Transcript:

Caroline WoodsJoining me now to kick off the week Ken Mahoney, CEO of Mahoney Asset Management. Ken, so good to have you. Thanks so much for being here.

Ken MahoneyThanks for having me.

Caroline WoodsSo stocks are bouncing back today after snapping a nine week winning streak for investors who didn’t buy Friday’s weakness. Did they already miss their chance to win or do you think we’ll get another opportunity?

Ken MahoneyI think we have another opportunity. You know we got to watch the volatility index known as the VIX. And for your viewing audience you know that kind of shows you know how much complacency is out there. How much fear greed that stuff. It was a 40% on Friday. That’s the top ten of all time. So yeah we bounce back a little bit today.

Ken MahoneyWe’ll see what happens next. But you know we’ve always kind of more about tactical you know putting bids below the market, having those awful days picking up stocks. Having those parabolic days there on the other side putting out some offers. So we kind of create our own alpha around some of the volatility.

Caroline WoodsWell headlines made it seem like potentially the start of something bigger. But do you look at Friday’s weakness as simply profit taking after a huge run higher, or did it reveal a real vulnerability in the market that we have to be careful of?

Ken MahoneyBut I think, you know, the I trade very crowded. We got to one side of the ship, so to speak, and we’ve been there also. And the market’s a Bronco. It’s going to try to kick you off. It’s not supposed to be easy like it was for those nine weeks. Trouble ahead, I don’t know, I mean, the biggest trouble ahead, we see is the concern about the, midterm elections.

Ken MahoneyAnd it’s always hard to figure out when the market’s going to wake up and say, we don’t like that event. So I think, you know, to be overly bullish or bearish here, that’s tough to make a case. But if I had to pick one or the other. I would say it’d be more of a bullish because of the earnings.

Ken MahoneyThe staggering earnings are seen, even off the earnings cycle. We saw Snowflake and Dell and these analysts scrambling to keep up with these guidance increases and so forth. So finally kind of that one of the other yeah, we still are pretty bullish here. But it also shows that risk happens fast. Really fast. And you know when it comes to volatility you have to kind of expect that and play that in.

Ken MahoneyYou can make volatility your friend or your fun.

Caroline WoodsSo you talked about watching the VIX. What specifically are you watching as warning signs for potentially more challenging times ahead.

Ken MahoneyWell we have to look at the yield curve right. So basically it was a pinged the the set off on Friday. Good news 170 some thousand new jobs created. You know most of our clients like that’s good news isn’t it. Yes or no. And probably a little bit too heavy because there’s no way to say it’s going to be cutting rates.

Ken MahoneyAnd then the futures market showing a two thirds chance of a rate hike. So you get good numbers in the economy, which by the way be careful what you wish for. I don’t think we want a whole bunch of soft data points for the labor market. But you you have this this you know yields going up. Inflation expectations going up.

Ken MahoneyYou have a hot job market. That’s what spooked the market. That’s what kind of led I believe Friday to this is cascading lower throughout the entire session.

Caroline WoodsI’m curious you mentioned your clients how many nervous client calls did you get on Friday and what were they most worried about, or were they looking at it as a buying opportunity? What did you say?

Ken MahoneyYeah it was it was around mixed. I was surprised to get calls panicky. I mean, we had nine weeks of gain that have one of that is like, to me doesn’t change the trend, but it is surprising it’s sometimes the regular clients or the usual clients that, when they see some and I see something in the market that they get upset with other call.

Ken MahoneyBut others. Yeah, you’re right. They’re looking for some eye sales or some some might not to sales. And some you were buying in the market. So we’re putting bids below the market. There was it was kind of mixed. It was kind of funny to watch the same old people. Typically they call them when they get really nervous about the market.

Caroline WoodsWhat should investors be doing right now for the everyday retail investor who saw what can happen on Friday but saw that the market’s already bouncing back, the dip is already being bought. Where what should they do from here?

Ken MahoneyI think they should start with the 30,000ft view as the location next. And we’ve said that a lot. We don’t have bonds in an allocation we haven’t had since beginning of the year against median income. That’s different. We’re talking about total return. We’re about one third in cash, about two thirds in equity, the two thirds in equity, mostly large cap growth.

Ken MahoneyWe’re in that space. We like the one third sounds like a lot. But it’s not because, you know you also had some good gains. You’re supposed to be able to tactically take some off the table periodically like we do. You call rebalancing or how you want to call it. And having about one third right now gives you some flexibility there.

Ken MahoneyYou know, if you’re understand, invested in this market and it comes down, you don’t have any power drive. You have nothing to work with. So, you know, we’re in the mind that we’ve had a huge run trying to work a little bit off. Yes we have a bounce today intraday. We’ll see where we close. But it’s still got some something to do here I mean that’s like was down 1100 points.

