The Fed's taper won't be soon: Greg Hill Capital Managing Member

Thomas Hayes, Chairman and Managing Member at Great Hill Capital, discusses the latest drivers of the markets and explains why he likes reopening stocks moving forward.

Video Transcript

SEANA SMITH: Now let's talk about today's action with Thomas Hayes. He's Great Hill Capital's chairman and managing member. Thomas, I guess the big question is, where do we go from here? We're seeing the markets under a bit of pressure today. I think investors are trying to make sense of the recent developments over the last several weeks when it comes to the Delta variant, how big of an impact that could be for the markets going forward. But what's your read just on where we stand today and what we could expect to see over the coming weeks?

THOMAS HAYES: Yeah, well, I think this is a short-term phenomenon. The market's trying to digest the jobs report on Friday and the impact on the Fed. You know the Fed is basically acting like an opportunistic bartender at 2:00 AM in the morning, they raise the lights, they say last call, but they keep serving drinks for another two hours. And I think that's what we're going to see moving forward is that the Fed is going to now be delayed a little bit.

People were anticipating a start in October. I think the earliest we're going to get a taper announcement is December, and implementation in 2022. And the best way to look at this is to look back at the 2013 analog, when they intimated that they were interested in starting to taper on May 1st, 2013, just as they did in Jackson Hole a couple weeks ago, the 10-year yield was at 161 basis points. Over the next six months, before the taper actually started in December of 2013, the 10-year yield went from 161 to 292, so it almost doubled in that seven-month period.

And I think we're going to start to see a similar situation in coming months where the 10-year yield is going to go. Today it's from 137, it's been creeping up in the last week or so. We could see a 10-year yield around 2% by the first quarter of next year. And in a rising rate environment, you want to start to get re-exposed to value and cyclical stocks like we saw in Q4 of last year and Q1 of this year. When rates were rising, those stocks took off. And I think that's going to be the opportunity to get positioned for in coming weeks to finish out the end of the year and first quarter of next year.

SEANA SMITH: So Thomas, it sounds like some of the I guess, trends that we've been seeing in the growth names recently, Netflix today hitting a high, as well as Apple. Are you saying that maybe investors should be taking some profits from there and looking elsewhere just in terms of the value sector that maybe some of those leaders aren't necessarily going to be the leaders here in the next leg higher?

THOMAS HAYES: Yeah, I think it's nuanced. I mean, it's not either/or, it can be both. And you know, you look at Amazon and Netflix out of FAANG, those are probably the most interesting because they've lagged for so long and they're just starting to break out. So there will be selective discrete opportunities in tech. It's not complete you know, sell everything in tech and go into oil stocks or something like that exclusively.

But I think a lot of people as rates compressed over the summer, they wanted to get the long duration earnings from tech and those have really had a run. So I think you maybe start to pare back a little bit on your tech allocation and start to get some of the reopening exposure. And a couple of the names you know, one today is in the news, Boeing, I would use this Ryanair order cancellation or perceived order cancellation as good news to get exposure if you don't have any, to add into the position if you do.

And the reason is, they effectively operate in a duopoly, we're going to get through Delta. The demand is so backed up carriers are going to have to replenish fleets. You saw the 737 Max get approved in India just about a week and a half ago. The next big catalyst is going to be the approval in China. And China is not going to approve it because they love us, they're going to approve it because they need planes. And that's certainly coming.

And what you saw year-to-date, Airbus, The competitor in the duopolistic situation, is up 28% year-to-date, whereas Boeing's up about 2%, maybe even 1% today. And we think that divergence is going to converge with Boeing really shooting up as it gets approval in China. We think this can be a $300 stock over the next 12 to 18 months.

We also like Cigna as a reopening trade believe it or not as doctors' visits come back. Their prescription business is up 13% year on year. The reason the stock has been down is because their medical care ratio shot up last quarter due to COVID costs from 80% to 85%. We think that's going to normalize in Q4 and beyond.

And then finally, is EOG, which is an energy producer. They're the most efficient operator in the business. They're trading at 8.5 times next year's earnings versus their historical multiple of 20 times. And you get a 2.5% yield while you wait.

SEANA SMITH: Well, Thomas, going back to what you were saying before about the reopening trade, so Boeing yes, I think that makes sense in terms of what you were outlining there but what about some of the other, were some of the airliners, we're seeing them actually buck the downward trend that we're seeing in the market today. Some of the cruise lines are actually also posting gains. Are you seeing an opportunity to buy some of those positions as well?

THOMAS HAYES: I think you're spot on, Seana. This is a home run. I was looking at a number of sectors over the weekend and transports have really lagged over the summer. And I think that is a great place to get value. You want to go highest up on the food chain. Norwegian on the cruise lines, maybe Carnival, certainly Southwest on the airlines is an opportunity, and maybe United as well. Just a basket to get exposure.

And those are going to be choppy and volatile. We saw good travel numbers this weekend but those are going to go up and down. We really need to see business travel start to come back. And that may be as late as four to eight months from now. So it'll be choppy but at these levels, they're so far below their pre-pandemic peak they definitely represent a good opportunity moving forward.

SEANA SMITH: All right, Thomas Hayes, Great Hill Capital chairman and managing member. Thanks so much for taking the time to join us today.