Latest / Bloomberg Intelligence / Power Tool Demand Booms During Pandemic

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Power Tool Demand Booms During Pandemic · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Now, I am excited
• 0:23
  Speaker 1: to welcome Jim Laurie to the program, Chief executive Officer
• 0:26
  Speaker 1: Stanley Black and deck Or. The stock has hit an
• 0:29
  Speaker 1: all time high and the company has boosted it's uh
• 0:33
  Speaker 1: two thousand twenty one Tools and Storage organic growth view.
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  Speaker 1: I am Jim. You're probably your target retail customer looking
• 0:41
  Speaker 1: for an angle grinder right now. There's nothing I love, well,
• 0:44
  Speaker 1: there's very There are very few things I love more
• 0:45
  Speaker 1: than power tools. Ride motorcycles a lot, but mainly so
• 0:48
  Speaker 1: that I can work on them. Um. I guess it's
• 0:52
  Speaker 1: probably home improvement though. That's been driving your business this year,
• 0:55
  Speaker 1: Is that right? Well, that's certainly a big part of it.
• 1:00
  Speaker 1: But you know, we we do, uh, we do have
• 1:02
  Speaker 1: some drivers and all around the globe, and it's home improvement,
• 1:07
  Speaker 1: it's repurposing homes. It's home starts, housing starts, and uh
• 1:12
  Speaker 1: economic activity in general, you know, all drive the business, alright,
• 1:17
  Speaker 1: So Jim, give us a sense of how your business
• 1:20
  Speaker 1: kind of was impacted during the pandemic. Take us to
• 1:23
  Speaker 1: kind of just as you know, that quarter or two
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  Speaker 1: pre pandemic, and then what it's been like since the pandemic.
• 1:27
  Speaker 1: How's your business changed. Yeah, we had a very interesting
• 1:32
  Speaker 1: pre pandemic situation where it was just kind of normal,
• 1:37
  Speaker 1: and then one day we woke up and UH sales
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  Speaker 1: plummeted by We're down for four continuous weeks in US retail,
• 1:47
  Speaker 1: which is a big part of our business. So it
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  Speaker 1: was a little bit scary at that point in time,
• 1:51
  Speaker 1: but we uh we kept producing. We remained continuously open,
• 1:55
  Speaker 1: and in May, what happened was the point of sale,
• 1:59
  Speaker 1: the cash register receipts, if you will, at the retailers
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  Speaker 1: started going positive and then it went to stratospheric levels
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  Speaker 1: in the middle of last year that we've really never
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  Speaker 1: seen before, you know, like up e commerce was up.
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  Speaker 1: It was just crazy numbers and so fortunately we had
• 2:17
  Speaker 1: made some that says we saw this these cash registered
• 2:21
  Speaker 1: receipts going up for tools, and we bought six hundred
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  Speaker 1: million dollars worth of inventory and manufactured six hundred million
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  Speaker 1: dollars worth the extra inventory to serve that demand, and
• 2:33
  Speaker 1: that that demand has just continued, you know, at different
• 2:36
  Speaker 1: varying rates. But let me give you a little insight
• 2:39
  Speaker 1: into the first quarter. Uh, you know, the total sales
• 2:43
  Speaker 1: and the tools business, we're up forty organically. North America
• 2:49
  Speaker 1: was up for US, retail was up and get this,
• 2:53
  Speaker 1: Europe was up, and the UK and even the emerging market,
• 3:00
  Speaker 1: who you wouldn't think would be doing so well, they
• 3:03
  Speaker 1: were up seventy in Latin America seventy seven percent. So
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  Speaker 1: it's it's really really broad based market strength. And when
• 3:11
  Speaker 1: we cut fining you across the products. You know, power
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  Speaker 1: tools were up fifty percent, hand tools up and outdoor
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  Speaker 1: outdoor was up a hundred and twenty. So the headge trimmers,
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  Speaker 1: the shears, the electric shears and those types of things
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  Speaker 1: just bonanza really across the board. Well, your long term
• 3:27
  Speaker 1: growth has been strong as well, And I wonder if
• 3:31
  Speaker 1: I look at your next day three to five years,
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  Speaker 1: do you expected to pick up from the last three
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  Speaker 1: to five years. Absolutely, you know, I've been at sea
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  Speaker 1: level exacting this company for twenty one years, and when
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  Speaker 1: I joined, we were two billion in revenue, and we'll
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  Speaker 1: finish this year, you know, somewhere in the fifteen sixteen
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  Speaker 1: billion dollar range. Our market cap was two billion, and
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  Speaker 1: it's over thirty now. So it's been a long term
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  Speaker 1: growth story as long as I've been here, and even
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  Speaker 1: dating back you know, before that, since our founding in
• 4:01
  Speaker 1: eighteen forty three. But in any event, we're excited about
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  Speaker 1: the post pandemic economy, and we're excited about our portfolio
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  Speaker 1: because not only do we have I would say, the