Ken MahoneyAnd as I’m speaking right now the Dow up about 3 or 400 points. So that was sort of it came back. But so it still has some work to do because you know again now just spooked everybody really quickly how fast it can change.

Caroline WoodsSo talk to us about where you’re going to put that third of the cash part of your portfolio to work. What are you waiting for. What’s on your list?

Ken MahoneyWell, our shop one of our favorites, is still Apple. And I know some people kind of scratch your head and said, Apple. Well, you know, I think they did a good job not being a hyperscalers, spending hundreds of billions of dollars, you know, kind of let the first service go through and kind of watch that. I do think they’re going to figure out the story thing at some point.

Ken MahoneyAnd maybe the Germany, Gemini from, from Google. But what really fascinates us about Apple, true and true in like 2.5 billion devices out there, you can really monetize that, like a little $10 a month here and there. And it’s an extra 25, $30 billion dropping to to the bottom line. So, you know, Apple is only a few points away from its all time high.

Ken MahoneyYou could put that below the market. Again. We like it because they have a wide moat. And certainly with, you know, 2.4 to 2.5 billion devices out there, you can do a lot. And they’ve saved a lot of money not jumping into the eye. Pool again we saw Google spent last week and what they’re spending with Facebook or maybe spending you’re seeing a lot of companies like Amazon.

Ken MahoneyPretty much all the free cash flow is going into CapEx. And Apple sitting on the outside may look like there are losers in this initially. Then the first movers do their bit. And now here’s Apple, you know, with a lot of cash and a lot of opportunity.

Caroline WoodsSo just quickly wait for a pullback an Apple or you would buy it up 15% year to date.

Ken MahoneyYeah. You could buy some here. Again it’s kind of like I know a lot of clients or investors get stuck with the price. Oh I bought IBM at 310. You know why not like give yourself 3 or 4 stabs on it. So if you bought Apple, in the beginning of the year and got 15% and we had a downturn, you could always add to my point is that you shouldn’t just live and die with one with one price, you should be able to incremental coming into a stock with your favorite ones incrementally coming out if it goes parabolic or nearly parabolic.

Ken MahoneySo for Apple, even though it’s up 15% year to date, almost double that of the S&P 500. It’s also telling you it’s one of the leading stocks, even though it’s, you know, it’s Apple. No words. Most investors looking for some small, mid-cap, more sexier names, I would say, than Apple. But again, you have to like the new management.

Ken MahoneyThey’re more visionary. And I think it’s going to work out just fine this year for them.

Caroline WoodsOkay. What else is on your shopping list? If someone has some cash to work with, what should they be buying?

Ken MahoneySo we still like to emphasize the picks and shovels. It’s kind of the picks and shovels in the 1990s, right? The picks and shovels of this move on to us is Veritas and it’s, GeV. GV is the spinoff of General Electric. They do a lot in both, ways trans ultra alternative powers. And then the Veritas, actually tries to cool down the system.

Ken MahoneySo if you think about all the money is being spent, we would really like to own the infrastructure to the tech. But also, you know, if you kind of look from 30,000ft, you’re going to need companies like them to cool off these data centers to, to get more generation, generators, you know, from from GMV.

Ken MahoneySo those are two names we really like. Both were added recently, added to the S&P 500. Both were up quite a bit even after Friday’s sell off. But that’s how we like to play. The AI is really through this infrastructure play. It’s big.

Caroline WoodsSo so far we’ve only talked about tech. Is that indicative of how your portfolios are structured? Still very tech heavy or is now the time to diversify.

Ken MahoneyYeah. You know that’s that’s a really good question. So we do own some JP Morgan. JP Morgan seems like a good support level 300 hits and it bounces up, you know, the clear about trillion dollars worth, every day that goes back for Jamie Dimon. Best in class. So we’re trying to bring down the beat a little bit, for portfolios that that trades like around a 0.6 beta.

Ken MahoneyWalmart actually took it on the chin, the earnings season. But we also see them as, kind of a poster child for using the technology, using it for, for inventory, using for logistics. I mean, they do a great job with that. And they should be rewarded for the money they’ve been putting into the infrastructure. I get, but we are mostly Lawrence County growth.

Ken MahoneyWe are growth managers, but we also recognize sometimes we need to soften or lower the volatility in the portfolios inclined stay with the longer. And those are some of the names that we have outside of tech. But they’re very specific. We don’t own airlines. All those retailers, we, we tend to kind of stick in our lane.

Ken MahoneyYou know, that lane is bumpy and it’s volatile. We think that’s where investors get rewarded.

Caroline WoodsYou mentioned at the top that there’s some areas of the market that were getting a bit too crowded. What areas still look crowded to you.

