Market corrections are ‘painful but necessary’ in the new year: Laffer Tengler Investments CIO

Laffer Tengler Investments Chief Investment Officer Nancy Tengler joins Yahoo Finance Live to discuss the latest market action.

Video Transcript

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ZACK GUZMAN: Welcome back to Yahoo Finance. We are just a day removed from those key Georgia Senate runoff elections, and analysts at Oppenheimer are out with a warning on the possible scenario in which Democrats sweep those races, which would give that party control in the Senate. It would be a boost for the hope that President-elect Biden will be able to get through some more progressive policies.

Oppenheimer says that stocks could decline by about 6% to 10% if that were to come true. Joining us now to discuss ways that investors could be bracing against the volatility, here with us is Nancy Tengler, Laffer Tengler Investments' Chief Investment Officer. And Nancy, appreciate you coming on here to chat. I guess the first question would be if you see things the same way. Obviously, largely people have been bracing for Republicans to win at least one of those. We'll see what happens tomorrow. But what would be your advice to clients out there trying to navigate the early 2021 volatility?

NANCY TENGLER: Well, thanks for having me, Zack. Listen, we-- in the market, we get a correction once every 12 months on average. We've been expecting one. We've written about we expect to see one in the first quarter. I actually think if-- if the Democrats sweep both those seats that the sell off will be more dramatic then perhaps what Oppenheimer is expecting. It's not reflected in the VIX certainly, and and the indices have continued to rise I think largely because the market expects divided government. So the good news is in the near-term corrections are painful, but they're necessary.

And so, what we're advising our clients, and what we're doing for our clients, is really looking for higher-quality companies that might go on sale, and be ready to buy those when this happens, because we do think we're in the early stages of a long-term new bull market.

AKIKO FUJITA: When you talk about a correction, how significant a pullback are you anticipating? And-- and to that point that you just made about some opportunities that investors should be looking at, what are the names or sectors that you're watching?

NANCY TENGLER: Hi, Akiko. Yeah, so we think 10% is reasonable, and it could be even more. There's still, however, a lot of money on the sidelines. We have a lot of pent-up savings from the original stimulus. We have the lagged effects of stimulus that have not even-- the first stimulus that have not even yet come into the economy entirely. So what we've been looking for is names that are driven by the consumer. So consumer discretionary names of-- individual households, consumer free cash flow is at historic high. Balance sheets are in really good shape, because a lot of people used their stimulus check to pay down debt.

So we think there's a lot of pent up demand for spending. So we like a number of consumer discretionary names like, the restaurants would be Starbucks, Chipotle, and McDonald's. In-- in other parts of the space we like Home Depot, Target, we-- we own Amazon. So there are plenty of ways for consumers to spend. But in addition to that, we really like where digitization intersects with the consumer, so Square, Roku, we like some cybersecurity names like Palo Alto Network, because though individuals will eventually go back to work, we think they will also still be working at home. Cybersecurity is becoming a bigger and bigger issue for corporate IT spend. So those are some-- some of the names we've been buying and we'll buy more of if-- if we get the pullback.

ZACK GUZMAN: Yeah, I mean, on that front too we've been having the discussion of value versus some of the growth stocks. We saw it take off there at the beginning of lockdown. You talk about the cloud names, cybersecurity names there, but you also like Microsoft Salesforce as well. So talk to me about maybe that balance between growth and the consumer discretionary, as you were just talking about there, you know, the way that you would break down perhaps a new portfolio if investors are looking to set that up.

NANCY TENGLER: Yes, Zack, so I don't get into that argument about value versus growth. I think it was Warren Buffett that, you know, sort of eschewed that delineation many years ago. But what we look for is growth at a reasonable price, which is really what every investor wants except for the momentum players. So Microsoft falls into that category. It's a company that's firing on all cylinders. They do pay a dividend. It's been growing, which reflects management's confidence in future earnings. Their cloud business has been exceptional in terms of growth.

And then Salesforce is one stock that we're actually considering for our 12 Best Ideas portfolio. Some of the stocks I mentioned already, like Starbucks and Palo Alto Networks, are in that portfolio. And we think Salesforce, it kind of traded sideways for a bit since the summer, after it was admitted to the Dow, so-- so we're going to look for opportunities to continue to accumulate that stock. They're in the sweet spot. We think the Slack acquisition is positive for the company, and makes them a more formidable competitor with Microsoft.

AKIKO FUJITA: Some good takeaways there to kick off the new year. Nancy Tengler, Chief Investment Officer at Laffer Tengler Investment. It's good to talk to you today.

NANCY TENGLER: Thank you.