recommended cross-asset investors get more choosy in the second half of 2020.
Barish said his stock-picking strategy, even in an atypical year, revolves around the basics: earnings, cash flow, pricing power and long term market position. “For a lot of these more speculative names, nobody has a clue of any of that.”
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