Analyst says market rally ran too fast, buy these cheap stocks instead
U.S. stocks are on fire, with the S&P 500 hitting a new high in more than a year. But Steven Glass, managing director and analyst at Pella Funds Management, said the U.S. market was “moving too fast.” The S&P 500 is up about 15% so far this year, while the Nasdaq has soared about 31%. “We’re very cautious at the moment because the market rebound has been very tough given the level of interest rates,” he said Wednesday on CNBC’s “Street Signs Asia.” Glass said the S&P 500’s earnings yield was about 5.2 percent , which is similar to the yield on one-year Treasury bonds. Traditionally, the difference is about 5%, which means that the index should currently have an earnings yield of 10%. That means the S&P 500 traded at 10 times earnings, but now that number is 19 times. “The risk premium is either going to grow very rapidly, or interest rates are going to fall very rapidly. We think all of those propositions are pretty dangerous,” Glass said. “Unless there’s a big jump in earnings, especially from the big tech companies, the market is very expensive by all statistical measures,” he told CNBC. Glass said investors could instead focus on cheaper stocks. He singled out two “very cheap” U.S. fertilizer stocks: Mosaic and Nutrien. Both stocks have double-digit free cash flow yields and near-record low valuations, Glass said. He pointed to two favorable conditions: the need to rebuild grain inventory levels that have fallen for six straight years, and expectations that China will buy more soybeans in the coming months. Glass is also very bullish on the electric vehicle space. He expects electric vehicles to drive semiconductor growth more than the artificial intelligence boom. “So the shift to electric vehicles is actually going to be the biggest and most important growth driver for semiconductors,” he said. He picked Albemarle, the world’s largest lithium producer, as a way to move into electric vehicles. Lithium is an important component of electric vehicle batteries. “We think there will be a supply deficit around 2025 because it will take years to actually produce all the lithium and it would have to have started 10 years ago to be ready in 2025. And the market just doesn’t exist,” Glass said. Said. “There’s a lot of lithium in the world. But the problem is actually getting it to market, and there are huge problems, whether it’s getting water or local governments, or just building an actual facility,” he said, adding that Albemarle has The “Best Mining Assets” in the world. He also likes China’s CATL, the world’s largest maker of electric vehicle batteries. “It’s the leader in the field. And it has the lowest production cost, so we think it’s the clear winner,” Glass said. Global investors can buy the stock through the VanEck ChiNext ETF (18.7% weighting) or the KraneShares MSCI China Cleantech Index ETF (8.1% weighting).
Svlook
