Are Stocks Still a Good Value?

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July 21 (Bloomberg) -- USAA Investments Head of Equities John Toohey previews today's markets and discusses his investment ideas with Alix Steel on Bloomberg Television's “In The Loop.” (Source: Bloomberg)

We're are nearing the opening bell.

John iie says it is time to go long on volatility.

Olivia and mike are staying with me as well.

You want to buy the dollar, but where is it?

You could not get worse headlines in the news now.

I think the headlines have been very bad, with gaz and what is going on in that ukraine.

One of the things to remember is that, unless that leads to a sustained supply shock for energy or it puts a big crimp in global trade, it should be sort of business as usual.

At what point do energy prices get too high?

Well, i think another -- you're never sure to what level it is going to translate into a big crimping in economic activity.

Somewhere, maybe a $20 more rise in prices would certainly raise flags.

If that does not happen, where do you get the volatility from?

Growth has not been very dynamic.

The fed is getting out.

What is going to bring on the vol that you want to buy?

You never really know what will bring on the vol.

The fed has sort of created a environment where people think not much bad can happen.

They have everybody's back.

We know that there are periods of volatility that lead to spikes.

You want to buy volatility when it is low.

It is like you want to insure your house when it is not on fire.

Once the house goes on fire, insurance is really expensive.

At what point do you want to buy in?

When is the house going on fire?

When does the house ignite?

I am not sure when the house ignite.

When things are cheap, you want to buy it.

Volatility is cheap.

You want to buy it.

If stocks are cheap, and there are a few like trw and hewlett-packard, you want to buy them.

I spoke to the gloom and doom report earlier.

We talked about whether stocks make good value.

The question is, are stocks good value?

I don't think that u.s. stocks are particularly good value, if you look at the price.

If you look at the market cap as a percent of the economy, it is now at the second-highest it has ever been.

So what do you think about that?

We would agree with mark in terms of small cap stocks.

I respect fully disagree with the large cap stocks.

Particularly if we see a revenue acceleration.

There is always -- even if the level is high, there is always opportunity.

Stock selection is paramount.

John, i know one of the stocks you like his gilead.

It has been a poster child of biotech stock.

It has a blockbuster -- they cure hepatitis c. there are a couple of problems.

There is a proposed $84,000 price tag.

A lot of pressure coming back from the government.

Will private insurers pay for that?

They are also working on drug to treat hepatitis c. given the fact that janet yellen warned that there may be a bubble, why are you looking to buy?

First of all, i would say -- this may shock you.

We think gilead is cheap.

We would not say that about all biotechnology stocks.

You have to remember -- this is for a cure.

This is not for a chronic condition that you are continually paying for.

It is cheaper than other standard treatments.

Because it is a chore, you will not likely -- it is a cure, so you will reduce the likelihood of a livered transplant.

They will not have 100% of the market, but they are the premier molecule.

These are the premier drug regimes coming out with a platinum standard.

They have the gold standard right now.

The platinum standard will be approved in the fall.

Most importantly, the hepatitis c market globally is gigantic.

I think it is massively underestimated.

That is why merck is so interested.

We think it can be good for merck, abvi, and gilead.

Gilead will be the leader.

They're the new excited biotech space.

Most of your other calls are in large caps, existing companies, industrials.

Those are the kind of things you move into in a defensive phase.

Gilead is a small cap stock.

That is what you look for with more volatility and growth.

Where are you at this point?

Is the just individual stocks or is there a trend?

I would say there are some individual stocks.

Gilead is an exception in terms of high volatility stocks that we like.

There is a huge market opportunity.

In general, we like stocks that are generating high, free cash flow, that a returning cash to shareholders, preferably through dividends.

And what types of stocks are those?

We see trw, they are selling back shares.

Most likely to start a dividend.

That is subject to a takeover by a european company.

Hewlett-packard is another one, with a yield in the low teens.

Heat and industrial has an above market dividend growing its dividend and buyback.

Capital one will increase its dividend.

They're one of the cheapest financial stocks out there.

We think it pick up in interest rates pick up in consumer lending, which we saw last week, that is going to lead to capital one ultimately seeing strong revenue and free cash flow growth and outperformance of the

This text has been automatically generated. It may not be 100% accurate.

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