Stocks that are kicking high cash flow yields, haven't been bid to the moon, and maintain pricing power in their sectors are great long-term buys, notes Jeff Auxier of Auxier Focus Fund.
Gregg Early: I'm here with Jeff Auxier, president and chief executive officer of Auxier Asset Management and the Auxier Focus Fund.
Jeff, I wanted to ask what your view is on 2013. We've somewhat leaped the fiscal cliff, and it looks like at this point, that that feeling has been pushed off. They've kicked the can down the road effectively until May. I guess the unemployment numbers look pretty strong, at least coming in. They're at a five-year low and the S&P is at a five-year high. So, are we looking at recovery this year or is this just some small good news in a darker picture?
Jeff Auxier: It's an interesting comment. I think it's really exciting if you're a business analyst because what I see is a lot of the inputs.
If you look at, for instance, the technology input. People are excited about the tech stocks and everything, but these iPads, you know, they're probably over 150,000% faster than the first laptop, so what we're looking at are companies that have been hurt the last five or six years with high commodity inputs and then you've got really crashing tech costs and then crashing energy costs-natural gas, I think since 2006 is down a little over 70%-so with the technology in the advance we really have the ability to over produce in these areas and that has really hurt margins.
From that standpoint, and the fact that most of the money, we've had over $1 trillion going to the bond markets since 2009 and people have not been participating, so that's encouraging. Plus, just the recessionary price points out of Europe.
We've been finding a lot of value in Europe and so the general outlook on inputs to me looks favorable and then you throw in $9 trillion of liquidity globally and you know the central banks are really providing a strong background for equities. When you're printing that much money, I mean the hidden risk is when you're looking at purchasing power. Bonds, I think, are very dangerous, just because you look at the purchasing power. When we're printing $85 billion a month, really you want to be in productive assets.
Gregg Early: And, is that, do you see where, when we're talking about liquidity, and what we've seen essentially is that a lot of the money that the central banks have been printing has been stuck at the financial institutions. They haven't really, I mean they're still trying to sort out their books, so they haven't really; it hasn't hit the economy. So as much as there is, it seems to get stuck at that level while they're trying to sort out their own troubles.
Do you see that dissipating at this point? I know that they're calling for Europe to be slow again this year. They've moved the number to what was it, the World Bank came out and said that they were anticipating slower growth than expected in Europe, but do you see where this liquidity is finally going to trickle down into the real economy?
Jeff Auxier: Well, not really. I think partly that would benefit stocks. I mean stocks don't do real well in a booming economy. I mean if you look at areas where you've got rapid GDP growth, your stocks typically don't do that well because money has gone into heavy capital spending and so we're looking at companies with enormous free cash flow yields and actually, you know a fairly benign capital spending cycle.
That isn't totally that, because that cash instead of going in the ground can find its way back to the shareholder, so yeah it's an environment where we're in a sweet spot for stocks because if you had too much of a booming economy you're going to have that capital go into the economy and your PE multiples can compress, but right now you've got a situation where private equities are loaded with cash. You've got spreads down on the junk bonds. You've got businesses with high free cash flow yields and low prices. I think that you could have another M&A wave coming up.