Transcript:

Caroline WoodsJoining me now, Ross Gerber, CEO of Gerber Kawasaki. Ross, great to have you back. Thanks so much for being here. Yeah.

Ross GerberGreat to be back. Thanks for having me.

Caroline WoodsSo we’re kicking off this holiday shortened week with the S&P and Nasdaq both hitting fresh highs today, extending this eight week winning streak making it maybe nine. How are you thinking about the market right now. Ross is there still more room to run or are you getting worried here?

Ross GerberWell, it could go either way. And a lot of that is predicated on oil prices and inflation. So obviously the risk to the market is higher interest rates and higher oil prices really starting to affect the economy. And in consumer spending, where if we do have some resolution or at least some sort of relief from the high oil prices in the Gulf through some sort of negotiation, and we see oil prices drop, you know, dramatically, that also could be very bullish for the market.

Ross GerberSo I think we’re sort of at an inflection point on what the summer is going to look like for the markets. And a lot of that is predicated on on peace in the Middle East.

Caroline WoodsYet the U.S. is conducting self-defense strikes in Iran today. Do you worry that the market is becoming too complacent about geopolitical risk? Because up until now, it hasn’t really mattered?

Ross GerberI’m not that worried about it, because what it seems to be from my perspective is this is really just become about money and oil and all these other issues, then, you know, ideologies. And so the Iranian regime is not in a very good position, obviously. And so, you know, the Trump administration is trying to extract as much as they can but also get a deal.

Ross GerberAnd so I’m not that concerned about the war really flaring up again. Even if it does it’ll be a short period of time because we’ll just bomb the heck out of them and then we’ll be back at the table again. So I think we’re getting to a resolution. It might take a little more time than what people want, but but that’s the only solution if the Iranian regime wants to stay in power.

Caroline WoodsYet you say that this is a market that can go either way. So I guess how do you position yourself in a market that can move higher from here or it can sell off?

Ross GerberWell, that’s one of the reasons you run a balanced portfolio like we do at my firm and so on. One sense you have like my ETF, GCC, which is about, you know, 30 really high growth stocks. And then on the other side of your portfolio you might have, you know, bonds and cash and, and income producing investments. And, and what that weighting is is relative to your risk tolerance.

Ross GerberSo it’s certainly a good time to rebalance your portfolio and make sure you’re not overweight stocks. And and taking profits is certainly a diligent and intelligent thing for investors to do if they have stocks that run up substantially.

Caroline WoodsSo if you shouldn’t be overweight stocks right now, what does that mean in terms of the type of returns you think we could see between now and your end?

Ross GerberYeah. Well the a lot of the way we look out money is based off like price earnings ratios and growth rates in the future. So what we do think is that earnings for the year will be much higher than what analysts think. And that’s why markets have moved ahead. But it’s already priced that in. So there’s more risk of a disappointment than there is for more potential earnings upside.

Ross GerberWhat I think the market is trying to ascertain is what does the earnings look like next year now. And if we can continue this kind of growth rate the market is not expensive. But if earnings do slow and the economy does slow and consumers start spending less money because of high oil prices, then the market’s expensive and we’re definitely due for a correction.

Ross GerberSo you know, as I said, I think we’re sort of in an inflection point. If we can get oil prices to drop rapidly now, that will bode very well for the economy. But if we don’t, eventually this is going to sort of drag down on consumers throughout the summer. And then we don’t know what this looks like in the fall.

Ross GerberSo that would make me much more cautious. But right now, this weekend, on Memorial Day, people were out spending money. The economy is still strong.

Caroline WoodsSo if I were to ask you what ultimately could break this market, it would be oil prices. Around what level?

Ross GerberIt’s not oil prices. It’s interest rates because oil prices doesn’t affect everybody equally. I drive an electric vehicle. I could actually care less about oil prices. I actually like oil prices to be high because I care about the environment. So I want people to buy EVs. And that’s exactly what’s happening right now. So that doesn’t bother me. It’s interest rates that bothers me.

Ross GerberThe entire real estate market is a disaster when you’re talking about commercial real estate. And in a lot of places, residential real estate is starting to roll over as well. You know, we haven’t seen rates this high in decades. And now it’s persisted for four years. And with that, many, many real estate investors are in distress across all areas of commercial real estate and some residential too.

