Famed fund investor Bob Olstein, Olstein Capital Management chairman, CEO & CIO, explains why rising interest rates will boost stocks and weighs in on the internet space and Amazon’s revenue fundamentals.
Bob Olstein video and transcript below
first of all, there’s a lot of people sitting here today worried about what it could mean interest rates are moving higher. why do you say people not only shouldn’t be too worried but this could boost the stock market next year? earnings or free cash flow control valuations. if the economy is not turning and if the economy turning, you have to get higher interest rates. i think there’s going to be a slowrderly march up the next three yours toward 4% on a ten year. concerned. that means the economy is not growing and maybe there’s more overvaluation here than i think. that’s what i’m looking for. slightly higher interest rate. slow march upward. nothing catastrophic. it’s really what the rise in rates signifies to you that would be a boost for stock market. it just means the economy is finding, you know, picking up some steam here. right. if the economy doesn’t pick up, how are you going to justify the $120 earnings estimates out there next year? i know how you justify it. 85 billion a month coming from the federal reserve. right? well, the federal reserve is going to start tapering soon. they have to. we don’t want a lot of inflation. we know what happened during an inflationary period between ’66 and ’82. we’re more focused on individual stocks. free cash flow valuations. look, the undervaluation is nowhere near where it was the last three years. our fund is up 280% in the last five years. if we can do high single digit returns we’re going to be very happy. there’s still a lot of undervaluation. there are as always pockets of overvaluation. media stocks, sales force dot coms. if they start earning money, that’s when it’s going to start coming down. because that’s the end of the nascen their adolescent period. it’s better to fantasize than earnings. fantasy is better than reality. we wanted to talk, for example, about an amazon. is there something understoodmentally different about valuing names in the internet space or not? is it just a different way of looking at companies? or is it, you know, discounting today for the growth that is still supposed to be coming over the next, say, even ten years? let’s take amazon. 1999. here we are in 2014. the same fantasy is still there. i think he’s running a charitable trust for consumers. if he does not come through with this $10, $20, $30 a share in earnings that stock is going to start heading south. salesforce.com. linkedin. twitter. all these pockets of overvaluation. i remember sitting on squawk box back 15 years ago and people would come on the show with a million in sales. they have a billion capitalization. say, i didn’t understand. amazon has been hitting all time highs. i mean, it has performed very well even as people continue to complain that jeff bezos continues to refuse to turn a profit for this company that he’s just plowing revenue back in for growth purposes. you better watch out that the drone doesn’t hit you on your way home tonight. basically, the stock has done very well. i’ve been wrong in terms of the fact the stock going up. it is my opinion that if they don’t start producing real free cash flow soon, and they will, but it’ll be minimal, in my opinion. because he likes to spend money. and that drone announcement just signifies where this man is going. he’s all for consumers. there’s nothing wrong with that. but his own people say, we don’t manage this money for investors. but i don’t think he knows who he works for. he works for investors. when that stock starts going south, the investors are going to get on his case.