Moser: Stay Defensive After Big Tech Rally, Likes Small Caps & RIVN Long-Term

Welcome [music] back to Morning Movers.

I'm Diane King Hall, coming to you live from the floor of the New York Stock Exchange. Joining me now to discuss both

Exchange. Joining me now to discuss both the near and long-term outlook for markets and how small caps could be poised for growth. We want to welcome in our next guest, that's Nathan Moser, senior portfolio manager at Impax Asset

Management. Nathan, thank you so much

Management. Nathan, thank you so much for joining us today. So, Nathan, you're constructive long-term, uh but there's a little bit of caution in your view in the near term. Tell us a little bit more about that and good

morning to you.

Sure, good morning. Great to to be with you.

You're correct. We're we're still quite positive on on markets if you take a longer-term view, but are are seeing some signs of of reasons to be a bit more cautious,

at least from a tactical perspective.

And and maybe if I could just summarize some of those thoughts. One is

the market's becoming more concerned with higher interest rates, and that's obviously dependent on what's happening in energy markets and what we're seeing with the conflict in in Iran. So, for

the market to move meaningfully higher in our view, we need to see a resolution rather quickly and avoid seeing energy prices surge higher from here.

It's we've been talking about seeing a resolution quickly for some time now, and I think that's everyone's desire.

Resolution to the, you know, conflict with Iran. So, let's talk a little bit

with Iran. So, let's talk a little bit about where we've seen some momentum in the tech sector. Now, you're paying attention to crowding in the AI names.

Do you worry about any risk of unwinding there or quick unwinding?

Absolutely. So, momentum is a a very strong factor over time. There are times in the market

over time. There are times in the market when momentum becomes just too hot, and you can have a very fast and quick reversal. And I think we're getting

reversal. And I think we're getting close to one of those times. You know,

it's most acute in the semiconductor names. Those names has have effectively

names. Those names has have effectively gone vertical.

So, I think that's where we would see the the selling pressure to start and then uh the way momentum works is uh once that cohort of stocks starts to decline, um you see investors take

profits in other strong names. So, uh

again, this is very tactical.

Um, there are times in the market to play offense and there are times in the market to play defense and my suggestion is we we might be in one of those times to play a bit more defensively. Uh, look

for opportunities in uh less um uh strongly performing names. Um, and

really uh focus on quality.

Okay. Now, this next view from you, um it seems a little bit contrarian to this line of thinking, but you tell me a little bit more about this. You're

bullish on small caps. Um, that doesn't feel uh defensive to me. Uh, but is this a short-term trade?

No, we're actually long-term uh bulls on small caps. So, we've seen small caps

small caps. So, we've seen small caps outperform over the last year. Um,

Russell 2000's uh beat the S&P 500 by about 8%. Still outperforming this year

about 8%. Still outperforming this year even with higher interest rates, higher energy costs. Um, this is a long-term

energy costs. Um, this is a long-term call. Um, we've had more than a decade

call. Um, we've had more than a decade of underperformance of small versus large. Um, typically when we look back

large. Um, typically when we look back at history when these cycles reverse, they're not 1-year or 2-year events.

They're more um like decade-long events.

So, still very bullish on on small. Um,

still um of the view that you're going to see money rotate out of those crowded names, uh the mega-cap names, magnificent seven type names. And as

that money comes down market cap, that's going to provide the fuel to drive small caps higher.

But do you worry at all about the risk of, you know, we we we're seeing sticky inflation? Um, it seems like the path

inflation? Um, it seems like the path for interest rates is not a cut in the near term. It feels like that's a risk

near term. It feels like that's a risk factor. Is that something that you're

factor. Is that something that you're thinking about?

100%. That is the biggest risk in the market, the biggest risk to the small cap call.

Again, small caps have held in quite well with with all of these headwinds. I

do think we're going to see a resolution in Iran. It's very hard to to know

in Iran. It's very hard to to know exactly when, but assuming we get a resolution in the coming months, the result of that will be lower energy prices, lower inflation, lower interest

rates, and it will allow the new Fed chair the opportunity to potentially cut the federal funds rate. And that should be supportive.

And let's talk about a couple of individual names on your list that you've got on your radar. You like

Rivian.

That stock has, you know, had some difficulties this year, if you will.

It's been under pressure so far this year. Looks a little bit better on a

year. Looks a little bit better on a year-over-year basis. But why do you

year-over-year basis. But why do you like it from here?

Yeah, so we're we're big fans of of Rivian. Again, it plays with this theme

Rivian. Again, it plays with this theme of looking for areas in the market where the crowd hasn't been paying attention. So, what

we like about Rivian from a fundamental basis is the launch of the R2, which is their mid-size SUV. It's going to be priced in the mid-50s. Later this year, they'll have a version that's priced in the

the high 40s. We think this

40s. We think this from a demand perspective will be able to drive Rivian to profitability in a few years. And to be honest, we

suspect that demand's going to outstrip their ability to supply the market. So,

you've got a catalyst in front of you, a reasonable valuation if you look out over a 3-5 year period, and one we're quite fond of.

Do you also think that, you know, as a potential catalyst for Rivian, these high gas prices?

Yeah, 100% correct. The high gas prices, you know, we see on the West Coast of the United States, gasoline prices above $7. That is motivating consumers to go

$7. That is motivating consumers to go out and and look for alternatives to traditional combustion engines.

So Rivian that definitely will be a beneficiary of that. Maybe one last point just in in terms of how I think about valuation.

And evaluation again is more of an art than a science. But if we look at where Tesla trades at 12 times sort of a two-year forward revenue number. And then we look at Lucid which

number. And then we look at Lucid which trades at one times that same metric.

Rivian trading at one seems a little bit too low to us. Again,

it doesn't need to go all the way to where the Tesla valuation is and I'm not calling for that.

But to see some multiple expansion at least on an enterprise value to revenue basis, I think it drive the shares meaningfully higher from here.

Okay. And then another individual name on your list, SI Bone. You like this one. This stock has been an

one. This stock has been an underperformer year to date. What do you think the story changes from here?

Yeah. So SI Bone is is a very small medical device company focused focused on spine and lower back pain. It's one we've talked about

pain. It's one we've talked about before. This is a circumstance where we

before. This is a circumstance where we think the market has got it wrong at least in the short term.

While the stock has declined with the broader group medical device stocks as an industry have underperformed. We

think they're missing the fundamental improvement in the SI Bone business. And

and really it's around accelerating revenue growth. this is a business that

revenue growth. this is a business that can grow 15% plus over the next three to five years.

There's a new product cycle coming later this year. There's strong reimbursement.

this year. There's strong reimbursement.

Physicians are adopting these products.

And the management team is investing heavily in expanding their commercial distribution. So when I put that all

distribution. So when I put that all together, I think SI Bone is the type of name that could move 50% plus in a rather short period of time.

SI bone, okay. SIBN is the ticker there.

Nathan, any final thought you want to leave us with whether it's on the risk front or where you're looking to build exposure?

Yeah, one thing I would say just in terms of of markets. Again, markets when they they are volatile present opportunities for investors.

We are quality investors at Impax. So,

declining markets again, we we never like to see our clients lose money. But,

we think this is a short-term correction that's likely going to occur and and potentially hand sort of the baton from the lower quality stocks that we see in the market to those that are much higher

quality. And so, put us in that

quality. And so, put us in that long-term bullish camp. We'll get

through any bouts of volatility and it creates opportunity for active managers like ourselves.

All right. Thank you, Nathan. That's

Nathan Moser, senior PM over at Impax Asset Management. Have [clears throat] a

Asset Management. Have [clears throat] a great rest of your day.