Growth stocks have outperformed most other asset classes for more than a decade, yet David Rosenberg still favors them for one reason—growth is scarce.
The proprietor of Toronto-based Rosenberg Research shared his views with other independent research executives last week during DoubleLine Capital’s second annual roundtable. Other panelists included Danielle DiMartino Booth of Quill Intelligence, Ed Hyman of Evercore ISI, Jim Bianco of Bianco Research and Jeffrey Gundlach, CEO and CIO of DoubleLine. The panel, dubbed “Best Ideas,” was moderated by DoubleLine deputy CIO Jeffrey Sherman.
Rosenberg outlined four major themes, all of which revolved around the concepts of scarcity and value. “I’m not bullish on the economy,” he declared.
Though many investors believe the huge central bank money-printing machines around the world will lead to higher inflation, Rosenberg isn’t one of them. To get inflation, “we’ll need four years of 4% GDP growth.”
That isn’t happening. When the pandemic is over there may be a sudden growth spurt. But then Rosenberg says “we’ll revert to normal. Remember what normal was.” The last economic expansion was the slowest of the post-World War II era.
Against that backdrop, he reasons that investors will remain willing to pay a premium for companies that can sustain growth. In a world with $18 trillion in debt selling at negative interest rates, yield is another scarce financial asset.
That’s why Rosenberg likes dividend-paying stocks, particularly those that can growth their dividends. He cited Gundlach’s observation yield might be easier to find in equities than in bonds.
Rosenberg noted that a number of “dividend aristocrats,” companies with long, extended records of raising their dividends annually, have underperformed noticeably in the last year.
In the value sector of the market, he prefers banks and telecom concerns over energy companies. In particular, he likes U.S. banks because they are so “well diversified.” Telecom companies also produce reliable cash flow streams in a world where yield is scarce.
Given his view that inflation is improbable, Rosenberg continues to like high-quality, long-duration bonds. His fourth and final investment theme was Chinese and other southeast Asian emerging markets. Those nations are putting up some of the fastest GDP growth numbers in the world. Price-to-earnings multiples for some companies are close to their growth rates, a condition that doesn’t exist in many other markets.
Bianco Bashes Bank Stocks
Many value investors like banks, but Jim Bianco isn’t one of them. “If banks are a bunch of taxis, then Uber is coming right at them,” Bianco predicts.
The bank index was down 13% last year and he maintained the punishment the market meted out was well-earned. In his view, they are becoming a stodgy industry vulnerable to disruption and he compared them to utilities.