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  Speaker 1: construction market coming back, we see very positive outlook for
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  Speaker 1: the US economy and beyond that global growth. And then
• 4:22
  Speaker 1: specifically to Stanley Black and Ducker, we are going to
• 4:26
  Speaker 1: uh execute an option that we have to buy eight
• 4:29
  Speaker 1: of a company called mt D, which is one of
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  Speaker 1: the largest gasolene powered outdoor power equipment makers of one
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  Speaker 1: mowers and riding mowers and most types of things. And
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  Speaker 1: we're going to that's about a three billion dollar business,
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  Speaker 1: and we're going to convert that business using our technology
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  Speaker 1: and our know how in battery power, We're going to
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  Speaker 1: convert that and electrify that. So we're gonna add billions
• 4:53
  Speaker 1: of dollars of revenue, and we're gonna do great things
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  Speaker 1: for the environment. A just recal Okay, thirty seconds, Jim,
• 5:00
  Speaker 1: I'm looking at, uh the supply chain function on the
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  Speaker 1: Bloomberg Terminal SPLC. I see you've got about more than
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  Speaker 1: eighty suppliers out there. Talk to us about the supply chain.
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  Speaker 1: Are you getting the stuff you need? We've done really
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  Speaker 1: really well in that regard. However, it's not It has
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  Speaker 1: not been without its challenges. You can imagine, you know,
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  Speaker 1: officially Asian and Mexican supply chain during a pandemic. It
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  Speaker 1: does have challenges. And we you know, the three things
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  Speaker 1: that are uh mostly most scarce, I would say would
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  Speaker 1: be batteries, semiconductors, and UH in some cases resins. And
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  Speaker 1: we're in good shape to continue this kind of growth,
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  Speaker 1: UH and this kind of run rate sales UH with
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  Speaker 1: batteries and also semi conductors. UH. And then the next
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  Speaker 1: next year, in the year beyond, we're gonna have to
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  Speaker 1: We're gonna have to get some more access to semiconductors.
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  Speaker 1: Resins were into shape, Jim, thanks so much for joining us.
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  Speaker 1: Any guys reported really strong numbers last week's stock at
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  Speaker 1: an all time high. Good time to be in the
• 6:00
  Speaker 1: tool business. Jim Laury, chief executive officer for Stanley, Black
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  Speaker 1: and Decker. We appreciate him taking some time there again
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  Speaker 1: benefiting from the at home consumer doing some work around
• 6:10
  Speaker 1: the house. I guess now I want to bring in
• 6:15
  Speaker 1: Phil Orlando is the chief equity market strategist and head
• 6:19
  Speaker 1: of client portfolio management that Federated Hermes. They've got about
• 6:22
  Speaker 1: eighty billion dollars in equities under management firm wide, about
• 6:26
  Speaker 1: six billion dollars in assets under management as of a
• 6:31
  Speaker 1: kind of the end of last year. Phil um. You know,
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  Speaker 1: lots changed since the end of last year, so I'm
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  Speaker 1: expecting that number is probably a lot higher now. But
• 6:38
  Speaker 1: how much higher can it get? I mean, have we
• 6:41
  Speaker 1: reached a point when you know, uh, the market expectations
• 6:46
  Speaker 1: are um are now high enough for or the valuations
• 6:52
  Speaker 1: are high enough to meet market expectations. Well, the market
• 6:56
  Speaker 1: is going to reflect corporate earnings and you know the
• 7:01
  Speaker 1: S and P five from the bottom of the market
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  Speaker 1: March a year ago to where we are now. You know,
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  Speaker 1: we hit a record high within the last couple of days,
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  Speaker 1: and there have been a lot of folks that have
• 7:14
  Speaker 1: been scratching their heads saying, how can the market be
• 7:17
  Speaker 1: doing this? Well, um, we had, you know, the deepest
• 7:21
  Speaker 1: recession in history, and the reason is that the equity
• 7:26
  Speaker 1: market is a forward looking discount mechanism which attempts to
• 7:30
  Speaker 1: price in what they think is going to happen six
• 7:33
  Speaker 1: or nine months later. So here we are now in
• 7:36
  Speaker 1: the first quarter earning season. We're about two thirds of
• 7:39
  Speaker 1: the way through. Earnings were expected to be up about
• 7:44
  Speaker 1: year on year according to facts set, They're up. Yeah, well,
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  Speaker 1: I mean tail this is the interesting thing. I mean,
• 7:51
  Speaker 1: I have never seen companies knocked the cover um so
• 7:55
  Speaker 1: far off the ball as they had this earning season.
