CNBC
- Tom Stringfellow, the president and chief investment officer for $4.7 billion Frost Investment Advisors, says he's been hearing "panic" from investors lately but remains optimistic about the US economy and the stock market.
- Stringfellow told us why he thinks the market is poised for more gains, and the trends that are giving more strength to parts of the tech sector and the far less-loved financial sector.
- He also explained how he's keeping portfolios safe during a turbulent time, and why investors have to be more selective than just buying defensive stocks.
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No matter how turbulent the market seems, having a well-thought-out strategy gives you the best shot to succeed.
And Tom Stringfellow, president and chief investment officer of Frost Investment Advisors - a $4.7 billion firm based in Texas - says that's important to remember at a time when the trade war has rattled investors. The market is at a stage where move is potentially doubled or undone with a few words or a single tweet.
As a result, Stringfellow says his conversations with investors don't feel very different from the discussions he was having during the market's plunge in November and December of last year.
"There's almost an escalating panic in a short-term scenario," he told Business Insider in an exclusive interview.
But in spite of the trade cloud, he sees a lot of reasons for optimism. Underlying that view is his belief that corporate earnings will break out of their recent downturn and start to improve in the fourth quarter of this year, which could justify greater valuations.
"We're still investing as if the balance of the year is positive," he said. Here are the areas Stringfellow is targeting, and what he's staying away from.
Why he likes tech stocks
Stringfellow is more optimistic about tech than any other part of the market, and judging by its performance this year, he's in good company. Guiding his investments is the theory that there will be long-lasting demand growth for companies that help businesses and their employees work more effectively, such as Salesforce.
"Companies that have stepped in to improve productivity," he said. "Everybody is looking for ways to make us work more efficiently and do more during the day."
Another promising area is software that helps manage the ever-growing amounts of data we're all producing or that increase the efficiency of phones and other devices, he added. Chipmakers also offer opportunities because the trade war has inflicted so much damage on their stock prices. He isn't as optimistic about hardware makers.
Because anyone can come up with a new software or app idea, Stringfellow says he considers it a strong plus if a company has barriers that will help it fend off competitors, as Amazon's distribution network does.
Those looking for easy, broad exposure to tech might consider the SPDR Technology Select Sector ETF.
Financials
Bank stocks have been hammered by falling interest rates and narrowing yield spreads, which hampers their ability to make money on loans. Still, Stringfellow said he sees a lot of reasons for optimism in the sector because critical measurements like loans, credit quality, and fee income look good for many financial companies.
"There are quite a few that have passed the stress tests that are tending to pay good dividends," he said.
He calls the financial sector a particularly smart investment for older investors who need an alternative to fixed income in an environment where bond yields are falling.
"If you've got a good quality company that is able to continue increasing dividend yields, you've found a great way to improve an income stream," he said.
Those looking for easy, broad exposure to tech might consider the SPDR Financial Select Sector ETF.
What he's avoiding
August was chaotic and the trade war seems nowhere close to ending, but Stringfellow urges investors not to buy companies purely because they're in defensive sectors, or have some characteristics that are traditionally considered safe. He said that if the company doesn't have strong profitability trends, it's not that safe.
"We avoid companies where we have no earnings visibility and are defined as safe harbor investments," he said.
Stringfellow says he continues to invest in fixed income despite the global expansion of negative-yielding debt, but is keeping his investments short term to avoid being "whipsawed" by issues like trade and central bank policy.
"For those investors that have gone into longer term yields as a form of a safe trade, I think they could be disappointed if the money that flew flowed in as quick as it did flows out as quick as it did," he said.
Economic views
Stringfellow says he's optimistic about the health of the economy and is betting on continued consumer spending, and which would lend strength to retailers and discretionary companies as well as tech.
"Consumer sentiment will translate into continued buying, as has jobs, as has the housing cycle, which I think is far from dead," he said. "The interest rate environment will probably be a boon for a few more dollars on the credit card and a few more housing purchases, which leads to furnishing your new nest."