Crowded Trades & Valuations: Good Companies, Bad Stocks

Benzinga

David Trainer, Founder and CEO of New Constructs joined us on Benzinga's Premarket Prep to discuss crowded trades and valuations.

Transcript

00:00People keep asking, what are you buying on this pullback?

00:02What are you buying on this pullback?

00:02And I was like, I'm looking at valuations and metrics.

00:05I'm just like, it's just not that cheap.

00:07Agreed, Dennis.

00:08You took the words right out of my mouth.

00:10I think the way I see it also is that a lot of retail

00:15and almost meme stock investors decided, you know what?

00:18We can invest in the stock market

00:20without investing in ridiculously broken companies.

00:23We can invest in good companies, too.

00:25So why don't we put it in things like Microsoft or Berkshire

00:27Hathaway, right?

00:28It's a lot less risky bet, and it's still a good way

00:32to earn some quick money.

00:34And I think that trade has worked.

00:36But to your point, these trades have become crowded.

00:40NVIDIA got really crowded.

00:42Microsoft's really crowded.

00:43Supermicro was really crowded, right?

00:45And that's what our systems have been sort of flashing.

00:48Good companies, bad stocks.

00:51And I think for the retail investor, the at-home investor,

00:54it's been a good move because meme stocks are

00:56bad companies, bad stocks.

00:57At least something like Microsoft, NVIDIA,

01:00that's a good company and a good stock.

01:02But yeah, the valuations, it's become crowded.

01:05Because think about it.

01:06Everybody's in the stock market these days.

01:08Who doesn't invest?

01:09How many stock market shows out there are there?

01:11I mean, you've got to really do your homework

01:15and not just follow the crowd if you

01:16want to outperform in more discerning markets.

01:19And that's what I think we're going into.

01:21There is opportunity, though.

01:23I mean, there's a lot of stocks that

01:24have been undervalued for a very long time.

01:26Would you be looking at those or the story is just too cold?

01:29I mean, you can see, if you do a scan,

01:32you can find hundreds of companies

01:34trading under 13 times earnings.

01:37I mean, there is some cheap stuff out there.

01:39Is it their time or are these stocks just value traps?

01:43That's a great question.

01:44And I think David Einhorn had a great interview on this one.

01:48And he was saying what you're saying effectively.

01:51And what he said, we just gave up on the market

01:54recognizing value, right?

01:56Because when the market is chasing

01:58these super expensive stocks, clearly it's

02:00not recognizing value on the high end, which

02:02naturally leads to they're not recognized.

02:05The market's not going to recognize value

02:07on the low end either.

02:09And so when will it?

02:11And I can't.

02:14My crystal ball's in the shop again this week,

02:16so it's hard for me to say exactly.

02:18Bring that crystal ball next.

02:22It's harder and harder to find people

02:23who will fix your crystal ball, believe it or not.

02:27And so, yeah, we've got a lot of stocks on our focus list

02:30that we like that are cheap.

02:32Some have been cheap for a while.

02:33Some aren't cheap anymore.

02:35In fact, we look at our focus list long now,

02:38and we're like, OK, it's probably

02:40time to start closing some of these.

02:41Because we've even let some of them

02:43run a little bit more than we would have because, look,

02:46everything was running.

02:47So it's harder to find cheap stocks, but you're right.

02:51Dennis, there are a lot out there.

02:53And it's going to be interesting to see

02:55if and when the market ever comes back

02:57to recognizing those stocks.

02:59I can't predict for sure that it will.

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