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Market sell-off is ‘a normal course’ as Fed gets ready to hike interest rates: Strategist

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Ladenburg Thalmann Asset Management CEO & CIO Phil Blancato joins Yahoo Finance Live to give an outlook on the market and tech stocks ahead of anticipated Fed interest rate hikes.

Video Transcript

AKIKO FUJITA: Let's turn our attention to our first guest for the hour. We've got Phil Blancato, Ladenbrug Thalmann Asset Management CEO and CIO. Phil, you picked a good day, I guess, to come on the show. I mean, you have said that investors are feeling a lot of pain right now, but this is a selloff that is necessary to bring valuations in line with where they should be. What are you seeing?

PHIL BLANCATO: Well, finally, we're seeing some rationality come back to the market. Look, this is what happens, folks. This is a normal course. The Fed raises interest rates. Stocks that are sensitive to interest rates, like growth names, stocks with high valuations, get hurt.

You do get broad market selloffs. You see the triggers come in, whether it's the ETF market or just broad-based triggers that hit in individual stock names. We see these down moments. But let's not forget, underneath this current pressure-- and this is where your emotions get the best you. Take your emotions out of it.

Use this as an opportunity to find good names, to pivot in your portfolio. In names who've had excessive growth, take a little appreciation. Remember, we've had three years of incredible stock market returns. So you're probably still up.

This is when you pivot in your portfolio. You buy the name that you wanted to buy cheaper. And you enjoy the fact that volatility can be beneficial to a portfolio and not just detrimental.

BRAD SMITH: So Phil, it sounds like you believe that some of those tech companies as well that had far outpaced their own valuation and come under scrutiny, that they actually may be in play for where investors may be able to pick up some of those companies at these discounted prices.

PHIL BLANCATO: Without a doubt. I mean, listen, some of the names were already mentioned on your show. We'll just talk Netflix for a second here. This is a name that I think is probably worth around 325 over the next five years. It's a dominant player in the marketplace. When you see an opportunity for some of these names that could go a full 40% down from their peak, there's an opportunity there.

Twilio, another name that's down over 50% from its peak. These are names that are driving the future of tech. So I want you to think in your portfolio, how can I play the consumer and the future of our economy? So those big tech names that are cheap, go buy them. But then we know this is a year about the US consumer coming out of omicron, coming out of delta, leaving COVID behind us, or so it seems.

And if that's the case, what are consumer-sensitive sectors? Where are you going to spend your money, on a restaurant, on an airline, on a hotel, on a vacation spot? That's going to do really well in the second half of the year.

So you barbell here, maybe mid-cap growth stocks and large-cap tech make for a nice pair trade in your portfolio. So you'll mitigate some volatility but take advantage of a market selloff.

AKIKO FUJITA: Specifically on those big cap tech names though, Phil, I mean, the thinking here has been over the last few years that every time there's a pullback, you get in because it's going to go back higher. I mean, it sounds like you're saying that the pullback we're seeing is kind of where it should be and where it will be, at least in the short term.

PHIL BLANCATO: For sure. And I actually think we have a little bit more to go here. It wouldn't surprise me if we see the bloom come off the rose here and be down 20%-25% across the board on the NASDAQ because valuations were at 50% premiums going into this. You were looking at PE ratios that were just ridiculous.

Look, I know everyone loves Tesla. But the numbers just didn't add up anymore. Watch your local TV commercial. Every car company in the world is coming out with an electrified vehicle. Eventually that impacts sales. Eventually that has an impact across the board for all tech names. So you want to buy tech expensive but not out of the question.

So when you see valuations get down to 25 PE, maybe 30 PEs, there's your entry point. Look for good companies that are generating revenue not companies that are just really kind of a shot in the dark and not getting any revenue at all.

Balance sheet management, critical now. What tech companies are making money and will be the drivers of tomorrow's technology? That's where you make your bet in a market selloff like this, not a speculative name that's not making any money and we don't really know if it's going to succeed or not.

BRAD SMITH: Phil, one of the conversations we're going to have continuously here, because we need to, is the impact in the future of variants that we haven't even come across of COVID-19. And even as we're monitoring omicron and trying to put that behind us, it still is this question of, as the WHO was bringing up in their address in the 150th executive board meeting, that there are going to be future variants in a matter of deploying what we have right now in order to best have precautionary measures that allow us to go above what those next potential variants are.

And so on the business front, how do you imagine that companies may be restructuring or reimagining what their vision looks like and how they engage with consumers, regardless of what variant may be at play?

PHIL BLANCATO: In fact, that's the beauty of the COVID variant. I mean, there's not much nice, none of it's positive we could take from it, except look at the way we've been able to succeed in this environment economically in spite of the variant. So my opinion is that success, to your point, will continue.

We'll find new ways of engaging with the consumer. The consumer will benefit from safety precautions that have been put in place if there is a new variant. Every virus in history has always been endemic. Eventually the virus dies. And whether that's from natural immunity or something beyond that, the medical industry deserves all the credit for all these different types of therapeutics, vaccines that are available today.

So assuming it becomes endemic at some point, in spite of what's to come, we now have procedures to survive in an environment like this. And that, I think, is what's critical. When I say I think it's ending, it's that the business community and us socially are able to succeed in spite of it. And therein lies a critical difference. As it winds down, maybe there's another one to come. We'll be better prepared for it.

AKIKO FUJITA: Certainly helpful to get your insight on a choppy day like today. Phil Blancato, Ladenbrug Thalmann Asset management CEO and CIO, appreciate your time.

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