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There’s not ‘much of a difference’ for the long term economy between a Trump or Biden win: Levin Easterly Partners President

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Sam Hendel, Levin Easterly Partners President, joins The Final Round to discuss what he thinks of the market and how it will price in worries of stimulus and the November election.

Video Transcript

SEANA SMITH: When you take a look at where we stand right now, about a month away from the election, how do you think investors should be positioning themselves for the fourth quarter?

SAM HENDEL: Yeah, I think the election is going to be the big volatility point for the fourth quarter. I think most of the market is sort of expecting a very chaotic period to happen. And I think that's kind of why September, we saw some volatility in September because people are really positioning themselves in anticipation of, you know, a November 3. I don't think we're going to know who the next president's going to be. We might have a very extended period where we have litigation and vote counts.

The good thing here is that I don't think that there's that much of a difference in what's going to happen to the economy long-term between a Trump administration and a Biden administration. Biden's a moderate Democrat. I'd expect things to be very similar to sort of on the same path of an Obama presidency. And, you know, there are a couple of sectors that, I think, will be more affected than others. But I'm-- you know, I'm feeling pretty good about that the long-term here, there's not going to be a big change to the economic trajectory of recovery from the coronavirus.

AKIKO FUJITA: Sam, I want to get back to the point that Andy made earlier in the hour, which is that there's been so much talk about volatility around the election, what happens if it really is kind of a smooth transition? Could we, potentially, see a big rally on the end of that?

SAM HENDEL: I think there could be a big rally, once we have certainty. But the markets do not like uncertainty. And I'd be very surprised if we started November 4 out with a clear sense of what's going to happen over the next few weeks or even month.

But I do think there is the potential to have a rally. Hedge funds are-- have really reduced net significantly ahead of the election. So that's just our position for it. And usually coming out of that, getting clarity, could cause money to come back into the market.

SEANA SMITH: So speaking of uncertainty, over the last couple of days, really, last couple of weeks, one thing that's really been moving the market, in addition to the election, the uncertainty there, is what we've been getting from Washington in regards to no stimulus. We still don't have a deal. The prospects of a deal are still there. The timing, of course, is the big question of, what will be included in the deal is what investors want to know. But how critical do you think it is for the market that we do get some sort of additional stimulus out of Washington?

SAM HENDEL: I think it's unfortunate that both sides can't reach-- can't reach a compromise here. The markets are so far ahead of where the economy is right now. We have a market that continues to move higher, even with a wobbly September. The S&P was 8.5% this quarter. So the markets are far ahead of where the economy is.

I think it would be, of course, fantastic to have a compromise and get some more additional stimulus, especially on the small business side. My view is the large businesses and, generally, public companies, large public companies have done quite well, especially growth stocks have done quite well during this difficult period because of the market perception that these small companies are going to be disproportionately affected. And that means in the long run, the large companies are going to continue to take market share.

And that, I think, is why the markets are ahead of the economy. But for-- you know, for the country and for all of us, I think it would be very beneficial, of course, to have a stimulus. But we are in the 11th hour before the election. I think it's going to be quite challenging for both sides to reach a compromise given how polarized the nation is.

RICK NEWMAN: Hey, Sam, Rick Newman here. I want to ask you about a particular name, a stock you say is worth paying attention to-- General Motors. GM has been pretty unloved by the market until recently. And, of course, Tesla has been the darling of the market.

GM announced this deal with Nikola. And Nikola, immediately after that, plunged into controversy with the short seller note. So just in the brief time we have left, can you unpack that and say what you see in GM?

SAM HENDEL: Sure. And, firstly, on GM and Nikola, that deal is really a free option for GM. They're not putting any capital in. And I'm not sure if that deal will go forward now, given the volatility around Nikola and its founder. But what we really love about GM is that, you know, Tesla's had this huge, huge run, and GM, in our view, has technology that rivals Tesla in many respects.

Tesla is probably ahead on the battery side by maybe-- by maybe, maybe a couple of years. But on the EV side, on some of the, you know-- on some of-- on some of the cruise automation, which is GM's driverless car, that GM has a tremendous amount of products that they're going to come to market on the EV side, on the AV side, that we think the market's discounting too much. GM trades at five times earnings. Tesla doesn't have an earnings multiple because it's really just valued on sales.

And so we really like the market changing their perception. You've started to see it in the last couple months, the market changing the perception around GE and looking at-- sorry, around GM, and looking at GM as a technology company, not just the company that's making cars. I think that perception will continue to change as GM hits a number of milestones that are catalysts over the next few months in Europe.

SEANA SMITH: Is there, more broadly speaking, just in terms of once we get more clarity in the market, once we're past the election, in order to reach those record highs that we saw about a month ago, what do you think is going to lead us there? Is it going to be the leadership that we've seen in the market throughout the recovery? Is that likely to persist? Or is it going to be some of those beaten down names that are attractively valued at this point?

SAM HENDEL: Yeah, and so, I mean, we're a value shop. We're looking at value names. And growth stocks have outperformed value by 35% this year. So it is a stunning chart, if you put up growth versus value and the historic multiples. We're basically-- we're past dot-com bubble levels of disparity between one year forward PE between growth and value.

So we see the value stocks as extremely-- as extremely attractive here. And, you know, the market, we have bonds that, you know, there's no-- there's no-- there's very little risk-free rate. Bonds are very expensive. And growth stocks are very expensive. And we have a portfolio of value stocks that we view as incredibly cheap in this environment.

So what we're doing is we're out there looking at individual stocks, creating a portfolio of about 35 to 40 names of value names that are, effectively, left for dead by the market. These are good companies with strong free cash flow. And the good thing is they all have catalysts. So we have-- we're looking at companies that have catalysts over the next three, six, nine months that can unlock some of these companies. So we're really feeling-- in an environment where it's very hard to find good things to invest in, we think the value level of the market is where we're going to see cyclicals coming bank, financials coming back, is where we're going to see additional appreciation of the market.

SEANA SMITH: And, Sam, real quick, we already mentioned GM-- what are those other couple of names that you have on your radar? I believe it's Hess and also-- what's the other one-- Marathon as well?

SAM HENDEL: Yeah, so, you know, the energy markets, clearly, have been extremely challenging this quarter. Energy was, by far, the worst-- the worst sector. But there are a couple of names that really stand out for us, Hess, in particular. Hess, we think in the next couple of days, that Hess is going to have the signature of the government of Guyana. There's a discovery in Guyana.

It's the biggest oil discovery in the past 20 years. It's Hess and Exxon together. And Hess is a 30% working interest in that. It will fundamentally change the path for Hess and really turn it into a free cash flow juggernaut over the next five years. And that-- the third phase of that project is going to be approved, I think, on Friday.

And that's coming-- really, has been a pressure point, that if that signature by the government happens, that we think Hess is off to the races. And then Marathon Petroleum, they announced the deal, only a few weeks ago, selling the Speedway asset, so the Speedway convenience store asset, for 14 times EBITDA. And if you take the cash that they're going to get from Speedway, plus their stake in NPLS, which is their midstream asset, you're getting their entire refinery business for free.

And all the energy stocks have come down together. And we think there are some real attractive stories within that. And you really don't even have to worry about what's going to happen with commodity prices too much. That these companies are so undervalued, that they're pretty exciting. And they're in our portfolio.

SEANA SMITH: All right, Sam Hendel, President of Levin Easterly Partners, great to have you on. We'll talk to you soon.

SAM HENDEL: Thank you.

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