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  Speaker 1: In fact, um, the last looked SMP companies are beating
• 8:02
  Speaker 1: expectations by nine percent. You know, almost all of the
• 8:06
  Speaker 1: companies out are beating the street's estimates. And yet, um,
• 8:12
  Speaker 1: we haven't seen stocks move a lot in the past
• 8:14
  Speaker 1: few days. Analysts are saying, thank you very much. We
• 8:17
  Speaker 1: are our investors are saying, thank you very much. We
• 8:19
  Speaker 1: expected that. You know, what what can you do for me? Now?
• 8:22
  Speaker 1: Well that that's exactly the point. There's maybe one percent.
• 8:25
  Speaker 1: Rally has priced in some of this gain. The second quarter.
• 8:28
  Speaker 1: The quarter that just started that we're going to report
• 8:31
  Speaker 1: in July. We think the earnings are going to be
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  Speaker 1: up another sixty Now that could represent the peak of
• 8:38
  Speaker 1: the cycle in terms of rate of growth. So we
• 8:42
  Speaker 1: may continue to grind earnings up second half of this
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  Speaker 1: year all of next year, but the corner on quarter
• 8:48
  Speaker 1: year on year pace of that increase may start to decline. UM.
• 8:53
  Speaker 1: So so that's the the interesting inflection point that we're
• 8:56
  Speaker 1: gonna be watching right now. We still think the market's
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  Speaker 1: going to forty five hundred, but we may get to
• 9:03
  Speaker 1: by August as opposed to December, based upon the strength
• 9:07
  Speaker 1: of the earnings recovery that corporate America right now is enjoying.
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  Speaker 1: Phil give us a sense of your concern about inflation,
• 9:17
  Speaker 1: because we certainly are seeing inflation, uh coming into this market,
• 9:20
  Speaker 1: whether you look at the soft commodities, hard commodities, oil,
• 9:23
  Speaker 1: you know rallying here um the Fed and Chairman Pal saying, hey,
• 9:28
  Speaker 1: it's just transitory, don't worry about it. But I think
• 9:30
  Speaker 1: there's a growing chatter about the concerns for inflation. What
• 9:34
  Speaker 1: that night mean for the FED going forward? What are
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  Speaker 1: your thoughts we think the Fed is being there whistling
• 9:39
  Speaker 1: past the graveyard here. On inflation. We just saw the
• 9:42
  Speaker 1: core PC on Friday go from one point four year
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  Speaker 1: on year core in February one eight percent in March.
• 9:51
  Speaker 1: That number is going to keep going up based upon
• 9:54
  Speaker 1: this procedural base effect. As we drop off the low
• 9:57
  Speaker 1: inflation readings from a year ago, that number is going
• 10:01
  Speaker 1: to be somewhere between let's call it two and a
• 10:03
  Speaker 1: half and three over the next couple of months. Now,
• 10:07
  Speaker 1: the FED at that point is saying, don't worry about it,
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  Speaker 1: it'll plateau, it will roll over. Given the spike in
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  Speaker 1: commodity prices and the significant increase in labor costs that
• 10:19
  Speaker 1: the companies are gonna have to pay in order to
• 10:21
  Speaker 1: get workers off the sidelines to take their jobs back,
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  Speaker 1: and then the price increases, they're going to pass those
• 10:27
  Speaker 1: labor costs on us in the form of higher consumer praises.
• 10:30
  Speaker 1: All of that, in our view, is going to start
• 10:32
  Speaker 1: to filter into core inflation. So so and and the
• 10:36
  Speaker 1: FED is locked in that they're not going to make
• 10:38
  Speaker 1: a policy change until you know, the end of calendar
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  Speaker 1: twenty three at the earliest. So I think we're at
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  Speaker 1: an inflection point on the FED here as well. At
• 10:46
  Speaker 1: what point does the Fed blink and recognize that maybe
• 10:50
  Speaker 1: inflation is a little bit of a problem here, and
• 10:53
  Speaker 1: that they're gonna have to change policy, either tapering or
• 10:56
  Speaker 1: moving interest rates higher earlier than the beginning of into Phil,
• 11:01
  Speaker 1: what asset class do you like if inflation is not transitory?
