00:00 Speaker A
Large and mega hood shares that dominate both heads and portfolios, but small caps are left behind. Our next guest, however, says that Small Caps will have their day in the sun. We navigate how we can play small caps with the Yahoo Finance Playbook. Now coming to me is Sandy Villere, portfolio manager at Villere and Company. Sandy, always good to see you. So you say here, Sandy, Small Caps, they will have their day in the sun, better days ahead. How is it, Sandy? Walk through it.
00:39 Sandy Villere
Yes, and I believe in reversal to the average, and in the very long term you take more risk in Small Cap and you need more reward. But in the last 10 years, large caps exceeded about 5% per year, UH, and even this year, you know, S&P is about six and smalls are just about one. Uh, I just think that the small caps from a valuation position are about 23% discount on the big cap. And if you look at the top 10 shares in the S&P 500, they act about 29.3 times, the other 490 shares act about 20 times. So we think they will have their day in the sun, and, uh, another interesting thing is when you go back in the last 100 years and you look at the Cape Ratio, the cyclically adapted PE on the S&P, UH, there is only five times in history and we are now where we have struck these levels. Uh, one was in '99 before the market was cracked in 2000. Uh, je moet doorgaan naar '07 voordat het in '08 brak, en vervolgens opnieuw in, uh, 2021, voordat we dat down, uh, 30% jaar in '22 hadden, en dan opnieuw, uh, aan het einde van '24 toen we zagen, uh, uh, ongeveer een 20% pullback, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, in de loop van de bevalling, in de loop van de bevalling, in de loop van de bevalling, in The course of the birth, during the birth. So we just think that appreciation is why small caps look so attractive.
02:30 Speaker A
So Amy, I want to bring you in here, because so sandy says, listen, small caps will have their day in the sun, Amy. What do you see?
02:42 Amy
Yes, I would say that this is an important questions for investors we are talking to, because small caps, you know, for traders, it is not necessarily about Fundamentals, it is about how they bake in factors. So if you think of small caps, do we use IWM as a proxy, but is this idea when we get the rotation from, uh, growth to value, or of value, do you know, from Momentum, which was better than performing? You start to see that signs of this, but two important indicators that I would view is one how much call -volume ask you in IWM, which again is that proxy for small caps, and two, if you see a persistent reversal between small cap, with IWM as the proxy and qs as the growth factor.
3:46 AM Speaker A
Sandy, what would happen, you know, there are some smart economists, smart strategists, I have heard them argue, listen, they don't think the Fed is cutting this year. The resilient economy, inflation is sticky. What if J. Powell is on his hands? Play that out for me. What would that mean for small caps?
4:09 AM Sandy Villere
Yes, that will be a more difficult environment, and that is what we are now. So far we have the dollar fall of 11%. So far. Not good for small caps and and interest rates have been stubbornly high. So we have to see, you know, you know, a bit, probably the labor market falls apart a bit, eh, and we have to see that the rates for small caps are falling to finally get the wind in their backs. Ehm, but again, uh, we just need a rotation in sentiment from growth with large cap to value or small cap, and I think that too, uh, can play, even if the rates stay a kind of stay, uh, flat.
5:02 AM Speaker A
Sandy, let's go to a number of names here, because I always like to keep your choices. Uh, Caesars, let's start there. Why is that a purchase? As you know, the stock for death is left, you say this is a chance.
5:20 AM Sandy Villere
Yes, I mean, you are a 36% discount on the High. You now trade the business value for EBITDA with seven and a half times. If you look at 2026 figures, this is a yield of 17% free cash flow. Baking the shares in a recession and it is exposed to the consumer, which may not be a great place to be, and they do have leverage. Every 100 basic points, UH, Cut, UH, by the FED about $ 60 million would have been added to free cash flow to Caesars. So I just think it's so cheap, uh, and the worst is expected to pick it up when everyone hates it.
6:09 AM Speaker A
Okay, from Caesars to a biotech. Walk through this, Ligand, that is Ticker LGND.
6:19 AM Sandy Villere
Yes, Ligand is really a way to play the biotech industry. So they have a lot of shots on the goal in contrast to a typical biotech investment that could be a real binary outcome. Uh, just on July 1, to give you a sort of example, eh, they just, uh, helped, uh, put, um, uh, a merger together with, UH, channel therapeutica, UM and Pelthos therapeutic, and they invested approximately $ 18 million from $ 50 million. Uh, this is a mollusc drug that influences around 16.7 million people, and now you can actually take it at home instead of having to go to the doctor's office. They will get a third 13% royalty about that, and then only one, UH, Merck bought Verona this morning, as you know, for $ 10 billion. They also have, uh, a mid-single figure royalty on their COPD drug for, UM, you know, progressive lung disease. So those are just two examples with their 90 different programs and 13 different, UH, Royalty, UH, Commercial Royalty, UH, Streams now. So we really like that.
7:47 AM Speaker A
Finally I just want to press this in, Sandy. Option care, Ticker Opch, who has run a nice piece here. I am looking that it has risen around 30% this year. You say there is a number of potential headwinds, but it is a purchase, Sandy.
8:07 AM Sandy Villere
Yes, that's it. I think I could see this trade from about 13 times operating value to EBITDA to about 15 times. This is home therapy, eh, uh, you know, uh, treatments, and so I think many people love these home infusions, uh, it's much cheaper, about 50% cheaper than in a hospital. It is much more comfortable, uh, for the consumer, and I don't think one of these things, because more and more people are 65, uh and aging, I don't think this will go away quickly. So we think it has a good, uh, a good future.
