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The U.S. economy is likely slow down, and may already be in a recession, but isn’t headed for a disaster, said Kevin Rendino, CEO of 180 Degree Capital (NASDAQ:TURN), an investment firm focusing on small-cap companies.
“We believe stock price valuations have significantly discounted dire economic outlooks that are not occurring currently, and in fact may never occur,” he said during the company’s Q4 earnings call.
With small cap company stocks losing about a third of their value over a year, “we actually need to have the recession to justify the destruction of the value that we saw last year,” he said in an interview with Seeking Alpha.
Still, he’s looking past any potential recession.
“We tend to buy when there’s fear and sell when there’s greed,” Rendino said, a phrase similar to Warren Buffett’s investing philosophy. “And there’s a lot of fear out there right now, and a lot of equity prices are discounting.”
With trading at historically low levels, that’s usually the sign of the bottom, not a top, he added. The increase in interest rates also needs to be considered.
“This year, at this time versus last year, you should have more exposure to bonds than you did a year ago, because they’re paying you to have more exposure because of where rates are,” he said.
Rendino is relieved that frothiness has abated. “The bubble has burst” for areas such as crypto and cannabis, “where valuations don’t matter,” he said. “I’m glad that that bubble has burst, because that’s not investing. That’s gambling… so we can get back to the basics of buying real companies.”
Rendino is getting more bullish on areas that had been exposed to the downturn. Sectors that he likes include semiconductor stocks, calling them a growth cyclical. “Because it’s a cyclical, it has its bottoms and we think we’re in a bottoming phase of the market. So we’re getting more bullish on that,” he said.
Other sectors he mentioned are industrials and materials. He’s not looking at utilities or drug companies, because “those are safe havens and we’re trying to get a little more aggressive” in positioning 180 Degree Capital’s (TURN) portfolio relative to where it was a year and a half ago.
See why SA contributor Gold Panda rates 180 Degree Capital (TURN) a speculative Buy.
