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The US economy may be slowing and already in recession, but it’s not headed for disaster, said Kevin Rendino, chief executive officer of 180 Degree Capital (NASDAQ:TURN), an investment firm focused on small-cap companies.
“We believe stock price valuations have significantly discounted dire economic prospects that are not currently occurring and, in fact, may never occur,” he said during the Company’s fourth quarter earnings call.
With small-cap stocks losing about a third of their value over a year, “we really need to have the recession to justify the destruction of value that we saw last year,” he said in an interview with Seeking Alpha.
Still, he’s looking past any potential downturn.
“We tend to buy when there is fear and sell when there is greed,” Rendino said, a phrase similar to Warren Buffett’s investment philosophy. “And there’s a lot of fear right now, and a lot of stock prices are discounting.”
With trading at historically low levels, that is often the sign of a bottom, not a top, he added. We must also take into account the increase in interest rates.
“This year, right now compared to last year, you should have more exposure to bonds than you did a year ago, because you’re being paid to have more exposure because of where the rates are,” he said.
Rendino is relieved that the foam has subsided. “The bubble has burst” in areas like cryptocurrencies and cannabis, “where valuations don’t matter,” he said. “I’m glad 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 becoming more optimistic in areas that had been exposed to the recession. Sectors he likes include semiconductor stocks, calling them growth cyclical. “Because it’s cyclical, it’s bottomed out 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 industrial and materials. He’s not looking at utilities or pharmaceuticals, because “those are safe havens and we’re trying to be 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.
