Opportunities in Cybersecurity & Pharma After Software's SaaS-pocalypse

0:00All right, welcome back. This is opening bell Schwab network with live on the floor of the new Europe stock exchange I'm so glad you're with us Alex Spencer chief investment officer Bogart wealth is with us right now and look We've seen the volatility index in fact even right now today. It's up 7% your thoughts on the volatility that we're seeing in this market and how we are to react Yes, so you know it's well first of all there's a lot of headline noise going on right now the back and forth that you're getting over Iran situation You know is a ceasefire on the horizon discussions once sides says we're making progress the other side says we're not so markets are trying to sort Through a lot of uncertainty but hey, you know that's part of the deal and what we have to do is figure out what we want to be paying attention to And the areas to look for where is there's the risk premium? Where's the opportunities and how do we navigate through this? Okay, so where's the opportunity and how do you navigate through this? Sure, yeah, you know, I think first off let's pay attention to a couple things

1:04You know three things that I'm watching is number one is oil futures curve what is that telling me VIX futures curves what is that telling me and then earnings and valuations Ultimately is where we find the opportunities so starting off with oil futures curve You know two things I'm looking at there number one is the curve dynamics itself. So take West Texas intermediary for example Yes, we see oil prices are elevated now But if we look out a month out six months out a year out or even further out what we see is prices converge back towards 60 per barrel So some indication that you know obviously this is going to be prolonged But the idea is markets are still seeing that oversupply dynamics that we had coming into this For VIX futures curve, you know, that's where we're looking for how irrational is the market right now So when we start seeing that you know, we know that the future is always more uncertain versus today So typically you should see a premium over those longer dated futures contracts But right now they're basically flat which shows some anxiety, but it's not an extreme things you know areas yet

2:10More or less than orderly sell off So now we get to the third part which is the earnings of valuations Let's take the S&P which everybody of course follows S&P right now you know forward PE is at 19.6 ish you know approaching 10 year mean But if we look at the growth and the value side of the S&P the growth side is at 21.4 Which is trading below its 10 year mean on the forward PE The value side still trades above one standard deviation so growth remember we had the whole SAS POC ellipse and AI disruption So that's perhaps where some of the opportunities are We just have to you know think longer term and just kind of stay a little tough through some of this noise And just kind of separate and just be pragmatic Yeah let's go back to that I mean you're talking about the SAS POC ellipse and software selling off So where are you willing to take some risk and put some money to work now or soon You mentioned software stocks right what else?

3:12So you know it's one thing we're telling our clients is we got to look at uncertainty versus risk Uncertainty is the known unknowns I don't know where AI is going to be and even for Iran situation You know we can the human mind can always fabricate the worst case scenarios and that's where the fear happens So in the case of software its AI is going to put everybody out of a job It's disrupting all these software stocks when we saw that sell off and across the entire platform However when we start kind of getting into risk where the risk premiums are where we start kind of rationalizing longer term thoughts You know I look at something like cyber security for example Cyber security are we really going to go to a world where we don't need cyber security anymore Did it make sense for all of those stocks to sell off? So I think there you need to kind of sift through Even if we look through some things like pharmaceutical industry The software stocks that operate throughout the pharmaceutical healthcare world

4:12You know yes one thing is software is productivity tool But also some of these companies have deep moats They have laboratory work that they do they have research they have data they have you know validation taxes that they do with FDA to do compliance stuff It's very costly for somebody to do so I don't believe that somebody you know some Joe Shmo is going to create a software That's what we're going to use for our pharmaceuticals So another area you can potentially pick through cyber security and some of through some of the software is throughout pharmaceutical industry perhaps All right let's get to other areas like gold and Bitcoin Do you think there's opportunity there? So one thing I always like to see in every sell off is what am I learning here? What am I paying attention to and even afterwards what did I learn? So it's interesting during this sell off that we've had your safe havens haven't held up you know gold falling here Where it's supposed to be the place you go to when there's geopolitical tensions or right so why is that so the reason is the energy driven inflation expectations

5:19We were pricing in for a rate cut now we are seeing a rate hike being priced into the market And remember gold really doesn't like high rates So gold has fallen off you know at 5,000 perhaps it wasn't the safe haven play that we needed but at 4,500 I want to pay attention to our central bank still buying in the with the voracious appetites that they had before this It started back to you know Russia Ukraine for example that's where they were adding on to gold And that trend is still happening it has slowed down so perhaps there's some opportunity here in gold As for Bitcoin you know Bitcoin I mean it got to really high levels it was selling off with technology and everything like that And now we're at a point where actually Bitcoin's up during the SRAN situation right so perhaps something to pay attention to Maybe it's stabilizing maybe it's found its floor so that's something I want to pay attention to And remember Bitcoin it's what one trillion market cap 1.4 trillion I believe is what it is

6:20So 60% of the market could share in the crypto currency so this looks like it has staying power So for those who are a little bit more brave you know might be an opportunity here All right so it sounds like you're more bullish than bearish I mean at this point is there anything you would avoid? I mean you know obviously we've seen a big run in energy it's going you you know long term it looks like it's coming back down as you noted A final thought So I would say that I'm neither bullish nor bearish what it is I'm being you know trying to be encouraged folks to say When there's so much noise let's get to where the risk is let's find out where there are things that there's quantifiable You know risk premiums let's think long term let's think pragmatic let's see where there's true valuations Some of these companies that have sold off will still be around a year five years from now It's just a matter that everything looks attractive at some point so the question is are some things at that point Where I would be a bit more cautious right now it's you know some of the staples actually you know I just don't see the growth premiums there

7:28You know when I look at the S&P 500 I still love the technology the secular trends that are happening there I like that international some of the areas have sold off over 10% for instance Europe may be a little bit cautious because they get a lot of natural gas from the regions So inflation pressures that they're navigating but emerging markets have sold off quite a bit Like those opportunities and they do have the AI growth story So I'm not saying avoid Europe by any means but I am saying perhaps in your term be a little cautious there Okay Alex Spencer Chief Investment Officer Bogart Well thank you so much for being with us appreciate it You