• 11:07
  Speaker 1: Where do you put your money? Heard a fixed income
• 11:09
  Speaker 1: strategies morning? Tell me junk bonds. But that's a little
• 11:11
  Speaker 1: too risky for my blood. Well, and I'm not the
• 11:13
  Speaker 1: bond guy. I'm the equity guy. And and and basically
• 11:16
  Speaker 1: what you want or companies that have pricing power that
• 11:19
  Speaker 1: are leveraged to this improvement of the economy. So we
• 11:22
  Speaker 1: think that the value stocks, which we've been playing since
• 11:25
  Speaker 1: last August, financials, energy industrials, UH, consumer discretionary, UH materials,
• 11:36
  Speaker 1: that these are the companies that are that are producing
• 11:39
  Speaker 1: the outsize games because the economy is growing so strongly
• 11:43
  Speaker 1: and the valuation gap between growth and value is still
• 11:46
  Speaker 1: significant enough. But I think that the value trade ought
• 11:49
  Speaker 1: to continue to work. Love it, Phil, great to get
• 11:52
  Speaker 1: your input. Really appreciate you stopping by for a bit.
• 11:55
  Speaker 1: Phil Orlando. There is that chief equity market strategist also
• 11:59
  Speaker 1: head of Client port folio Management over Federated Hermes and
• 12:03
  Speaker 1: Paul as you were you were telling me this morning.
• 12:05
  Speaker 1: Phil has been bullish and he's been right. He has
• 12:08
  Speaker 1: been and uh, you know it's interesting. He's got that
• 12:11
  Speaker 1: that rotation trade very much uh in play here, and
• 12:14
  Speaker 1: he's gonna ride that out. So it's been a good trade. Um,
• 12:17
  Speaker 1: And I think a lot of investors are feeling, you know,
• 12:19
  Speaker 1: this has got some more room to run here. As
• 12:22
  Speaker 1: long as the Fed stays on the sidelines and this
• 12:23
  Speaker 1: economy continues to reopen, we can see more legs there.
• 12:29
  Speaker 1: Time for Bloomberg Opinion today, we're joined by Tara la Chapelle.
• 12:33
  Speaker 1: She covers entertainment, telecommunications and deals for Bloomberg Opinion. And
• 12:36
  Speaker 1: I'll tell you, if you have an interest in media
• 12:39
  Speaker 1: like I do, in the convergence of media and technology
• 12:42
  Speaker 1: and cord cutting and streaming and all that cool stuff,
• 12:45
  Speaker 1: Terra's work is an absolute must read. And she's out
• 12:48
  Speaker 1: with another fantastic column today talking about Netflix and Terry,
• 12:52
  Speaker 1: you're suggesting that Netflix, you know, they haven't really bought anything.
• 12:56
  Speaker 1: They've just kind of built their company up from scratch,
• 12:58
  Speaker 1: investing in their in their business, investing in their programming,
• 13:01
  Speaker 1: but you're suggesting maybe they should take a look at
• 13:03
  Speaker 1: buying an existing media company, which one and whine right,
• 13:07
  Speaker 1: So I think that they should look at Discovery and
• 13:10
  Speaker 1: not just Netflix the other streaming giants you know, Apple, Um,
• 13:14
  Speaker 1: maybe not so much. Disney doesn't really fit their family
• 13:17
  Speaker 1: friendly programming, but you know, Amazon Prime, any of them.
• 13:20
  Speaker 1: Because I think what's missing now from the streaming universe
• 13:24
  Speaker 1: is reality TV programming, which you know, maybe Discoveries content
• 13:28
  Speaker 1: on you know, TLC, things like that are considered kind
• 13:31
  Speaker 1: of like the lowest rung of television art, but at
• 13:35
  Speaker 1: the same time, a lot of people enjoy it. And
• 13:37
  Speaker 1: I think it also is that type of content that
• 13:40
  Speaker 1: you can just turn on the TV and it's background
• 13:42
  Speaker 1: noise while you're maybe scrolling your phone or making dinner.