Ross GerberSo I think interest rates are the issue. We need to get rates down. And it’s not short rates, it’s long rates. And the only way we can do that is by spending less money, having lower deficits and getting control of our debt and obviously bringing inflation down, not up. And inflation is going up right now. So that’s my concern, is high interest rates has a much more dramatic effect across the economy than just oil prices.

Caroline WoodsOkay. So for the everyday retail investor listening in right now thinking, okay, how do I know when I should be overweight equities again what’s your answer.

Ross GerberPrice earnings ratio is you know if you see the PE of the S&P let’s say below our target is 18.5. So whenever we see the market trading at 18.5 times earnings then we our forward earnings. Then we know that the market is fairly priced. And so we’re now at it like 21 times earnings. So the market is elevated and maybe for good reason.

Ross GerberAnd it can stay that way for some period of time. But the market will go up with earnings at this point. So as earnings grow the market will grow. If we have multiple expansion that that means there’s more risk. It doesn’t necessarily it feels good on the short term, but in the long term it can feel real bad.

Ross GerberAnd so what we really want to see is continued earnings growth. And we’re seeing that. And that’s why I’m still bullish on the market is companies are just making ridiculous amounts of money right now and especially in technology. So so that drives the market. Remember the stock market is really ten companies. And if those ten companies continue to just print money like they are, the markets will go higher from the index perspective.

Ross GerberBut if you look at small businesses and mid-cap, they have performed substantially different over the last five years than large gaps.

Caroline WoodsOn that note, and we we did ask you to bring your top five picks. We’ll get to those in just a second. But are you concerned that leadership is becoming too narrow, that it’s too concentrated at this point, because it’s becoming the same stocks that we’re talking about? Once again.

Ross GerberYes. If it was not predicated on those companies performing so well from an earnings and shareholder perspective. So when you were a shareholder of Nvidia and they raise your dividend to, you know, $0.25 a quarter from a penny and they’re buying back $80 billion worth of stock, it’s an extremely capital friendly, system for shareholders. And that’s why companies like Nvidia continue to grow in value is because they’re returning so many, so much capital to their investors as well.

Ross GerberSo, you know, on a cash on cash basis, Nvidia is still a cheap stock despite its enormous size, assuming it can continue to grow like it has been. So I think investors just have to accept that’s the market we have.

Caroline WoodsAll right. Well, Nvidia was at the top of your, top five here. So you checked that one off. But micron is also on their micron at 18% today. Would you still be a buyer of micron at $890 a share. Almost.

Ross GerberWell you know it was 400 like a month ago. So you know it’s hard to you know we piled in around that price and lower. So it’s hard to say okay. Buy in at 800. But when you look at their numbers, it’s hard to argue that the stock isn’t worth less than 1500. I just posted about that this morning that UBS rejigger their earnings estimates, and it’s way over $100 a share for the many years to come.

Ross GerberAnd if it’s way over the $100 a share and you’re super conservative and you apply a 15 multiple to it, you’re at $1,500. So even at 890, you could still almost double your money. And that’s just to get to the valuation. What we think microns worth. So you know for investors I think micron still got more room to go.

Ross GerberAnd and this is going to be an incredible story okay.

Caroline WoodsNext up on your list alphabet I guess Alphabet’s gains year to date look modest compared to microns up more than 20% year to date, about 5% away from the all time highs. Is that a bargain here at these levels to.

Ross GerberWell, not as much as a micron, because we’ve seen Google move up substantially from when, you know, we started really talking about their dominance in Gemini and YouTube and now with Waymo. And so, you know, at 30 times earnings Google is priced correctly. But earnings are going to continue to rise probably double digits for a long time. And they have three of the greatest businesses in the world all under one roof.

Ross GerberYou YouTube the king of entertainment Waymo the king of autonomous driving and robo taxis. And then in the middle you’ve got Gemini, the sort of king of AI, at least for the consumer as as of now. And so they’re really, really well positioned, well managed and capital friendly as well.

Caroline WoodsNext up in your list, Eli Lilly, a different type of trade, but this was also a topic of yours back in March when you were on basically flat year to date. Is this all about GLP ones?

Ross GerberYeah. And it’s all about what’s like about to happen for Lilly as we move to oral medications versus just having a shot. And and it opens up the market as they have lowered prices dramatically. Where now GLP one drugs are accessible to everybody. And obviously, you know, they’re finding more and more health benefits of losing weight, especially for people who are obese.

