This market corner offers upside potential amid volatility: Investor

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This market corner offers upside potential amid volatility: Investor

Investors may soon face a major correction in tech after last week’s market volatility, according to David Bahnsen, founder of The Bahnsen Group. “A big tech stock reckoning and correction is inevitable,” the chief investment officer told CNBC’s ” Street Signs Asia ” on Tuesday. Calling the euphoria around Big Tech stocks this year “absurd,” he said that such excessive investor sentiment and “overdone” momentum “always ends the same.” Right now, the market is very uneven, said Bahnsen, adding that it’s “stuck in a little push pull.” He pointed out that there is a “very heavy valuation” particularly for the top percentile of big-cap growth stocks, although forward guidance for the rest of the market — including small-cap stocks — has been good. “The biggest risk for the stock market right now is excessive valuations. The stock market right now is very expensive,” said Bahnsen. “The need for overvaluations in stocks to correct is not just visible, it is inevitable.” Stock picks Bahnsen is, however, optimistic about a category of stocks he believes would offer the “biggest upside potential” in the volatile market: those with a long history of growing dividends in defensive sectors. Such sectors include health care, consumer staples, utilities, and the midstream part of the energy sector, according to him. The midstream segment is one of three main stages of oil and gas production, and involves the processing, storing and transportation of oil and other fuels. “There are always other spots of the market that might be doing very well but it’s what we believe in as an area where you can protect yourself from the downside by having higher quality,” said Bahnsen. “Avoid some of the value traps, avoid some of the speculation and euphoria that can get ahead of itself and focus on cash flow, and the free cash flow that gets returned to shareholders via growing dividends.” He named three stocks that he likes: ********* Electric Power , Gilead Sciences , and General Mills . ********* Electric Power, one of the largest utility companies in the ******* States, is the only utility name that Bahnsen owns, he said. “We own it because we think it is the best dividend grower in that sector and really entered the year very undervalued,” he said, adding that it ******** a “great” dividend grower with “all kinds of prospects for growth.” It currently yields 4.1% and has “low volatility,” according to Bahnsen. Biopharmaceutical firm Gilead Sciences is “highly cash flow generative” and “phenomenal” for dividend growth, he said. He said it has a great portfolio of drugs in **** and oncology, and seems to have “very good” results in early testing in its weight loss *****. Gilead Sciences offers a 4.5% yield now and has been raising its dividends for years, according to him. Food company General Mills is an undervalued name that represents “great opportunity,” Bahnsen said. He noted that the firm has made big investments into its **** food business, and is waiting to reap the returns on that. “And we think the patient investors are about to get very rewarded,” he said. The stock yields 3.7%, according to him. “The consumers staples sector is being overlooked right now in the market as investors chase returns in the tech sector,” he added.

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