The U.S. economy is likely slowing and may already be in a recession, but not headed for disaster, said Kevin Rendino, CEO of 180 Degree Capital (NASDAQ:TURN), an investment company specializing in small capitalization companies.
“We believe stock market valuations have significantly reduced the dire economic outlook that is not happening now and in fact may never happen,” he said during the the company’s fourth quarter earnings call.
With small-cap stocks losing about a third of their value year-on-year, “we actually need the recession to justify the value destruction we’ve seen in the last year,” he said. in an interview with Seeking Alpha.
Yet he looks past any potential recession.
“We tend to buy when there’s fear and sell when there’s greed,” Rendino said, a phrase similar to Warren Buffett’s investment philosophy. “And there’s a lot of fear right now, and a lot of stock prices are down.”
With trading at historic lows, that’s usually a sign of a bottom, not a top, he added. Rising interest rates must also be taken into account.
“This year at this time compared to last year you should have more bond exposure than a year ago because they are paying you to have more exposure due to the rate situation” , did he declare.
Rendino is relieved that the moss has gone down. “The bubble has burst” for areas such as crypto and cannabis, “where valuations don’t matter,” he said. “I’m glad this bubble burst, because it’s not investing. It’s gambling…so we can get back to basics of buying real businesses.”
Rendino becomes more bullish on areas that had been exposed to the downturn. Sectors he likes include semiconductor stocks, calling them growth cyclicals. “Because it’s a cyclical, it has its bottoms and we think we’re in a bottoming phase of the market. So we’re becoming more bullish on that,” he said.
The other sectors he mentioned are industrials and materials. He doesn’t look at utilities or pharmaceutical companies, because “these are safe havens and we’re trying to be a bit more aggressive” in positioning 180 Degree Capital (TURN) portfolio compared to what it was a year and a half ago.
Find out why contributor SA Gold Panda rates capital at 180 degrees (TURN) a speculative purchase.