Why Apple stock could see ‘a lot of pain,’ according to an analyst

Boyar Research's Jonathan Boyar joins Yahoo Finance Live to discuss low stock valuations, the stock market, and his stock picks in the financial and tech sectors.

Video transcript

AKIKO FUJITA: Continued volatility in the markets means some compelling companies, some companies might be selling below their intrinsic value, but won't deliver returns until after two or three years. Let's bring in Jonathan Boyar. He's Principal of the Boyar Value Group and host of The World According to Boyar. We want to know what the world is like according to Boyar.

Looking at where the market is right now. Obviously, with the S&P 500 we saw levels we haven't seen in terms of the pullback earlier this week. A lot of the market action focused on Europe over the last few days, but how are you looking at all of these moves connecting the dots?

JONATHAN BOYAR: Listen, I think what investors need to do is take it as a stock by stock basis. The bottom line is there are a lot of stocks that are unbelievably cheap. Could they get cheaper? Absolutely, but if you look outside the real megacap, let's say, the top five names in the S&P 500, there's a lot of bargains out there. The S&P 500 equal weighted index is selling below what it was in March of 2020 and I don't think we have March of 2020 problems.

AKIKO FUJITA: So we'll get into some of those specific names in just a bit. But a lot of investors are looking at their portfolio over the last few weeks saying, I don't know that I want to make any moves. Is this a time to cash out? Do I put things on hold? It sounds like you're saying, look past all the noise. There's a lot of opportunities to get in right now.

JONATHAN BOYAR: Listen, I wouldn't jump in with both feet right now, but it's a great opportunity for long-term patient investors who can withstand the short-term volatility. I think a measured approach is warranted, but I don't think it's a time to bail, assuming you're in the right stocks. I mean, there are a lot of stocks that are down 70% to 80% from their highs that are never coming back. But there are a lot of other stocks that are just great businesses that just have been sold indiscriminately.

AKIKO FUJITA: So let's talk about some of those stocks you're liking, starting with the financial space. Two big names.

JONATHAN BOYAR: Yeah, the financials I think are a great place to be, especially with rising interest rates. The two we like a lot are Bank of America and Chubb. I mean, Chubb gains a billion dollars of income for every 1% increase in interest rates. They should be doing really well.

It's a hard market as well for insurance. Bank of America is the most asset rate sensitive bank out there. So there's a lot to like. And especially for a stock like Bank of America, it sold off from 50 to 30. It's trading at a modest multiple a book. And people are thinking, you know, recession, March 2008. And the same thing's going to happen. And this is a very different bank than it was in March of 2008.

AKIKO FUJITA: Yeah, why Bank of America more than some of the other banks, because of the interest rate sensitivity?

JONATHAN BOYAR: The interest rate sensitivity. I think it's probably one of the best run banks out there. They have a responsible growth program. They're just done a great job in reducing the risk. Pays a nice dividend. And there's a lot less problems. You can get cheaper banks, but sometimes you get what you pay for.

AKIKO FUJITA: OK, moving on here into some of these other names. You've got one tech company, at least, in there in Cisco. What do you like there?

JONATHAN BOYAR: Well, it's more of the old tech company. It's trading I think 14 times earnings or so. It's going toward-- more towards a subscription model. Get a good yield while you wait. It's just a solid balance sheet company. It's going to do well on the other side. And if I was going to own tech, this is one of the names I'd want to own.

AKIKO FUJITA: How do you differentiate between some of these names? And what we keep hearing is, sure, I mean, it sounds like you're looking at valuation more than anything. But the growth stories in many ways, for at least the big tech companies, are still intact. And we've seen a bit of a pullback, which seems to signal some opportunity there. But Cisco, yes, a more of a legacy company. Why that over, for example, a company like Apple?

JONATHAN BOYAR: Apple is-- Apple is a difficult one. I'm not sure if I have a differentiated opinion on a name like that. But I think over the long run a company like Cisco that's trading a lot less, lower multiple. I mean, Apple is trading at a pretty rich multiple. So you're paying a lot.

And with interest rates rising, there could be a lot of pain there just on multiple compressions. So it's something I would be very wary of. I'm not saying you should sell Apple, but I'd rather buy some cheaper stocks, like Cisco, that are good high quality businesses that are growing, that have great balance sheets, that'll be around over the coming years.

AKIKO FUJITA: Another name we don't always talk about on this show Hanes Brands. That's one of the ones that you see is actually a good buy right now. What do you like there?

JONATHAN BOYAR: Yeah, it's a good, not a great business. It's trading at five times earnings. It's a stable business. It's going to be there in two or three years. You're getting I think paid 8% while you wait. If the stock stays this cheap for a long period of time, a competitor will probably buy them or private equity. So there's a lot to like. I think your margin of safety is quite strong there. And it's something that if you have the patience, it's worth looking at.

AKIKO FUJITA: Finally, we've heard the word diversification over and over in this environment. We talk about some of those stock names that you like, but in terms of the overall portfolio, is it still important to stay overweight equities? We've heard a lot of investors saying bond yields aren't looking so bad right now when you consider the returns you can get.

JONATHAN BOYAR: I think that's a case by case basis. It depends. Right now you can get 10-year treasuries giving you a good return, but not after you're taking into account into inflation. So I think it depends on your own financial situation on what you should do. If you're a young person who has a risk-- high risk tolerance and obviously a long runway, I mean, I would be extremely overweight equities, but as I said, I wouldn't jump in with both feet. I take a measured approach and buy a little bit at a time.

AKIKO FUJITA: Caution the way to go.

JONATHAN BOYAR: Caution is the way to go, but not too cautious.