Bowersock Capital Partners Founding Partner Emily Bowersock Hill joins Yahoo Finance Live to discuss current market conditions and how investors should position their portfolios.

Video Transcript

JULIE HYMAN: Despite slowing rate of inflation, investors are still bracing for a possible recession. Our next guest is recommending some lesser-known stocks you should look to in this environment. Bowersock Capital Partners founding partner Emily Hill is joining us now. Emily, it's great to see you.

Let's set the stage first before we get to your picks because everybody seems to be in agreement here that there's a slowdown under way, whether we tip into a recession or not. So in this environment when there is sort of this consensus about where we're going directionally, is it tougher to make money at a time like this?

EMILY BOWERSOCK HILL: Well, I think there are some good opportunities out there. I do think actually that the consensus going into the end of the year was very bearish, and we're getting a little bit of a softening there, you know a little bit of a disparity between the bears and the bulls.

I do-- I am in the camp that, frankly, is expecting the markets to revisit the lows set last fall, and I do think it's a time to continue to be cautious in stock investing. We like bonds. We like international stocks. But in US stocks, for people who like to invest in US stocks, you know, we're looking very long term at some global trends.

We're long-term investors, by the way. We're not investing for, you know, three months or nine months or even a year. So yes, I believe that answers your question, but we do think there are opportunities despite our generally negative outlook on the stock market.

BRAD SMITH: Where? Where are the opportunities?

EMILY BOWERSOCK HILL: We like-- again, we like international stocks. For people with a strong stomach, we like small-cap stocks, which are trading at a larger discount versus large-cap stocks than we've seen since the early 2000s. Again, we like bonds. We like Treasurys. And we like certain pockets-- you know, I think there are really good opportunities out there in certain sectors of the economy. You know, earlier in this program you were talking about semiconductors. We like semiconductor-equipment manufacturers like Lam Research.

And we really-- we are concerned about some global trends. You know, we have been through a period that really kept a lid on inflation through globalization, through favorable demographic trends, the end of the Cold War, a burst of innovation. And a lot of those trends are now reversing, and I don't think the market is taking into account the cost of climate change.

So we're looking for companies that would benefit and thrive in a setting where we have continued supply-chain shocks and that benefit from scarce resources. And I would put in that category Ecolab. They are-- one of their sources of profit growth comes from the industrial water business and basically ensuring supply of clean water for companies around the world. And we're expecting in the US that the cost of fresh, clean water will double by 2030. So what companies are out there that can take advantage of that trend?

BRAD SMITH: Sure.

EMILY BOWERSOCK HILL: And Ecolab is one of them.

BRAD SMITH: I want to come back to something that you were mentioning a moment ago within semiconductors because one thing that I did highlight from the ASML CEO was them saying that they expect the market to rebound in the second half of 2023, or at least that's what the customers of theirs are indicating. And so when you hear something like that from one of these semiconductor companies-- and perhaps it's largely felt across the rest of the industry. Even though it's tough to time the bottom of something, does that give you pause to say, you know what? We don't want to be paying 15%, 20% more for something than we could or should be.

EMILY BOWERSOCK HILL: Yeah, I'm not a big fan of timing the market. You know, if I-- you know, a company like Lam Research, which is going to benefit-- you know, as you know, semiconductors are, in part, now a national-security issue. And so we're going to get a redundancy in fabs, which will benefit the equipment manufacturers.

Now Lam Research, along with the rest of the semiconductor sector, is up about 15% year to date. So is it the perfect time to buy it? Probably not. And so, again, I'm not a fan of timing the market, but the time to buy Lam Research was late December. And I think we've seen a big rally in some of the junkier parts of the market-- broken IPOs, you know, low-quality tech, and all-- a lot of the speculative names. And right now there's so much uncertainty in the semiconductor sector that I would put them in that category. So if you're a person that absolutely wants to try to buy at the bottom, you could benefit from waiting.

BRIAN SOZZI: Emily, the commentary from Microsoft last night was not rosy by any stretch of the imagination. We're seeing stocks under pressure here. Do you think in the context of that commentary that the broader stock market is overvalued at current levels?

EMILY BOWERSOCK HILL: I do. I think it was fairly valued going into 2023, and, you know, we've had a big rally driven by what's still an enormous amount of liquidity in the economy. And, you know, it's interesting. Investors are not getting the Fed's message, and it's a little bit puzzling. And, you know, if you're the Fed, you're thinking, what part of no don't you understand? And so unfortunately every time the market rallies like we have seen in the last couple of weeks, it sets back the normalization process that the Fed is trying to move forward.

JULIE HYMAN: Yeah. We'll see what gives as the year goes on and as that tension continues.

Emily, good to talk to you. Emily Hill Bowersock, Bowersock Capital Partners founding partner, appreciate it.