• 13:45
  Speaker 1: And I think that's really missing from streaming, and there's
• 13:47
  Speaker 1: value and being able to provide that. So I think
• 13:50
  Speaker 1: if Netflix is smart and if the other companies are smart,
• 13:53
  Speaker 1: they start to see that there's a hole there and
• 13:55
  Speaker 1: it would make an awful lot of sense to fill
• 13:57
  Speaker 1: because this kind of programming is not expensive to me
• 14:00
  Speaker 1: and it really you know, pays dividends. Yeah, I mean
• 14:03
  Speaker 1: if if Tiger King isn't the lowest rung of creating art,
• 14:08
  Speaker 1: I feel like they've already gone there. Um, and that
• 14:10
  Speaker 1: program was extraordinarily successful. Right. Meanwhile, Discovery has for me,
• 14:16
  Speaker 1: at least, they've got the top Gear America, which is
• 14:20
  Speaker 1: reality programming that I absolutely love. What else is Discovery
• 14:24
  Speaker 1: got on offer they have? They have really a wide
• 14:27
  Speaker 1: um offering of of programming. Top Gear comes from Motor Trend,
• 14:31
  Speaker 1: but Discovery owns that. Yeah, they have a ton um
• 14:34
  Speaker 1: you know. Aside from Motor Trend. There's TLC with Nintie
• 14:37
  Speaker 1: Day Fiance is their big show right now, and David Zaslav,
• 14:40
  Speaker 1: the CEO of Discovery, is kind of mused before that
• 14:42
  Speaker 1: it's like their Sunday Night Football. It airs on Sunday
• 14:45
  Speaker 1: nights and it just gets tons of viewers. And I
• 14:47
  Speaker 1: think what's interesting about Nintie Day Fiance and some of
• 14:50
  Speaker 1: their other programs. They have Chopped on the Food Network,
• 14:54
  Speaker 1: there's Naked and Afraid on the Discovery Channel. Obviously HDTV
• 14:57
  Speaker 1: has a ton of hit programming. Um. I think what's
• 15:01
  Speaker 1: different about them is that these are franchises. Do you
• 15:04
  Speaker 1: look at something like Tiger King and some of the
• 15:06
  Speaker 1: other uh paise Netflix has made into reality shows. None
• 15:10
  Speaker 1: of them have been franchises, and Discovery just kind of
• 15:13
  Speaker 1: keeps building on these brands. And it's funny because they
• 15:16
  Speaker 1: don't really have stars behind them. They're just mostly regular
• 15:19
  Speaker 1: people that they're filming in these cases and you know,
• 15:21
  Speaker 1: ninety Day Fiance, they're just following around Americans who are
• 15:24
  Speaker 1: trying to bring over their fiance's from abroad on K
• 15:28
  Speaker 1: one visas. And you know, it's it's really like, you know,
• 15:31
  Speaker 1: low budget programming, but it's wildly entertaining to a lot
• 15:34
  Speaker 1: of people, and it appears to spin offs and extras
• 15:38
  Speaker 1: and reunion shows basically gifts that keep on giving for Discovery.
• 15:43
  Speaker 1: All right, So Tara, I, you know, I know Discovery
• 15:46
  Speaker 1: Communications very well. And one of the key things about
• 15:49
  Speaker 1: that company is that it's control shareholder is John Malone.
• 15:54
  Speaker 1: What do we know about Dr Malone's feelings about Discovery
• 15:57
  Speaker 1: and perhaps selling this company should should have bona Flied
• 16:00
  Speaker 1: offer come along. You know, it's funny. I think John
• 16:03
  Speaker 1: Malone and David Zaslov are the two executives that are
• 16:06
  Speaker 1: always willing to kind of pitch their own companies for
• 16:09
  Speaker 1: sale anytime they go out to the media or their conferences.
• 16:12
  Speaker 1: They seem to always be like open to that idea,
• 16:14
  Speaker 1: and they're almost kind of asking for offers, and I
• 16:17
  Speaker 1: wouldn't I think that if they got one, they definitely
• 16:20
  Speaker 1: would consider it. I think that, you know, John Malone
• 16:22
  Speaker 1: is a dealmaker at heart, and I think that he's
• 16:25
  Speaker 1: you know, always been kind of open to selling at
• 16:27
  Speaker 1: the right price, and especially now given his age and
• 16:29
  Speaker 1: trying to kind of tidy up his portfolio, I imagine
• 16:33
  Speaker 1: that they would be willing sellers. Um. I think it's
• 16:35
  Speaker 1: just a matter of when these other media companies feel
• 16:38
  Speaker 1: ready to make a big bet like this and see
• 16:41
  Speaker 1: the value in it. And I think more and more
• 16:43
  Speaker 1: discoveries proving its value. In the case of Netflix, it
• 16:46
  Speaker 1: really wasn't financially in the position to do major acquisitions,
• 16:49
  Speaker 1: and it's just starting to get to the point where
• 16:52
  Speaker 1: they're saying they're going to be cash flow positive starting
• 16:54
  Speaker 1: next year. So maybe they now have the wherewithal to
• 16:57
  Speaker 1: be able to think about making acquisitions, especially as they
• 17:00
  Speaker 1: see their own subscriber growth really start to slow. When
• 17:05
  Speaker 1: I was a kid, we used to call John Malone
• 17:06
  Speaker 1: the Darth Vader of cable. I can't remember why. But
• 17:11
  Speaker 1: as you point out Tara's he's getting older and maybe
• 17:15
  Speaker 1: looking to wrap up his legacy. Here, what if Netflix
• 17:18
  Speaker 1: doesn't take Discovery, is there another buyer out there who
• 17:21
  Speaker 1: would want them? I think it would make sense for
• 17:24
  Speaker 1: any of the streaming companies that are really lacking in
• 17:28
  Speaker 1: the kind of content that we did enjoy about cable.