Ross GerberAnd now just recently they found even benefits regarding cancer. So essentially, if you’re extremely overweight, you’re destroying your internal system. And by taking group one drugs, it really allows your system to re orientate itself around a smaller person. And with that, there’s just tremendous health benefits to losing this weight. But now they’ve got this new drug called Rita.

Ross GerberAnd it’s, you know, they call it GOP three. And it’s even more effective than the entire group of GLP one drugs people are taking today. And we expect approval of this and going to market within the next year. And everybody in LA is already taking the illegal forms of Rita. And so we know this because, you know, I I’m in LA and I’m around all these people and you know, they’re cutting corners.

Ross GerberYou know, I’m in the gym an hour a day and these people are taking Rita and they’re ripped. And so it is what it is. I’m not going to start taking it. But that’s if you’re wondering why everybody looks so good in town, you know that they’re all on Rita. So, you know, once that hits the market is going to be a super drug on top of the way they’re diversifying just today, buying more companies in different areas of vaccines, you know, dealing with something like, you know, we were talking about, you know, when you have chickenpox and, and you get older, you got to take this vaccine that sucks, you know?

Ross GerberAnd I’ve been avoiding it, you know, for a while. And, and, you know, sure enough, they buy a company that’s going to make better vaccines. So I think Lilly’s diversifying into many great businesses with all their cash flow. And they’re just like basically just dominating the market. So Lilly is a must have now.

Caroline WoodsOkay. And finally, on your list, it seems like maybe a wild card here. First cash f yes f s a pawn shop operator that’s actually been a huge winner this year. But what does that tell you about the consumer then?

Ross GerberWell, tells me not great things, but you know, I just happen to be some good friends with a guy who owns pawn shops. And he taught me about this business this year. And when I realized how busy he was and how this business actually works, which is basically their lending institutions for their micro loans to people who really can’t get credit anywhere else.

Ross GerberAnd when he showed me how his business works, I was like, oh my God, this is the best business in the world I like. It’s an amazing business, and you can loan at extremely high interest rates and people who need money. They’re all small loans, but your collateral is often times gold, which has gone up more and more in value.

Ross GerberAnd so they’ve been able to either, you know, if you don’t pay your loan, they have collateral that’s gain value. And then, you know, on the other hand, you can borrow more and more as your collateral gains value. But now consumers are under distress because of the Trump administration’s policies. The cost of living continues to rise rapidly. So more and more people are seeking places where they can get small loans without having to go to a bank that probably will say no, and without having to go to a credit card company that goes on your credit, you go to a pawnshop, and this business is now expanding into wealthier and wealthier people.

Ross GerberOftentimes, it’s these same real estate investors that don’t have liquidity, need liquidity, have expensive watches, for example, and need to borrow against them. This business is amazing. So first cash is is been added to our portfolio. And we expect in this environment to do extremely well.

Caroline WoodsOkay. Last time we were on Ross you rated Tesla as a sell. I’m curious because SpaceX is getting ready to go public this mid-June IPO. There’s a lot of talk about it. Will you be a buyer of the IPO?

Ross GerberWell, I own in full disclosure, I own SpaceX stock already through my acquisition of Twitter. Originally four years ago that I was involved with, with Elon. So I somehow, through the miraculous ways of the world, I’ve ended up with a decent amount of space stock. And so when SpaceX goes public, I recently said that I would probably sell some and keep the rest.

Ross GerberBut I’ve changed my mind, and I decided I’m just going to keep all my SpaceX stock for now. I very much have spent a lot of time now with SpaceX employees learning about the business, because we work at my firm with lots of people who work at SpaceX, and we recently had an event, and I had this amazing opportunity to just meet so many people who work at SpaceX.

Ross GerberAnd I was incredibly inspired by this amazing group of individuals and what they may accomplish. So when you stop worrying about Elon Musk and you look at what SpaceX is actually doing, and with the launch of Starship last week, the success they had, there’s no question we’re entering a new era for SpaceX. And in a decade, what this will look like is hard to imagine.

Ross GerberBut I want to be in on that, and I think it’s way more exciting of an investment than Tesla at the moment.

Caroline WoodsOkay, there is talk, though, from people like Dan Ives that ultimately SpaceX and Tesla will combine with that be bullish or bearish.

Ross GerberWell, just to be fair, I was the first person to say that I expect this to happen and I am with right and and no. And I think this as well, I it just doesn’t make any sense that Tesla is a separate company. And we think that one SpaceX goes public. It won’t be long until we’ll see a merger between the two businesses that add some semi equal valuation.

