AMZN, SYK, CMS: Where Mark Zagata Sees Opportunity for Value Investors

SPEAKER_1 (0:00)

Welcome back to Opening Bell. Time for the very latest from the floor here on the New York Stock Exchange Forum. We're glad you're with us. Mark Zagata, Portfolio Manager at Parnassus Investments is joining me now. And we've kicked off earnings season. Here we are, a bit of a mixed bag.

Some of your thoughts on what we've heard thus far.

Mark Zagata (0:20)

Indeed, we're kicking off earnings. And just to say thank you for having me on the show.

Mixed bag, but that's actually an okay way to start here, because I think we're seeing strong guidance. Strong guidance paints the picture for potentially some strength as we head through the rest of the year and into 2027 So great to see some of the big banks here navigating a tumultuous type of environment. And hopefully this sets the stage for what's to come. But it's been a tumultuous year. We've had shifting market narratives and certainly a lot of different things to digest.

SPEAKER_1 (0:57)

Yeah. I mean, when we think about value investing versus growth investing, and so far, what we've been told here is that the economy has been pretty good.

How do you now decipher on how to position the portfolio as you start to hear from some of the banks? You mentioned some good guidance. For example, GP Morgan raised some numbers. Citigroup seemed a little more tepid, worried a little bit about macro and market conditions. So I feel like I got a bit of a mix, both that the consumer is strong, the economy is strong, there's resiliency. JP Morgan used words like robust and supportive environment. That's pretty good. I'll take that. It doesn't sound terrible at all. Where does value investing fit into a portfolio now?

Mark Zagata (1:37)

Yeah, absolutely. So we've seen investors lean into value this entire year. So good to see that. We've had these shifting market narratives throughout the year. Stocks going in and out of favor and sometimes back into favor yet again.

The key part here though is point to point. Stocks are up and to the right. Then underlying that is a great trend in earnings. So we've seen earnings estimates rise throughout the year, somewhat unusual for stocks. We're now looking at consensus estimates for more than 20 percent earnings growth for the Russell 1000 Value Index. That's great. That's a good backdrop. The one thing I would say is for your viewers here, take advantage of these shifting market narratives. Quality stocks that are trading off, those are opportunities to capitalize on.

SPEAKER_1 (2:21)

Well, let's talk about a name like Amazon, for example. I mean, you've noted this name that you've been watching here, and that's one that you think is actually a good value play at this point. It's come off the high of 381 It's trading at less than 350 That's 30 bucks. What do you think?

Mark Zagata (2:36)

Yeah, certainly. So hyperscalers in general, and then I think Amazon in particular. Great example of a company where there have been these shifting market narratives. I've heard so much about the CapEx spend, and I think the market is starting to appreciate some of the returns on that spend.

We're still in the early stages of this. They invest the money, and then it takes some time for that to show up. This acceleration is very much just starting to come through in earnings. We're seeing price increases, a lot of signs of pricing power in their AWS business that we think can drive them higher from here. This is, again, that opportunity to load up, to build your portfolio, take advantage of these narratives. Go, leave 2026 with a better portfolio than where you started.

SPEAKER_1 (3:19)

Yeah, and I'm just correcting the numbers. 287 was the high, and the current on Amazon is 261 So it's about 25 bucks. Let's get to some of the other names that you like, Stryker and CMS Energy. How are those valued place?

Mark Zagata (3:32)

Yeah, certainly. Stryker is one of those ones where I think medical devices in general, they've underperformed this year.

This is maybe early stages there. We haven't yet seen the market appreciate this, but a company like Stryker, we've had a lot of challenges this year. We've had ACA insurance roll-off, we've had lower procedural volumes, they had a cybersecurity incident, we have a change in CEO. These all sound like really tough things, but these present the stock at a 17 times multiple. That's in line with the value index. We're getting high single-digit organic growth, and that to us presents the opportunity for if any of those headwinds. A single one alleviates, we think there's upside to that stock. Stryker, an extremely high-quality business, it's been spending most of the last five years trading 25 times or higher. This is where we would load up, and you build that in your portfolio, you build something in addition to AI that can drive earnings higher and get you in a better place going forward.