David Trainer, Founder and CEO of New Constructs joined us on Benzinga's Premarket Prep to discuss crowded trades and valuations.
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00:00People keep asking, what are you buying on this pullback?
00:02What are you buying on this pullback?
00:02And I was like, I'm looking at valuations and metrics.
00:05I'm just like, it's just not that cheap.
00:07Agreed, Dennis.
00:08You took the words right out of my mouth.
00:10I think the way I see it also is that a lot of retail
00:15and almost meme stock investors decided, you know what?
00:18We can invest in the stock market
00:20without investing in ridiculously broken companies.
00:23We can invest in good companies, too.
00:25So why don't we put it in things like Microsoft or Berkshire
00:27Hathaway, right?
00:28It's a lot less risky bet, and it's still a good way
00:32to earn some quick money.
00:34And I think that trade has worked.
00:36But to your point, these trades have become crowded.
00:40NVIDIA got really crowded.
00:42Microsoft's really crowded.
00:43Supermicro was really crowded, right?
00:45And that's what our systems have been sort of flashing.
00:48Good companies, bad stocks.
00:51And I think for the retail investor, the at-home investor,
00:54it's been a good move because meme stocks are
00:56bad companies, bad stocks.
00:57At least something like Microsoft, NVIDIA,
01:00that's a good company and a good stock.
01:02But yeah, the valuations, it's become crowded.
01:05Because think about it.
01:06Everybody's in the stock market these days.
01:08Who doesn't invest?
01:09How many stock market shows out there are there?
01:11I mean, you've got to really do your homework
01:15and not just follow the crowd if you
01:16want to outperform in more discerning markets.
01:19And that's what I think we're going into.
01:21There is opportunity, though.
01:23I mean, there's a lot of stocks that
01:24have been undervalued for a very long time.
01:26Would you be looking at those or the story is just too cold?
01:29I mean, you can see, if you do a scan,
01:32you can find hundreds of companies
01:34trading under 13 times earnings.
01:37I mean, there is some cheap stuff out there.
01:39Is it their time or are these stocks just value traps?
01:43That's a great question.
01:44And I think David Einhorn had a great interview on this one.
01:48And he was saying what you're saying effectively.
01:51And what he said, we just gave up on the market
01:54recognizing value, right?
01:56Because when the market is chasing
01:58these super expensive stocks, clearly it's
02:00not recognizing value on the high end, which
02:02naturally leads to they're not recognized.
02:05The market's not going to recognize value
02:07on the low end either.
02:09And so when will it?
02:11And I can't.
02:14My crystal ball's in the shop again this week,
02:16so it's hard for me to say exactly.
02:18Bring that crystal ball next.
02:22It's harder and harder to find people
02:23who will fix your crystal ball, believe it or not.
02:27And so, yeah, we've got a lot of stocks on our focus list
02:30that we like that are cheap.
02:32Some have been cheap for a while.
02:33Some aren't cheap anymore.
02:35In fact, we look at our focus list long now,
02:38and we're like, OK, it's probably
02:40time to start closing some of these.
02:41Because we've even let some of them
02:43run a little bit more than we would have because, look,
02:46everything was running.
02:47So it's harder to find cheap stocks, but you're right.
02:51Dennis, there are a lot out there.
02:53And it's going to be interesting to see
02:55if and when the market ever comes back
02:57to recognizing those stocks.
02:59I can't predict for sure that it will.