• 17:30
  Speaker 1: So I think of Apple TV plus, it's very focused
• 17:33
  Speaker 1: around you know, specific shows and movies with big actors
• 17:37
  Speaker 1: in it, and it's kind of you know, you watch
• 17:40
  Speaker 1: it and then that's that you forget about it. I
• 17:41
  Speaker 1: think they need something that keeps people coming back these
• 17:44
  Speaker 1: kinds of programs do that. Amazon Prime doesn't really have
• 17:46
  Speaker 1: a whole lot there. Um. But also, you know a
• 17:49
  Speaker 1: company that always comes up when you talk about Discovery
• 17:52
  Speaker 1: is Viacom CBS. UM. I don't see the logic as
• 17:55
  Speaker 1: much there, but I think it's it's a case where
• 17:57
  Speaker 1: because they're kind of the also ransom this industry, people
• 18:00
  Speaker 1: see them, you know, they should get together and they'll
• 18:02
  Speaker 1: be stronger together. So there's there's that argument. Um. But
• 18:05
  Speaker 1: I think you know, Netflix, if they want to stay
• 18:07
  Speaker 1: on top, this is something that's really missing and it
• 18:10
  Speaker 1: fits really well because Discovery is also a very international
• 18:13
  Speaker 1: company and that's something that's important to Netflix. So I
• 18:17
  Speaker 1: think it probably makes the most sense for them. But
• 18:19
  Speaker 1: any of these companies should be looking at them. UM.
• 18:22
  Speaker 1: You know, so much of the takeover speculation and the
• 18:24
  Speaker 1: industry is focused on Hollywood movie houses. I think, you know,
• 18:28
  Speaker 1: that doesn't really help them that much. I think something
• 18:30
  Speaker 1: like this would would pay off a little bit better
• 18:32
  Speaker 1: in the long run. Have you heard anything from Repastings,
• 18:37
  Speaker 1: the CEO of Netflix, about their willingness or appetite for
• 18:41
  Speaker 1: any type of acquisitions. Not a whole lot on that front.
• 18:45
  Speaker 1: And again I think maybe that has to do with
• 18:47
  Speaker 1: them just trying to get to the point where they
• 18:49
  Speaker 1: could prove to investors and the naysayers that they are
• 18:52
  Speaker 1: a financially viable company and now they've gotten there. Um.
• 18:56
  Speaker 1: But also, you know, they get asked a lot about
• 18:58
  Speaker 1: whether they would expand into other things like gaming. UM.
• 19:01
  Speaker 1: I've brought up the idea of them getting into consumer products, licensing, UM.
• 19:06
  Speaker 1: But they haven't really been specific about what's next, which
• 19:09
  Speaker 1: kind of makes you wonder what they could be thinking about.
• 19:11
  Speaker 1: But UM, acquisitions come up whenever a company's growth is
• 19:15
  Speaker 1: starting to slow and Netflix is now kind of a
• 19:17
  Speaker 1: mature company in that sense, and so you could imagine
• 19:20
  Speaker 1: that they're starting to have those conversations that companies like
• 19:23
  Speaker 1: Disney have had, you know, for years. Tara your article
• 19:28
  Speaker 1: and Matt, this is funny. When I first read TERA's
• 19:30
  Speaker 1: article this morning, said, oh, investment bankers are hitting the
• 19:33
  Speaker 1: phones today because I think Terri's kind of raises a
• 19:35
  Speaker 1: lot of questions here. Yeah. Interesting, uh interesting. Al Bloomberg
• 19:41
  Speaker 1: opinion columns can sometimes spark deals, but I mean her
• 19:45
  Speaker 1: her logic isn't flawed and it's probably something, hopefully something
• 19:49
  Speaker 1: that investment bankers thought of as well. Otherwise, I think
• 19:54
  Speaker 1: Tara could be in for a pretty big pay day
• 19:56
  Speaker 1: if she were to switch over to the dark side.
