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Banking sector to see an ‘incredible wave of innovation’: Advisors Capital

Dr. JoAnne Feeney, partner and portfolio manager at Advisors Capital Management, joins Yahoo Finance to discuss earnings season outlook, FinTech impact on banking, and the semiconductor space.

Video transcript

MYLES UDLAND: Let's talk about everything going on in the market, and kind of a broad set up as we get into the teeth of first quarter earnings season here. JoAnne Feeney joins us now. She's a partner and portfolio manager over at Advisors Capital Management. So, JoAnne, we've seen some results from some of the banks. And as we get towards first quarter earnings, what are some themes in the companies that you've got your eye on that you're going to be most closely watching for as we start to hear from management teams here?

JOANNE FEENEY: Well, good morning, Myles. You know, one of the things we're going to be looking for is how confident companies are in their guidance. There's still a fair bit of uncertainty out there with the virus, but vaccines are ramping up strongly, despite the Johnson & Johnson troubles. And so, companies, first of all, have some high expectations that they have to beat. Estimates have come up after what they delivered in the fourth quarter of last year.

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And then the guidance for this year is really going to reflect a number of different scenarios. How much economic recovery is important for that particular company? How much they're worried about inflation or other types of risks to the economy as a whole? How much they expect the current stimulus program, which is being rolled out now, to affect their opportunities? So, it's really going to be a question of, not so much whether they beat the numbers for last quarter, but what kind of guidance they're able to give when we're still in the middle of a fair bit of uncertainty regarding the pace of the economic recovery.

BRIAN SOZZI: JoAnne, what do you-- what would you need to see-- what do you think the market would need to see, just to keep its optimistic tone within these earnings calls?

JOANNE FEENEY: You know, I think they're going to need to hear specifics about how much companies, for example, are ramping up production, how much early indication of orders they're seeing? Things that would give investors confidence that the surge we saw last year in stock prices, even when the economy was suffering, was really justified. And how much more growth in earnings we can expect this year.

And I have a feeling a lot of the companies are going to point to a second 1/2 recovery. They're going to say, hey, this quarter, still a little bit weak, but we have good visibility to the second 1/2. I think they're going to want to see that.

MYLES UDLAND: All right, yeah, and certainly, a lack of visibility was the dominant theme over the last several quarters. We see here live pictures from the floor of the New York Stock Exchange, as well as the NASDAQ marketplace, right there in Times Square.

Again, Coinbase set to begin trading on the NASDAQ at some point today, probably not for the next couple of hours, as folks try to build the book there. $250, the reference price set for Coinbase last night, but again, the average trading price, as we just heard from Bill Haslett at Equities, $343 per share in private secondary transactions recently. So, certainly expecting a bit of a pop when Coinbase does indeed get open.

And JoAnne, a name that you're looking at, and kind of a theme that you guys are looking at broadly, is what's happening on the Fintech side and how the banking industry really is changing? A name that you're flagging for us is PayPal. They've certainly stated their intentions with respect to getting more involved with crypto. How does that factor into to the way you're thinking about the banking sector, and does a name like Coinbase to you more legitimize some of these efforts we've heard from, whether it's the PayPal, or the Square, Visa, on the crypto front?

JOANNE FEENEY: Yeah, you know, I think broadly speaking, Fintech is changing the way banking is done and may very well diminish some of the opportunities for banks, but that's a longer term issue. Right now, the banking sector is in the middle of a reopening trade. Their business is growing, as we saw from some of the results this morning. And then when you look beyond the banks to Fintech, you know, whether it's PayPal, which is already helping its customers handle some of the cryptocurrencies. You look beyond that to other areas of Fintech, whether it's just increasing digital payments, and not just in the United States.

If you look beyond the US into South America, for example, we're seeing Fintech grow there. And companies like Stone Technology-- Stone company, for example. You know, in this country, Q2, which is enabling smaller banks, as well as the large ones, to put a mobile front end on their communication with customers, and that really could potentially take away some of the business from banks. Coinbase, obviously, an exchange now for trading cryptocurrencies is just adding to the enthusiasm for that move away from sort of brick and mortar banking and the intermediation of banks into Fintech.

So, there's a lot of opportunities out there, whether it's a PayPal, or Q2, or a Stone company, or an Encino. There is just an incredible wave of innovation coming to the banking sector and there are a lot of different ways for investors to get involved in that.

BRIAN SOZZI: JoAnne, really the line in the morning for me came out of JP Morgan, noting that consumer spending in their consumer business has returned to pre-pandemic levels. Immediately it tells me, some of these retailers have to be sitting on some pretty good first quarters, maybe the second quarter off to a decent start for some names. Do you like any of these companies?

JOANNE FEENEY: Yeah, that's a great observation and really helpful for building confidence. You know, there are a number of companies, obviously, that did well last year, even in the midst of the pandemic and the shutdowns in the consumer space. But one of them didn't really do as well as the others is TJ Maxx, because they rely a lot more on the brick and mortar presence, the customers coming in and browsing, looking for those bargains.

So, that's one we're pretty enthusiastic about here, but we also continue to like Williams Sonoma, which did extremely well during the pandemic. But they also are likely to benefit as the flow of customers returns to the malls and to their locations. So, there are a number of plays in consumer that I think did well in pandemic times, will continue to do well now, but the opening of brick and mortar is really going to help a company like TJ Maxx.

MYLES UDLAND: And then JoAnne, finally, another sector that you're flagging for us is Semis. And I think what's interesting there is, it kind of seems like everybody knows the story, right? There's not enough supply, and so, that's good for all these names. How do you think about that trade here kind of given the tailwind for this sector that again, we have talked about, and it seems like, you know, if you got two eyes, you can find what the bull case is here for the Semis today?

JOANNE FEENEY: Right, Myles, exactly. So, the tailwind is right. So, we have a shortage, which means we have a lot of demand. And the one that's gotten a lot of headlines is obviously the auto industry. But think about semiconductors is really infiltrating every part of the economy.

And what's changed in investing in that industry is how many more end markets there are where semiconductors play a role. And so, because of the pandemic, and the additional data centers we needed to handle all the internet traffic, and now we have a 5G cellular cycle that's raising demand for new wireless towers infrastructure, and also, obviously, the handsets, and then you go beyond that to autos to industrial factory automation.

So, as the economy reopens, we're going to see that tailwind as well. And so, when you look for opportunities there, you can find things that are less well-known. So, sure, MXPi is an auto supplier. That's a big part of their business. Texas Instruments is another.

But if you look for some other bargains, and we continue to like those two for our clients for whom we invest in individual stocks, look, at Acenna Look at Luminta. Those are companies that have been a little bit under the radar and they're set, I think, to have a very good year and a very good few years because of the rollout of further infrastructure investments across the economy.

And so, there are opportunities here. I think, you know, the challenges that technology as a group has become kind of expensive. And so, investors really need to do their homework to find out where the value still lies. And that shortage that we're seeing, the semiconductor shortage, tells us that there are going to be multiple years still of growth as these companies add capacity and perhaps get some subsidies from the US government to do so, which will mean that growth is going to continue for a number of years.

MYLES UDLAND: All right, JoAnne Feeney, partner and portfolio manager at Advisors Capital Management. JoAnne, really appreciate you jumping on this morning. Great conversation. I know we'll talk soon.

JOANNE FEENEY: Thanks, Myles.