Ross GerberSo it doesn’t create too much animosity among different shareholder classes. And so having one investment that’s all Elon’s companies makes the most sense for investors for index funds for for everybody involved. It’s a massive enterprise in so many different verticals. And so I think for investors it becomes a must own stock if they merge. And that’s why I think it’s going to happen.

Caroline WoodsOkay. All right. Before we get to our rapid fire game of this or that, which I know you’re looking forward to, because you told me that before we started recording. We like to play a 62nd round of. It’s called 62nd portfolio. Just quick calls here. Are you ready?

Ross GerberYeah.

Caroline WoodsWe’re going to build a portfolio from the top down. Let’s start with allocation. How much is in stocks. How much is in everything else.

Ross GerberWell for a young person I’m saying 75% in stocks if you’re older I’m saying 60.

Caroline WoodsOlder above 50 older above 65.

Ross GerberThat’s all relative to your own mental well-being. You know, like I consider myself a young person at 55.

Caroline WoodsOkay. So then the 25% that’s not in stocks for the the younger portfolio. What’s that in.

Ross GerberThat’s in fixed income and reeds. So so we like to have a diversified set of cash flow generating investments. And a lot of times here in California we can use California municipal bonds that are triple tax free earns anywhere from 3 to 4%. So that’s a great way to get some cash flow in your portfolio tax free.

Ross GerberAnd it’s safe.

Caroline WoodsShifting back to equity is one area you’d overweight right now.

Ross GerberWell I’m extremely overweight chips.

Caroline WoodsOne sector you’d underweight right now in.

Ross GerberThe sector I’m underweight right now which you know we’re kind of always underweight is oil. And you’d say well wait oil prices are at super high prices. But I’m there’s so much oil in the world and there’s so much alternatives to oil. And once this thing’s works itself out, what do you think everybody’s going to do is try to figure out how they don’t have to completely rely on 2 or 3 countries for oil in this modern era, you know?

Ross GerberAnd so I think oil’s going down, down, down. I don’t want to be in that business.

Caroline WoodsOne stock definitely in your portfolio.

Ross GerberI mean, Google.

Caroline WoodsOne stock you’d sell now to take profits.

Ross GerberWalmart.

Caroline WoodsBiggest risk to your portfolio?

Ross GerberInterest rates.

Caroline WoodsAll right. Time for a rapid fire game of this or that. More quick questions and quick answers. Are you ready, Ross?

Ross GerberYep.

Caroline WoodsAll right, here we go. Market rally justified are getting ahead of itself.

Ross GerberIt’s a little ahead of itself, but welcome to the stock market.

Caroline WoodsBy year end. Higher or lower than where we are now.

Ross GerberOh good question. I’m going to say higher.

Caroline WoodsSingle digits double digits.

Ross GerberSingle digits I don’t expect substantially higher. But I think we get a rocket kind of up and down. Some are going into the election because remember midterms are coming and that will kind of stun the market. But I think we get a mixed government moving forward, which is actually better for America. And assuming some resolution of these conflicts and maybe the Ukraine war will end, God willing, the Russian genocide will end and they’ll stop killing people, and then maybe the markets will really be happy.

Ross GerberSo, you know, I think there’s an opportunity for that outside.

Caroline WoodsOkay. So all of that being said, lean in or play defense.

Ross GerberI’m still leaning in. You know, you got to make money when the money’s being made and you got to play defense the minute it turns. So it’s still running and I’m playing.

Caroline WoodsBest stock to play defense with right now.

Ross Gerber

Caroline WoodsGoogle I trade early or stretched.

Ross GerberYou know it’s early I mean most people are not fully, you know, comprehending the massive shift in computing that’s actually happening and how much more useful computing will be for humans over the next decade. So so we’re just at the beginning of this and people are way overthinking it. This is where you want to be invested for the next decade.

Ross GerberAnd and and you got to think long term what the world will look like in ten years. We don’t know. But it’ll be amazing.

Caroline WoodsMicron with a $1 trillion market cap. Justified or extreme?

Ross GerberCompletely justified.

Caroline WoodsMicron or Nvidia.

