The standard advice from Wall Street these days: stay defensive, be wary. And retail investors seem to be heeding that, rejecting stocks and bonds for money-market funds as a banking crisis also simmers.
“What is being availed to investors right now is capital intensive businesses that have some form of cyclicality and because everyone’s been so afraid that the Fed would cripple the economy and cause big economic problems…you can buy well-priced business that aren’t the businesses that people liked in the last decade,” said Smead.
“So the energy business looks incredible to us. I mean in our U.S. portfolio, we own 23% energy and we’re just playing a different game,” he said. Among the stocks the firm owns are Occidental Petroleum OXY , ConocoPhillips COP and Chevron CVX in the Smead Value Fund SVFAX . In its International Value Fund , it also holds Canadian companies MEG Energy MEG and Cenovus Energy CVE .
“So we’re moving away from the idea that home builders have to be land developers, which means think of the pullback in housing. Well, does it affect the balance sheet of the business? No, because they don’t own the land,” he said. “They’re just putting the houses there, they’re just building the house, which means the return on equity through the cycle is higher there. They’re not taking the balance sheet risks through the cycle, which means people should be paying higher multiples.