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Bet on e-commerce stocks: advisor

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Pence Wealth Management chief investment officer Dryden Pence tells Reuters' Fred Katayama consumers' new online shopping habits won't fade after the health crisis ends. Pence names some e-commerce stocks that he sees as poised for further growth.

Video Transcript

FRED KATAYAMA: Investors betting on a big stimulus package driving stocks to record levels yet again Monday. For more on the markets and for some stock picks, we're joined by Dryden Pence. He's chief investment officer at Pence Wealth Management in Newport Beach, California. Good afternoon and welcome back, Dryden.

DRYDEN PENCE: Good afternoon, Fred. It's good to be here.

FRED KATAYAMA: And good to see you again. Now, we're seeing record high after record high, Dryden. I know the way you see it, it's the first half of the second half of the year in terms of how you give an outlook. So what is the outlook for stocks, given all these records that we keep hitting?

DRYDEN PENCE: Well, like you said, we think it's a first half second half story. So the general outlook that we have on the stock market for this year is positive, powered by two different things. First part of the year, it's going to be stimulus of the government moving into the economy in response to COVID.

And then as we come out of that, the second half of the year is going to be stimulus from the populace. We have tremendous savings that people have had through this period of time. And as government stimulus will die out in the second half of the year, it'll be picked up as we get to an opening of the economy in response to COVID. And this pent up demand that exists in the general populace out there will carry on.

So we think you have two big demand drivers existing in the economy and sufficient liquidity to make that happen. So we think that that's positive across the board.

FRED KATAYAMA: With the valuations where they are, do you think the valuations is an overvaluation for stocks right now, or is it properly valued, given the earnings that companies are putting in and the outlooks they're giving out?

DRYDEN PENCE: Well, there's really two big issues here. One, interest rates being exceedingly low, and we think that's going to go on for a little bit longer. That kind of allows you, mathematically, to get to higher P/Es. So that helps.

And then again, in the end, it is all about earnings. And earnings seem to be doing better than most people expected. So with those big drivers of demand and earnings beginning to look forward, so we think that probably we're not as overpriced as some people would think. We think there may be some volatility here in the first half of the year as things kind of shake out and you get headlines around government policy. But overall, we think that, because of the low interest rates, you can withstand higher P/Es in the market than we have had in the past.

FRED KATAYAMA: And Dryden, I understand you're hot on e-commerce stocks, the prospects for that. But given the run up that we've seen and the lockdowns and in the pandemic, how sustainable is their run north?

DRYDEN PENCE: Well, I think the e-commerce phenomenon and circumstance is sustainable for a long period of time. Until such time as we all take our mobile devices and go throw them in the river, I think we're going to continue to do this more and more.

And most of the studies have shown that like 78% of the people changed how they were shopping during COVID. And this is a new habit. It is a new behavior. And it's just going to increase and become embedded into our standard way we shop and do things. It's a new habit, a new addiction, if you will.

FRED KATAYAMA: And particular stocks that you think are worth investing in at these levels today?

DRYDEN PENCE: I think that if you think of fundamentals and look very long-term, the stocks that are most positioned, regardless of the market volatility, are going to be ones like Amazon, of course, because they're essential to this e-commerce thing. Visa and Mastercard card are essential when you think about it. You've got to pay for it somehow. And they have 85% of the national market.

And then we also have added Shopify into the mix because companies that are trying to get into the e-commerce world are now doing so in such a way that they need Shopify to get there. So Shopify is now number two in gross sales on the thing. They've overtaken eBay. So I think those are kind of the big, big players that we see this long-term trend benefiting.

FRED KATAYAMA: Credit card companies, what was known as traditional credit card companies, as opposed to some companies such as PayPal, which is going up.

DRYDEN PENCE: Well, PayPal and Square and those companies are certainly moving into the market. But if you're thinking about what are the big established names that have absolute dominance in this space, that's where-- between Visa and Mastercard, they have 85% of the market in the US, 96% in Europe. And while the others are moving into that, for longer-term investors, a little bit more conservative investors, I think that we're looking at a market where you kind of go with the big, dominant names you know.

FRED KATAYAMA: And lastly, Dryden, can't let you go without asking about Bitcoin, which is soaring another 15% today. It's already, well, quadrupled since August. Soaring today because of that news about Tesla investing 1 and 1/2 billion dollars. What do you tell your clients about Bitcoin and cryptocurrencies? Is it safe to go in the water now?

DRYDEN PENCE: Well, we do not recommend-- we don't, in our portfolios, hold Bitcoin. We don't particularly recommend it to clients. Part of it is because we see Bitcoin as a trading mechanism not necessarily a currency. There's no government behind it to back it up. So I think that there's a little bit of a challenge there.

But if you think of it as a pure trading mechanism, the news today about Tesla and other large companies beginning to find the acceptability of this is probably improving Bitcoin over time. But we look at it as a very speculative type of investment for people. And for our clients who are mostly retirees and things like that, it's a little outside the range of things that we would recommend to people.

FRED KATAYAMA: All right, not for them then. Thanks a lot, Dryden.

DRYDEN PENCE: Absolutely.

FRED KATAYAMA: Our Thanks to Dryden Pence of Pence Wealth Management. I'm Fred Katayama in New York. This is Reuters.