July 2024 / VIDEO
Two questions on US equities with…Gabe Solomon
Portfolio Manager Gabe Solomon discusses his outlook for US large-cap value equities
Transcript
0:13
Looking ahead, we see opportunities in three areas.
0:16
The first is in the democratization of AI.
0:19
The market has taken an extremely narrow focus in terms of deciding who is going to benefit from AI.
0:27
We believe that the benefits will be much more widespread, and as a result of our work, we firmly believe that the market is significantly underestimating a handful of stocks and the opportunities that they will have.
0:39
The second area that we're very excited about is that we believe that the classic value areas of banks and energy are much better positioned for the next decade than they had been for the prior decade.
0:50
On the bank side, the companies had survived the storm of 2023 very well.
0:56
Capital positions and liquidity positions are very strong in the industry, and we also believe that the stocks are inexpensive.
1:02
There's some option value for things that can work out very positively in their favor.
1:08
The first is that we believe that there's going to be a significant increase of CapEx1 and manufacturing investment in the Midwest.
1:19
And we believe that that's going to drive loan growth in this cycle.
1:24
Additionally, we also believe that there's a bipartisan effort to lessen some of the onerous capital requirements that have lowered the ROEs2 for the banks.
1:37
Finally, the third area is that we believe value in general is very well positioned.
1:43
The differential in valuations between value and growth stocks is near all-time wides, and as a result of the fact that we see positive fundamental backdrop for a lot of these stocks—like I mentioned banks and energy—we believe that value is well positioned to outperform.
2:04
We're generally very constructive on the US banks and especially on the regional banks.
2:09
We believe that the industry weathered the storm of 2023 very well and came out with strong capital ratios, liquidity, and we believe that the banks are well positioned going forward.
2:22
There are a couple specific catalysts that we see as opportunities.
2:25
The first is that the prospects of banks are a function of the underlying economies that they serve.
2:32
So, we are particularly excited about the Midwest banks because we believe that there's going to be a lot of investment in manufacturing, bringing jobs back onshore as well as building strength and redundancy in supply chains.
2:49
Additionally, the banks have also benefited from the fact that, at the worst point of 2023, the expectation was that there was going to be approximately a 20% hit to earnings longer term as a result of the increased capital requirement that were going to come as a result of the 2023 crisis.
IMPORTANT INFORMATION
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.
Gabe Solomon is a co-portfolio manager of the US Large-Cap Value Equity Strategy. In addition, he is an Investment Advisory Committee member of the US Large-Cap Equity Income and Financial Services Equity Strategies. Gabe is a vice president of T. Rowe Price Group, Inc.