‘The market is discounting 6-12 months of really good consensus guidance’: Portfolio Wealth Advisors President and CIO

As all states in the U.S. have reopened to some capacity, investors are eyeing how businesses and the economy will react to a post-coronavirus environment. Portfolio Wealth Advisors President and CIO Lee Munson joins The Final Round to discuss his ideas on where investors should be looking in the markets.

Video Transcript

SEANA SMITH: All right. Well, get more on the broader market action that we have seen, not only these stay at home stocks, some stocks that have been benefiting from the coronavirus, but really the broader action that we have been seeing. For that, I want to bring in our next guest. We have Lee Munson, president and CIO of Portfolio Wealth Advisors. And Lee, it's interesting because we have some of these individual names that have continued to be stand outs. We know Slack is under pressure your after hours. But the stock has performed very well since the start of the year.

And then broadly speaking, the S&P just reporting its best 50-day rally ever, up over 37%. So my question to you is does this market have room to run, or should we be thinking twice before we start chasing some of these returns?

LEE MUNSON: Well, I am. I mean, I think this momentum has legs. The problem is, is that it's detached from-- from what the economic reality that we're getting in right now. So here's how I see it. ' If I want to be polite, which I try to be sometimes, we would just simply say that the market is discounting six to 12 months out on really good consensus guidance, 130 a share for the S&P, basically what we have right now. And that would take us to, you know, 3,000-3,100.

The problem that I have is that I have a fundamental different belief on that. I don't think we're going to make what consensus said, which is down, you know, 20%, 25%. I think we're more looking like maybe 100, 110 share on the S&P. You know, put that at a valuation, you know, I'm getting more like 2,800 times-- you know, 2,800 on the S&P. And that's going all the way out 2022 earnings at maybe 150 a share.

So I think that you have to-- if you're buying the market now and you're buying it on fundamentals, you really have to believe that we're not doing guidance and that that's a mistake and that in fact, we're going to have a very robust return. We're going to go from 42 million unemployed to not that much.

If I want to be more provocative or cynical or have a few beers, I'd say people are crazy right now. You've got momentum players. You've got algos putting in hundreds of billions of bucks. And I think it could keep going up.

What I've done, I've just peeled back, right? I've been-- I've been selling into strength for like eight weeks now. And I've got a decent average price. But unless you manage money for your own self or unless you're fortunate to have, you know, clients like mine they're definitely behind what I'm doing and they're definitely with me in terms of patience, I think it's got to be very difficult, because I think a lot of portfolio managers out there, they've got to run their book for the next 30 days for their Q2 performance. And if you're living and dying by Q2 performance, you've got to go and screw around in Latin America.

Did you see that yo-yo yesterday? It's just popping. And you have to go around to my hunting ground, small value. That's still popping. But you're not doing it on any fundamentals. You're doing it on a catch up trade. You're doing it on whatever it hasn't popped will and start doing that. You see it in emerging markets.

RICK NEWMAN: Hey, Lee, Rick Newman here. I think I'm speaking for the team here when I say we'd prefer you to be impolite rather than polite. But I just want to get to what you're saying. I'm hearing you saying you'd be more comfortable if you saw-- saw a haircut in valuations. But also what about the fundamentals would actually make you feel better about the markets? What are some triggers at the level of the fundamentals that would make you a more enthusiastic buyer?

LEE MUNSON: Well, OK, why don't we be blunt and say, what would cause you to have to go back to your clients and say, I'm dead wrong, and I need to start buying things. I'll figure out how to make up performance next year, because that's really the question here. Number one, I've got to see these furloughed people go back to work in the next three months.

I've got to see the August ISM numbers, August, September. I have to see manufacturing start picking up a lot. And I have to start seeing next quarter, these earnings start flowing in so that we think that we really will produce somewhere around 130 or higher aggregate earnings on the S&P 500.

The problem is, this is not a bull market where I come on and say, I don't care if things are soft. The banks are lending. You go higher. You buy. You hold your nose. This is not that situation. So unemployment has got to not just top out. But I got to see those people.

Look at AutoNation. You know, they took 7,000 furloughed people. They said, well, we're going to give back our PPP money. It was like 77 million. We're going to permanently layoff half of those people. Half? What if we have half of the 42 million become permanent? Then I'm just going to sit around being right.

SEANA SMITH: [CHUCKLES] We're going to leave it there, Lee. We're going to see if you are right over the next couple of weeks. Lee Munson, always great to have you on the show. Thanks so much for taking the time today.

LEE MUNSON: Awesome. Have a great week.