• 19:59
  Speaker 1: Tara la Chappelle there from Bloomberg Opinion. Check out her
• 20:01
  Speaker 1: work by typing O, P I N go on the
• 20:03
  Speaker 1: Bloomberg or look at Bloomberg dot com slash opinion. This
• 20:08
  Speaker 1: is Bloomberg. We're about halfway through this earning season. Another
• 20:15
  Speaker 1: big week. Uh. This week and another are just coming
• 20:18
  Speaker 1: in very strong, and that's what this market needed. Let's
• 20:20
  Speaker 1: see how some strategists are thinking about that. Scott Wren.
• 20:24
  Speaker 1: He's a senior global market strategist for Wells Fargo Investment Institute. Scott,
• 20:29
  Speaker 1: thanks so much for joining us here. You know, there
• 20:31
  Speaker 1: was a strong argument to be made that this first
• 20:33
  Speaker 1: quarter earning earning season really have to come in strong
• 20:37
  Speaker 1: to justify the valuation in this marketplace. Do you think
• 20:40
  Speaker 1: corporate Americas has come through so far? Well, I really do, Paul,
• 20:44
  Speaker 1: But I tell you I think really the way I
• 20:46
  Speaker 1: look at most earning season and even this one is,
• 20:49
  Speaker 1: you know, this is more of a confirmation process. I mean,
• 20:52
  Speaker 1: it's the last thing that happens in the entire earnings processes.
• 20:55
  Speaker 1: It's it's reported to the streets. So the street expected
• 21:00
  Speaker 1: good earning strowth. We've certainly had that. We know we're
• 21:04
  Speaker 1: going to get some really good UH economic growth here.
• 21:08
  Speaker 1: So this is more of a of a confirmation step
• 21:11
  Speaker 1: in my mind. But certainly this has been a really
• 21:14
  Speaker 1: good earning season. I always look at this from two
• 21:17
  Speaker 1: different angles. On the one hand, it Scott, you know,
• 21:21
  Speaker 1: companies are doing great, they're bouncing back from to be fair,
• 21:25
  Speaker 1: you know, pretty low base effects. On the other hand,
• 21:28
  Speaker 1: analysts got it wrong. Um they undervalued or underbid these
• 21:34
  Speaker 1: companies earnings reports, Nearly ninety percent of SMP firms beat estimates.
• 21:40
  Speaker 1: What are the analysts doing something wrong? Are they not
• 21:43
  Speaker 1: updating their expectations? Are they, you know, working from home?
• 21:47
  Speaker 1: What's the story? Well, I'll tell you, Matt, this is
• 21:51
  Speaker 1: my bias I think is a strategist is a lot
• 21:54
  Speaker 1: of times individual company analysts, you know there they are
• 21:57
  Speaker 1: really glued to company guidance. And if you think back
• 22:01
  Speaker 1: what's happened over the last year, uh and and really
• 22:04
  Speaker 1: in a lot of earning seasons, you know, these these
• 22:06
  Speaker 1: companies are are very cautious. They don't want to give
• 22:10
  Speaker 1: a very aggressive outlook. You know, that's why six in
• 22:15
  Speaker 1: any earning season season beat. But that that's the situation
• 22:20
  Speaker 1: that guidance is very conservative. We know from economists and
• 22:24
  Speaker 1: certainly our economists that we that we talked to with
• 22:27
  Speaker 1: our group um are expecting big things. But these companies
• 22:31
  Speaker 1: aren't going to go out on a limb too far.
• 22:33
  Speaker 1: And then the analysts become really glued to that guidance
• 22:37
  Speaker 1: and therefore you know, their way under what the actual
• 22:39
  Speaker 1: results would be too. So it's kind of an odd
• 22:42
  Speaker 1: sort of a circle, but it happens with such regularity
• 22:46
  Speaker 1: that when you have something like this pandemic, it gets
• 22:49
  Speaker 1: even worse. All right, Scott, So we've seen, um, you know,
• 22:53
  Speaker 1: the rotation trade into cyclical stocks, even into smaller cap
• 22:57
  Speaker 1: stocks as well, really perform well amost almost for a year. Now,
• 23:01
  Speaker 1: what's your take on that allocation or or that move
• 23:06
  Speaker 1: in that side of the market versus maybe the more
• 23:08
  Speaker 1: traditional growth areas. Where are you kind of focused right now? Well,
• 23:12
  Speaker 1: I will say that in this particular cycle, our viue
• 23:15
  Speaker 1: is that growth is going to not fade relative to
• 23:19
  Speaker 1: value as as much as maybe a normal cycle. Now
• 23:22
  Speaker 1: saying that, you know, we're in a cycle, we're in
• 23:25
  Speaker 1: a new cycle that at least we believe we are
• 23:27
  Speaker 1: where the stock markets likely to see some some some
• 23:30
  Speaker 1: multi year gains here. Um, you know, small caps as
• 23:34
  Speaker 1: people are more willing to take on risk, you know,
• 23:37
  Speaker 1: they're going to buy value, they're going to buy small caps.
