The potential remains strong for large, US-based companies, says TAMRO Capital CEO Philip Tasho. In particular, he cites room for growth in technology, consumer-oriented stocks, and financials.
Kate Stalter: Today, I am very pleased to be speaking with Philip Tasho, CEO and chief investment officer at TAMRO Capital.
Philip, I understand that you have a pretty bullish view of economic expansion, and you've identified some of the key trends that you think will be driving that. Can you tell us a bit about that today?
Philip Tasho: I think the important thing, when you look at the backdrop in terms of what we're dealing with here, is that the amount of liquidity we're seeing is really significant.
The Federal Reserve is continuing their efforts to make sure that there enough liquidity in the system in order to keep the wheels of finance and commerce moving here. I think that's important.
The other component is that we're seeing that follow-through with modest job gains. We're seeing the unemployment rate now at 8.2%, coming down, and that's really helping to fuel more positive consumer sentiment, which is at the highest level we've seen since the recovery began in the spring of 2009.
And we're seeing very robust same-store sales in the retail sector as the consumer has really stepped up to the plate also. I think these are very strong positive signs.
Overseas, we're also seeing there is a coordinated global effort from central banks to increase liquidity. And that, overall, is, in our opinion, a positive stimulus from the macro perspective.
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Kate Stalter: Let me just follow up on that, Philip, because I am sure you have seen a lot of investors, a lot of analysts and pundits, get skeptical or even sarcastic about some of the market strength when they talk about the quantitative easing worldwide as a driver of that. What would you say to that point of view?
Philip Tasho: Well, I understand that. Last month we wrote a piece saying, "Have we seen this move before?" because the first quarter was very strong.
But we've seen this the last several years, in the sense that the market is strong, and then all of a sudden things kind of unwind again. So there hasn't been a good corroboration in terms of follow-through for the economy.
But what we think is different is really the amount of liquidity that's still out there, and the continuation on a global basis, which we hadn't seen before. I think that's the key component.
In addition, we're still making further benefits in terms of reducing the unemployment rate, and also unemployment claims are coming down. They're the lowest we have seen in quite a while, too. So we think there is a bit of a difference this time versus what we have seen in the past.
I can understand the skepticism. But again, it's that wall of worry that provides the opportunity. And we think the liquidity is going to continue, and as the markets move higher here, we think that's going to improve sentiment also.
Kate Stalter: Let's drill down to some of the sectors that you believe will show strength as a result of this. You mentioned consumers. Where do you see that sector headed?
Philip Tasho: When you look at the strongest sectors year-to-date, you have technology, and a lot of that isApple (AAPL).
You also have finance, and that's very significant. We haven't seen finance in the lead for quite a while. And then lastly, the third strongest sector is consumer discretionary. So we're really seeing early-cycle sectors leading this market here, and we think that's extremely important.
The Federal Reserve reporting on the stress test for the financial services industry was extremely positive, and added credibility and confidence that the major issues, as it related to credit quality, are probably far behind us. It puts our financial service companies really in the lead vis-a-vis our European counterparts. And that will increase confidence for the banking industry to increase and continue the loan growth, because that lending will continue to stimulate more job growth and consumer sentiment.
And that's the other part: Where we're seeing growth is really in the consumer area. We're seeing same-store sales very robust here, and it's really across the board. We mention Apple and technology…it's the largest company in the world now. It's over 4% of the index, which is amazing. So the demand for those innovative electronic products are really in the forefront.
Also in the consumer area, we're seeing companies like Home Depot (HD). Home improvement is really continuing, and that's been in the forefront also. So those are two names out there that have been very strong.
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In the financial sector, JPMorgan (JPM) and American Express (AXP) have done a very good job in terms of weaving their way around the financial chaos that has been out there. And I think this is significant: both American Express and JPMorgan reported more earnings at the end of 2011, and in the first quarter of 2012, than they ever in their history. So we're seeing very strong trends here and corroborate that with still very attractive valuation.
Kate Stalter: Do you see any divergence between the big mega banks and some of the regional banks, many of which are turnaround plays? How do you see that playing out in the financial sector?
Philip Tasho: I think we're going to see, given the level of regulations that are out there, it's going to hurt the bigger banks more than the smaller banks.
But one thing that we're going to see: We're still over-banked, and we think that the opportunities for the smaller-cap banks provide an opportunity. We think that the leading banks will consolidate those niches. And there is still a number of FDIC-assisted acquisitions that we're seeing with smaller banks consummated, and that's going to strengthen their niche in their regional areas.
So we think that banking downscale is an opportunity. We think the larger banks that have really carved out a very strong competitive niche, such as the JPMorgan, that really compete on a global basis, will also be a winner.
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Kate Stalter: Let me just ask you one more question today, Philip, and it's kind of along the same lines-just about where you see small caps headed, versus the larger caps these days?
Philip Tasho: You know, I think the small companies are really the innovators of our economy, and I think there are a lot of great opportunities. The US is the most innovative country in the world, and that's a great purview of the small-cap universe.
Large companies, they have been out of vogue for over ten years. We're seeing much better execution, and we're seeing them making fill-in acquisitions to increase their innovativeness and to compete on a global basis.
So as I mentioned, the larger companies now are really on the forefront in terms of where the opportunities are. So in our opinion, fundamental execution, in addition to valuation, give the larger companies the edge over the smaller company universe.
Kate Stalter: And certainly in the past few months, it has been the larger companies, the Apples and some of the larger, more liquid names, that have led the way. So you see that continuing?
Philip Tasho: I think the confidence that the US has addressed a lot of the issues that are out there, from an economic standpoint, is going to put us in the lead.
And I think that when global investors look at the opportunities, they are going to look at a larger-cap universe as a great source of liquidity in which to invest in also. So I think we could very well see money globally coming and being attracted to the US large-company investment.