Why this Portfolio Manager is looking at Stryker's stock as hospitals begin elective surgeries

George Young, Portfolio Manager at the Villiere Balanced Fund, joined Yahoo Finance's Jen Rogers, Myles Udland, Dan Roberts, and Melody Hahm to discuss the stocks he's watching and his outlook for the market.

Video Transcript

MYLES UDLAND: All right, welcome back to The Final Round here on Yahoo Finance. Myles Udland with you in New York. We're joined now by George Young, he's a Portfolio Manager at The Villiere Balanced Fund. George, thanks for coming back on. I want to talk just a little bit maybe high level here. The environment that you guys are looking at tend to look I think at some smaller companies than most of our guests, who are talking about the FAANG names, are looking at. When you think of your investment universe, the names that excite you, what kind of trends are you seeing right now? What opportunities, I guess, have come up over the last six or eight weeks?

GEORGE YOUNG: Well, there have been a lot of opportunities. The market has been all over the place, as all of your viewers know. All of us have felt like we've been whipsawed, but I think the important thing that viewers need to do is take a look at the long term and try and understand how they can invest for their benefit over the next year or two. We're not traders here, and we're also bottom up oriented. You're right, we tend to look at stocks that are more small mid-cap oriented.

And here's one important thing to think about is over the last year, and we've had a hell of a 12 month period, but in the last 12 months, the S&P 500 is up about 3%, and on the other hand, the Russell 2000, which is more of our wheelhouse, is down 16%. So there's a huge abrupt gap between the valuation of the large cap stocks. And again, I think your viewers know that something like five stocks represent 20% of the S&P 500. So there's been an artificial valuation, an overvaluation I would say on those large cap stocks, which has left the small cap stocks as somewhat of an opportunity if you can withstand the volatility.

MYLES UDLAND: So I want to get into one of the picks here, which I think is a very interesting name given the environment, which is Stryker. You know, elective surgeries have been put off, and I think unbeknownst to a lot of folks, you know, the medical system makes most of its money off elective type procedures. Now, Stryker is in that space, and I think hospitals are very eager to get back online. What do you see in this? Is this a name that you thought maybe you got unfairly penalized, you know, as this information kind of came to light in the last few weeks?

GEORGE YOUNG: I do. I think it's interesting. So what we try to do is to find the best in class, if that makes sense. The best stocks in their particular area. And so in this case, Stryker is a company that makes replacement for knees and for hips, for instance. So if you need a new knee or new hip, you obviously don't want to in the operating room right now because of the COVID problem, and you're not allowed to, but only right now are orthopaedics allowed to get back into the operating room. And so we think that's-- I'll call it deferred surgery rather than elective. Elective surgery seems to make more sense like it's a demographic sort of thing or dermatological process. So in this case, this is something that's elective, and you will elect to do it in due course.

JEN ROGERS: Can I ask you about JB Hunt? An interesting pick out there as well given the demand picture that we're seeing here. What is it that you like about that company?

GEORGE YOUNG: Well, I'm sure all of your viewers are using Amazon and other delivery services, so we know that deliveries have to happen. They've slowed down somewhat, but remember, JB Hunt has about a 30% market share. They're the largest market share in intermodal transportation. That means the last mile, that means getting items from point A to point B. So everything that's being delivered depends on some form of transportation. Trucking is some of the most important and efficient transportation that's out there. It's known as a leader in their business, and so again, what we're looking for is best in class, as I mentioned earlier. JB Hunt should be able to grow at something like 15% per year. It's only trading at something like 18 times next year's earnings. And again, earnings [INAUDIBLE], it's a shot in the dark. One of your earlier guests said that a lot of companies have pulled their predictions on what their earnings are going to be, JB Hunt is one of those also. It's hard to kind of feel your way through the darkness, but we think it's a wonderful company.

MYLES UDLAND: And you know, George, before we let you go, we're going to move off markets for a second and just ask about New Orleans and how things are going down there. You know, here in New York, you know, we were kind of right alongside you guys as the top two hot spots back in March and April, and things were very scary. You guys have flattened the curve. What's it like down on the bayou right now, and how is the mood, I guess, in Louisiana, in the New Orleans area?

GEORGE YOUNG: Well, I think things are in pretty good shape. My mic just went off. Hold on one second. There we go. That's not the building problem, that's just within our office. So to get back to what's happening in New Orleans, things are in pretty good shape all together, meaning we did flatten the curve, so we had our pan early on. And I think a lot of this process is the way that's going to shape out. The good thing here is social distancing, handwashing, people are respectful of that. They weren't like that for the first two weeks. Everybody was fairly cavalier about things, but no, thank you for asking. Appreciate that.

MYLES UDLAND: All right. George, good to hear from you. Glad to hear that you are safe and feeling all right. Hopefully we can talk to you soon, George Young with the Villiere Balanced Fund. Appreciate your time.

GEORGE YOUNG: Great, thank you.