Dryden Pence on Reuters TV (02/08/2021)

Bet on e-commerce stocks: advisor
Pence Wealth Management chief investment officer Dryden Pence tells Reuters’ Fred Katayama consumers’ new online shopping habits won’t fade after the health crisis ends. Pence names some e-commerce stocks that he sees as poised for further growth.
February 8, 2021

We’re seeing record high after record high. I know the way that you see it, it’s the first half and second half of the year for an outlook. So what does that look for stocks, given the records we keep hitting?

We think it’s a first-half, second-half story. The general outlook we have on the market for this year is positive, powered by two different things. First, it’s going to be government stimulus in response to COVID. Then, the second half of the year will see the stimulus from the populace. We have tremendous savings that people have built up over the last year. So, as government stimulus packages die out in the second half of the year, it will get picked up as we open the economy and the pent-up demand that exists in the general populace comes out. So you have two big demand drivers existing and sufficient liquidity to make that happen.

Is it over valuations for stocks right now, or is it property value given the earnings that companies are putting in and the outlooks are going up?

There are really two big issues here. First, interest rates are exceedingly low, and we think that will go on for a bit longer. That kind of allows you mathematically to get to higher PEs. So that helps.

Then again, it is all about earnings, and earnings seem to be doing better than most people expected. With those big drivers of demand and earnings beginning to look forward, we think that probably we’re not as overpriced as some people would think; we think there may be some volatility here in the first half of the year, as things shake out and, and you get headlines around a government policy. Overall, however, we think that because of the low interest rates, you can withstand higher PEs in the market than we have had in the past.

You’re hot on e-commerce stocks. Given the run-up we’ve seen in the lockdowns and the pandemic, how sustainable is their run?

I think the e-commerce phenomenon and circumstance are sustainable for a long time until we all take our mobile devices and throw them in the river. I think we’re going to continue to do this more and more. And most of the studies have shown that 78% of the people changed how they were shopping during COVID. This is a new habit. It is a new behavior, and it’s just going to increase and become embedded into the standard way we shop and do things. It’s a new habit or a new addiction, if you will.

What particular stocks do you think are worth investing in at these levels today?

If you think of fundamentals and look very long-term, the stocks best positioned (regardless of market volatility) are going to be ones like Amazon, of course, since they’re essential to e-commerce. Visa and MasterCard are essential. You have to pay for it somehow, and they have 85 percent of the national market. We’ve also added Shopify into the mix because companies trying to get into the e-commerce world are doing so in such a way where they need Shopify to get there. So, I think those are the kind of four big players that we see this long-term trend benefiting.

Traditional credit card companies, as opposed to companies like PayPal?

PayPal and Square. And those companies are certainly moving into the market. But, if you’re thinking about the big, established names that have absolute dominance in the space, that’s where you’ll be between Visa and Mastercard. They have 85 percent of the market in the U.S. and 96 percent in Europe. While others are moving into that for longer-term investors or a bit more conservative investors, I think we’re looking at a market where you can kind of go with the big, dominant names.

I can’t let you go without asking about Bitcoin. What do you tell your clients about Bitcoin and cryptocurrencies?

We don’t necessarily recommend it to clients. We see Bitcoin as a trading mechanism, not necessarily a currency. There’s no government to back it up. So I think there’s a bit of a challenge there, but if you think of it as a pure trading mechanism, the news today about Tesla and other large companies beginning to accept it probably improves the prospects of Bitcoin over time. But we look at it as a very speculative type of investment for people and clients, who are mostly retirees and things like that. It’s a little outside the normal range.