Bill Hench On Consumer And Tech Stocks by Royce Funds
A bottom-up stock picker, Portfolio Manager Bill Hench is finding compelling valuations in the semiconductor industry. Bill also believes many Consumer Discretionary stocks are poised to benefit from the recent decline in energy prices.
Jeff Smith: Bill, what about 2015? Any industry groups that have emerged from your research? And what are your overall expectations for the calendar year?
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Bill Hench: We start out the process on a name-by-name basis. However, when you do that, you do tend to build up sector bets or group bets, if you will.
One of the groups that we think should do really well in 2015 is anything to do with consumer—whether it be retail, housing, anything where the consumer can spend more discretionary income, and that ties in exactly to one of the groups that we don’t have a lot of exposure—very little exposure—to, which is energy.
There has been this tremendous reduction in the price of crude oil, but also in the price of natural gas as well. So we’ve avoided energy pretty much on both sides—on the oil and gas side—and really focused on having as much exposure to the consumer as we possibly can.
There are tremendous benefits to lower energy prices, and we think we’re going to see them fairly quickly.
Jeff: Any specific companies, Bill, that emerge from that research?
Bill Hench: Three of the names we like in retail are J C Penney, Ascena Retail Group, and American Eagle Outfitters. We like companies that have really done well as far as controlling their inventory, stocks that also have very low expectations, and names that we think can surprise on the upside as far as earnings go. All three of those fit that category very well.
Jeff: Bill, can you share some thoughts on the technology positions in the portfolio?
Bill Hench: As has been the case many times in the past with Royce Opportunity Fund , we have a large representation of technology in the Fund.
The most promising thing, I think, about tech isn’t so much about new products or what the inventory looks like—or any of those other issues—but rather where these things are selling.
A lot of these names are selling at incredibly low valuations, and many of the tech names that are pretty much growing much better than the economy are selling at levels that you would normally equate with some of the more industrial-type names. And at these levels we think they offer great valuation, especially names in the semiconductor world and the semiconductor capital equipment world.