A strategist at a $1 trillion firm explains why the stock market's recent meltdown was the best possible thing for it - and reveals where you should put your money going forward
- Stocks have been on a volatile path for the past several months, and some Wall Street experts say recent weakness has created a prime buying opportunity for investors.
- In an exclusive interview with Business Insider, Kate Warne - an investment strategist at Edwards Jones, which oversees more than $1 trillion - explained why she's bullish on equities, and laid out her best future recommendations.
Ancient philosopher Sun Tzu famously said "in the midst of chaos, there is also opportunity." And while he was referring to warfare, that same principle can be applied to the stock market.
As stocks sold off during the fourth quarter of 2018 - a period that saw the S&P 500 shed 14% - that only made valuations that much more attractive. Now, looking forward, some Wall Street experts think the market has shaken free of the pressures that previously infected it, which has created immense upside.
Kate Warne, investment strategist at Edwards Jones, sits firmly in the optimist camp. The nearly 10-year equity bull market may have been pushed to the brink, and now she thinks it can carry on for the foreseeable future.
"[The sell-off] made expectations more realistic, and it's clearly improved valuations, even with the bounce we've seen since then," she told Business Insider in an exclusive interview.
She continued: "I think there's more upside now than there was before December - that the pullback actually probably gave the bull market fuel for some period of time."
With that established, it can still be a tall order to identify where the best opportunities are. One instinct for an investor playing a rebound might be to seek out the high-growth, mega-cap tech companies that have carried the stock market for years.
Warne says that's a flawed approach. She's more interested in "old" tech - or the reliable long-standing industry titans like Microsoft and IBM. While they may not offer the same explosive top-line growth as Facebook or Amazon, Warne thinks they're a safer bet right now.
"They're benefitting from lower expectations in an environment where expectations have gotten high, compared to where companies can deliver," she said. "Some of the companies where the expectations are lower, where their businesses are bigger, where they aren't so dependent on growth - those look like better opportunities today."
But legacy tech isn't even Warne's best stock-market investing idea for the future. Her top sector bet is actually healthcare - specifically big pharma and medical device makers.
A big part of that outlook stem's from Warne's view that healthcare is more insulated from external market forces than other areas.
"It's an area where the companies are able to deliver because, in many cases, they have drug pipelines they've been building for years," she said. "They have a little more control of their destiny, in terms of being able to deliver solid growth, regardless of what happens in the economy."
She added: "They're also attractively valued because they sold off so much last year."
In terms of what specific companies she likes, Warne mentions pharma giant Merck and medical-device maker Medtronic. She says both companies are "less biotech-leaning" and less dependent on a drug-development pipeline - which makes them less risky.
Lastly, Warne says the companies she categorizes as "traditional" healthcare are less likely to face drug-pricing pressures from the political realm going forward.
"They've navigated this before," she said. "They can't raise prices as much as they'd like, but they're patient, savvy, and they'll figure out how to get compensated for providing drugs, even if there's a plethora of government proposals to limit what they can do."