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Earnings outlook amid coronavirus uncertainty

Company profits are headed for the worst fall since 2009, according to recent data from Factset. Oxbow Advisors Managing Partner Ted Oakley joins Yahoo Finance’s Seana Smith to discuss.

Video Transcript

SEANA SMITH: Welcome back to Yahoo Finance's live market coverage. I'm Seana Smith.

Well, we are into the second half of earnings season with more than half the companies in the S&P 500 already reporting results. So here with more on this, we have Ted Oakley, Oxbow Advisors Managing Partner. And, Ted, thanks for joining the show this afternoon.

Let's start with talking us through some of these recent reports that we've gotten so far. What do you think of the numbers that we have gotten? because you don't have a lot of visibility still at this point.

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TED OAKLEY: You know, Seana, you're correct. And I think one of the problems is it only included one month of real trouble. You know, two months were OK, so we're really not getting a good look.

And then if you take this stat with you-- if you look at the 300 or so that have already come out, about 40% of them will not give any guidance now for the rest of the year. So I have no idea how Wall Street comes to this idea that they know what the numbers are.

SEANA SMITH: Yeah, Ted, I mean, that's what I wanted to ask you because with no guidance, it's hard to determine, I guess, what we can expect from these specific companies, obviously, going forward. So when you're looking to determine potential buying opportunities, when you're looking to value companies then you have no guidance, what are you using as different metrics?

TED OAKLEY: Well, for us, we use what we normally use, which is we use debt levels. We like low-debt companies, and we like companies that can produce cash flow under almost any circumstance, whether you're in an economic slowdown or something along that line. I think that's important.

But right now, leverage in a company, in a public company, is really, really dangerous, so that's probably the number-one metric we use. But we're also looking at companies that can make money this year no matter what.

SEANA SMITH: Ted, RBC was out with an interesting note today, and they were saying that 2021 EPS growth forecast that, in their perspective, they still seem a little bit too aggressive, and they need to be revised downward or slight downward adjustments at this point. What do you think of that?

TED OAKLEY: I think they're right on, actually, because when you look at it, if you look at what they're using right now, they're only showing-- you know, they're coming into the year probably looking at something that's off maybe 15%. I'm thinking we'll maybe be off 20%, 25% before it's all said and done, and so I'd have to agree with them.

I think the numbers are probably skewed to the upside, but that's normal. You know, most analysts are always optimistic at the beginning of the year. They stay optimistic all the way through until about the third quarter.

SEANA SMITH: So, Ted, when you're looking forward here, where do you stand just on what we can expect? because there's still so much uncertainty out there. A lot of it obviously hinges on scientific developments and what we can expect from the virus and how well we are able to contain or mitigate the spread of this virus. So how are you incorporating that into your outlook at this point?

TED OAKLEY: You know, for us, Seana, right now there's two things that mean more than they normally do for us. Believe it or not, liquidity today is probably as important as it ever was since I've been in the business because so many things today are locked up, or at least you can't move them as well as you normally could. So it makes a difference on what size company you own because liquidity's important.

Safety of the balance sheet is really important. I think that's something that you have to really press in this atmosphere. And we like companies too that will still pay some dividends this year.

SEANA SMITH: Ted, can you tell us any of those companies that you like right now?

TED OAKLEY: Well, if you look at the companies we have-- if you look at consumer-type stocks, for example, Unilever, which we just purchased some more of yesterday. You look at Pfizer. You look at companies like Novartis, Nestlé. Those are all companies that we think will do well. We own a few companies in other areas, and we own a few energy companies as well. But what we're looking for are companies we really feel like that can make that dividend this year.

SEANA SMITH: All right, Ted Oakley of Oxbow Advisors, managing partner there, thanks so much for joining us.

TED OAKLEY: All right, Seana.