‘Get anywhere but into Apple': Kramer Capital Research

Chief Investment Officer for Kramer Capital Research Hilary Kramer joins Yahoo Finance’s Akiko Fujita to discuss investment strategy amid the quadruple witching day.

Video Transcript

AKIKO FUJITA: Let’s turn our attention back to the markets, because as we mentioned, the tech sector down broadly today, off more than 2%. We have seen a significant pullback in some of these big-growth names like an Apple and Alphabet over the last several weeks.

But our next guest says the big tech names are still overvalued and could fall another 10% to 25%. Let’s bring in Hilary Kramer. She is the Chief Investment Officer for Kramer Capital Research.

And Hilary, let’s start with the market action that we’re seeing today. We have already started to see the pullback in tech names over the last several weeks. But these names have become real defensive stocks in the face of so much uncertainty in the market. So what’s the case here, or what’s likely to trigger that additional sell-off that you’ve said, anywhere from 10% to 25%?

HILARY KRAMER: The market has been favoring just these big tech stocks, because it was safe. And the Fed bringing rates down to 0%, just in terms of pure valuation as an analyst, it means that the actual value of those stocks went up and everyone started buying and then piling in. It was like buying begot buying.

And now that it’s really clear that even if there is a vaccine– I mean, that’s going be the solution, is a vaccine. Even if there is a vaccine, everyone globally who invests understands that there’s going to be a need for two booster shots, minus 94 degree freezers.

And that it’s just– there’s so much pressure on the market. And as we get closer to the election, it looks like if Biden does win, a 15% increase in corporate taxes will just happen. And that will weigh down stocks. And the stock market is just reacting to what it expects.

There’s uncertainty in the form of hurricanes, fires, coronavirus. And then in terms of actual policy, that is just– it’s just weighing too heavy on the market right now.

AKIKO FUJITA: But Hilary, if you’re a long-term investor and you look at these big tech names, the growth story is still intact. What’s the case for taking money off the table when there are so many other risks, to your point, that are swirling around right now?

HILARY KRAMER: The actual growth, I beg to differ. There really isn’t growth there. Apple grows 3% to 4% a year. That’s all it grows. So how can you justify a stock that has doubled in 12 months?

Amazon, yes. OK? They have their web services division. They’re starting to integrate more than ever before horizontally, having their own airplanes. But even there, there’s competition from Microsoft.

It is not necessarily– these are not necessarily true real growth stories. Everyone got carried away thinking that 5G means that every single person in the world was going to go out and buy a new phone. We’re in a position where everyone’s thinking the unemployment rate is 8%, but in actuality we are seeing maybe a decrease in continuing unemployment claims, but first-time unemployment continues to grow.

And the announcements just aren’t there. They’re not strong. And everyone is now looking– we all need yield. We need to get a 3 and 1/2% dividend yield and be in more of those cyclical stocks now that we realize the growth isn’t there. These are fully valued companies.

And money is much better off spent in companies like 3M that are supplying basic index products and consumer products that, in the case of 3M, are necessities. Or it is Valvoline, VVV. Everyone’s driving. We just heard again from United Airlines with their layoffs. People aren’t flying.

They aren’t buying new cars. Car sales were down 30%. We’re going to get the new numbers another week, June 30. 30% down on new car sales.

People need antifreeze. They need windshield wipers. They need oil. You know, but they don’t necessarily have the money, $1,400 for a new 5G iPhone. And sales were brought forward by so many people who started working at home.

Then the big, big, big double-whammy to the market is that companies that no one ever thought would have virtual employees and actually, you know, leave their leases or let their leases run out or not pay them, suddenly, major banks, law firms– companies that no one ever expected– are saying, hey, this is working for us. So that’s why we’ve had this wonderful run-up in DocuSign and Zoom.

But in reality, we’re not– we’re not in a good situation. I mean, the big money was made. Now it’s time for uncertainty.

And the technical traders, they’re going to selling as we keep breaking down on the charts.

AKIKO FUJITA: So Hilary, really quickly, because you did allude to the cyclical stocks– you have said, as many other investors have said, that these are the stocks that are going to see the pop after the vaccine hits the market. That timeline is still really uncertain right now. So how should investors be thinking about that rotation into cyclical right now, given that what’s likely to be the trigger for the pop there is still kind of a ways out?

HILARY KRAMER: Well, the market is always– the stock market is a forward indicator. So there’s already expectation and buying into those. And again, it goes back to that dividend yield.

At 0%, stocks have become the proxy not just for bonds, but for CDs, for cash. That’s why gold keeps hovering there at that $2,000-an-ounce level, up 40% in the past year because it’s not just a typical rotation, and it’s not just a typical world that we’re living in. And we are seeing a resurgence.

So the expectation is technology is now in uncertainty. And you know, let’s get into some of those– even banks. Let’s even get into banks, even though obviously their net interest margin is narrow. But let’s get anywhere but into Apple.

AKIKO FUJITA: OK. We’ll have to leave it there. Hilary Kramer there from Kramer Capital Research. Great to have you on today.

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