• 23:40
  Speaker 1: That's certainly what's happened. So we're you know, we're leaning
• 23:42
  Speaker 1: into small caps. We we like you know, industrials, materials, um, financials,
• 23:49
  Speaker 1: those kinds of things. So so while all these cycles
• 23:52
  Speaker 1: are different, and this one you know is odd, as
• 23:56
  Speaker 1: was the last one, you know, some of these recurring
• 23:58
  Speaker 1: themes that you see value does well, small caps do well,
• 24:03
  Speaker 1: things like that, cyclicals do well as the economy comes
• 24:06
  Speaker 1: out of the whole. You know, these things hold true
• 24:08
  Speaker 1: even in this cycle. So we're leaning towards we want
• 24:11
  Speaker 1: our clients to be assertive. We want them to be
• 24:14
  Speaker 1: leaning towards a continuation of this recovery, not just here
• 24:17
  Speaker 1: but also abroad. We think EUROP catch up after they
• 24:20
  Speaker 1: get their act together with this vaccine, and you know,
• 24:23
  Speaker 1: we like those areas. And I think at least, um,
• 24:26
  Speaker 1: you know, for the intermediate term, it's going to remain
• 24:28
  Speaker 1: like that. I got my appointment by the way you
• 24:31
  Speaker 1: do big announcement because I'll tell you why. Because Germany
• 24:37
  Speaker 1: counts I live in Berlin, because Germany counts journalists among um,
• 24:42
  Speaker 1: the third group that it gets priorities prioritized. Um, we're
• 24:47
  Speaker 1: now kicking off so I can go to press conference.
• 24:52
  Speaker 1: Thank thank you, Matt. You are you are essential man
• 24:55
  Speaker 1: that thank thank thank you. So yeah, I think I
• 25:00
  Speaker 1: I feel pretty essential in any case. UM. I was
• 25:02
  Speaker 1: just thinking, you know, Scott, you've been saying this for
• 25:06
  Speaker 1: a while, that the U. S economy is going to
• 25:07
  Speaker 1: bounce back strong everyone knows it's red hot, as Warren
• 25:11
  Speaker 1: Buffett said, but you don't. You don't know if we're
• 25:13
  Speaker 1: gonna get a strong bounce back necessarily in Europe. Um,
• 25:17
  Speaker 1: is it is it a good time to go bargain hunting,
• 25:20
  Speaker 1: to go look for um, you know, the bounce back
• 25:22
  Speaker 1: that is going to come. Well. I think as far
• 25:26
  Speaker 1: as the globe goes well, you know, we were also
• 25:28
  Speaker 1: overweight favorable on emerging markets. You know, China, China, Taiwan,
• 25:33
  Speaker 1: South Korea, they've done well. Um. I think you know,
• 25:36
  Speaker 1: they appear to have you know, their vaccine act together,
• 25:39
  Speaker 1: so to speak. Certainly, global trades pretty good, but we
• 25:42
  Speaker 1: have not been favorable on a developed international, which would
• 25:46
  Speaker 1: include include you know, obviously the Eurozone, the EU, Japan,
• 25:50
  Speaker 1: those types of countries. So we don't think it's time yet,
• 25:55
  Speaker 1: but um, but certainly it's something that we talked about
• 25:57
  Speaker 1: every week in the Investment Strategy Committee. But as far
• 26:00
  Speaker 1: as international goes right now, we want to lean more
• 26:03
  Speaker 1: towards UH towards emerging markets. Scott, thanks so much for
• 26:07
  Speaker 1: joining US. Senior global market strategists are in the fourth group,
• 26:11
  Speaker 1: by the way, so you'll be able to get your
• 26:14
  Speaker 1: vaccine if you come here. Scott in in June, Scott
• 26:16
  Speaker 1: ran there from Wells Fargo, Wells Fargo Investment Institute talking
• 26:20
  Speaker 1: to us about how they want to play this market,
• 26:23
  Speaker 1: and soon, Paul just going to be consensus that um,
• 26:27
  Speaker 1: the strength in the US economic bounce back is not
• 26:31
  Speaker 1: to be denied. This is Bloomberg. Thanks for listening to
• 26:35
  Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to
• 26:38
  Speaker 1: interviews with Apple Podcasts or whatever podcast platform you prefer.
• 26:43
  Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller. Yet
• 26:48
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• 26:50
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• 26:53
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