Ross GerberNvidia on the long term for sure. You remember micron is a memory chip maker. And eventually they’ll get back to supply and demand balance maybe in five years or ten years. But Nvidia I’ve owned for like 20 years or 15 years and they’ve constantly innovative. They have the best CEO, you know, in the world probably, and they are constantly moving forward with what they’re building and they’re moving where the puck is going.

Ross GerberYou know. So so I, you know, I’m, I, I just had a client who wants to sell some Nvidia and I’m like arguing with this guy. I’m like, dude, you do not want to do this. But he, you know, he he did. And that said, I think in ten years Nvidia will continue to hit home runs for a long time to come.

Caroline WoodsJust a reminder, we’re keeping these quick although we appreciate the context I’m sorry our alphabet Nvidia alphabet.

Ross GerberThat’s so unfair. I’m going to have to say.

Ross GerberNvidia was hard.

Caroline WoodsAn AMD or Intel.

Ross GerberClearly Intel right now even though the valuation is absurd.

Caroline WoodsSalesforce or Snowflake ahead of earnings.

Ross GerberWell, I I’m going to have to say snowflake, I had our earnings, you know, because I think, you know, they’re doing pretty decent compared to Salesforce, which is trying to figure out how to use AI. So, snowflake is kind of where you want to be more than Salesforce.

Caroline WoodsSoftware name you like more than snowflake.

Ross GerberI don’t really like software right now, you know? I mean, does Microsoft can, I don’t like software. I would say Shopify. Does that count? Shopify count is a software company.

Caroline WoodsMicrosoft and Shopify will take those best.

Ross GerberI think Shopify is.

Caroline WoodsA best way to play AI right now.

Ross GerberGoogle, Nvidia.

Ross GerberOr Google, Nvidia, micron or My Fund GKE, which is all positioned exactly where you want to be.

Caroline WoodsIf you could only own one sector right now, which would it be?

Ross GerberTechnology. It’s always been, though. That’s not fair question for me. I’ve always invested in technology since I was a little kid, and that’s what I’ll do till the last day of my life. And I think it’s the best sector and the best thing we do in America.

Caroline WoodsBiggest risk to the market geopolitics are interest rates.

Ross GerberWell, they’re related, but I would say geopolitics. We have a very unstable government. And I think that many of the people involved in our government are very, very stupid and they just don’t know what they’re doing. So we’ve managed to skate through lots of, you know, things and semi unhurt, but I think there’s a big risk out there, over this incompetence and it makes me nervous every day.

Ross GerberBut that said, we’ve managed to survive through all this nonsense. And just the same, we’ve had bad presidents for almost 250 years. Other than the first, you know, handful.

Caroline WoodsRecession risk, real or overblown.

Ross GerberRight now, I think it’s overblown. I mean, boy, you couldn’t go anywhere in LA, you know, yesterday or all weekend. It is so busy. So it’s this weird thing where consumer confidence is super low, but people are out spending money and going everywhere. And it’s not just wealthy people, okay? It’s people of all income levels out spending money, whether it be Disneyland or the pier or going to concerts or just going out and being with their families.

Ross GerberIt’s amazing. The economy here in California, it’s very, very strong.

Caroline WoodsOne word to describe this market right now.

Ross GerberFun.

Caroline WoodsIt’s been fun.

Ross GerberYeah.

Caroline WoodsAnd for the.

Ross GerberGreater, I’m having a feeling.

Caroline WoodsOne word to describe about where this market is going from here.

Ross GerberAs I said, caution. I think you should be cautious when I’m having too much fun. That immediately makes me cautious. It shouldn’t, you know, like I shouldn’t be this happy. So. So that makes me cautious. I’ve been doing this, remember, for 35 years. So, you know, I know when I’m too happy.

Caroline WoodsRoss Gerber, CEO, Gerber Kawasaki. Thank you so much for flying along. I always appreciate your insights and your picks. Thanks so much.

Ross GerberThank you. This is the funnest show I like. I love.

Caroline WoodsDid you say the funnest show? All right, we’ll take it.

Ross GerberOn the show. I’m on every channel so I can safely vouch this. This is the most fun that I have. Now, I do have some fun on Bloomberg, too. I don’t want to.

Caroline WoodsOkay.

Ross GerberHave Carol.

Caroline WoodsWe’ll cut right there. I hope we’re still recording and we’ll cut right there. If you enjoyed this free talk, check out our full interview with Matthew Tuttle on why Nvidia may not be the best way to play AI anymore. He breaks down where the next winners actually are.