Ken MahoneyYeah I guess you know as like the.com days of XYZ company and they call themselves XYZ ecom. We’re starting to see some of that frothy next. We’re starting to see just, you know, just be associated with the name. Just an eye name attached to the company. And the multiples go higher. So you’re seeing that in a lot of different areas.

Ken MahoneyBut the interesting thing about this though is we have a rotation. We’ve had rotation but it’s not out of the market. It’s mostly rotation under technology drones one week, quantum technology another week, semiconductors another week. So they don’t really they don’t get a big chance to get bubbles. Like like everyone’s looking for because the rotation that’s happening under attack, has been so severe.

Ken MahoneySo it’s crazy, like how they take turns. So I don’t we don’t see any we don’t see anything that, the bubble bursting or any of those type of things are out there. You know, this business, the business environment is amazing. The amount of money being spent. Again, analysts cannot keep up with all the upgrades and all the, guidance numbers that are going up much higher.

Caroline WoodsHow much of that money do you think is going to rotate into some of these massive IPOs that we’re expected to see space this week, potentially anthropic after OpenAI? And how are you talking to your clients about those names when digging in? How much to allocate?

Ken MahoneyFor space? Again, unless you’re in the, you know, in like Musk and Goldman Sachs and insiders, they have a good price when it trades publicly. We’re we’re shying away from that. We rather see a month or two. You know, we’re both kind of eclectic. We’re fundamentalist. And we’re also, technicians that to an extent, it doesn’t have a track record technically, obviously, because it hasn’t trade there yet, even though it’s so exciting and, but at the same token, we’re advising our clients, especially the first day.

Ken MahoneyDon’t go anywhere near it. Let us sell around my. I suspect a month or two was chosen to the pattern. And the pattern is in an upward slope. That’s a better time, even if you have to pay more for it. But, you know, it’s it’s really kind of it’s really like kind of Russian roulette to buy the Open on Friday, especially if you think the transfer of wealth they’re transferring, you know, liquidity into retail hands down doesn’t really work out too well for retail.

Caroline WoodsYeah okay. All right a good time to pivot to our rapid fire round before we get to this or that. We’re going to do a quick 62nd portfolio. You’re going to build me a portfolio from the top down. Only quick responses. Are you ready?

Ken MahoneyReady.

Caroline WoodsAll right let’s start with allocation. How much is in stocks. How much is in everything else.

Ken MahoneySo two thirds in stocks one third cash no buys.

Caroline WoodsNo crypto.

Ken MahoneyNo crypto.

Caroline WoodsOf the two thirds in stocks. What’s the first sector you’re waiting on.

Ken MahoneyWell the Apple I call it consumer electronics and call on Apple these days that a lot of different verticals. But I would say Apple.

Caroline WoodsOne sector you’re avoiding.

Ken MahoneyIs one sector we’re avoiding. There’s a couple sectors rewarding, I would say rewarding. Airlines, autos, retailers.

Caroline WoodsWhat’s one must own stock in this portfolio that’s not Apple?

Ken MahoneyOne that’s not. Well we can say micron. Micron. Again, we’ve been shifting profits. That’s not but again, their earnings, it was almost like the video a few years ago where the earnings and the guidance were just parabolic. And, micron is still trading at a four PE around 15, even with their growth rate.

Caroline WoodsWhere do international stocks fit into this portfolio if at all?

Ken MahoneyNone though we can we get that through our companies, US companies that are all around the world in U.S. dollars. That’s what we like about it.

Caroline WoodsWhat’s the one position you’d be adding to on weakness?

Ken MahoneyGoing back to Apple, GMV, Veritas, the RT.

Caroline WoodsWhat’s the biggest risk to this portfolio?

Ken MahoneyI think like anything else, a higher interest rates, higher inflation, you know, that, you know, I think that from the top down that hit every sector should that should that range, it’s like we have higher inflation translating to higher interest rates, more competition stocks.

Caroline WoodsAll right. Great. And now time to pivot to our rapid fire game of this or that. More quick questions more quick answers. Are you ready Ken I’m ready. All right. Here we go. Stocks by year end. Higher or lower from here.

Ken MahoneyHigher.

Caroline WoodsHow much higher.

Ken MahoneyOh Indexes maybe not 3 to 5%. So we can we like to think this is not a stock market. It’s a market of stocks in that growth. Lean in that less lean. Still 10 to 15% upside.

Caroline WoodsBuy the dip or chase the momentum.

Ken MahoneyBy the day.

Caroline WoodsBuy any pullback or wait for a bigger flesh.

Ken MahoneyYeah. You know, so we, buy the dip looking at the VIX. You know the VIX is also I’m getting kind of panicky. And we pull that back a little bit after that. Change the direction.

Caroline WoodsMega cap tech or the next generation of AI winners.

Ken MahoneySo we have a mixed I would say about three quarters is still in that mega. And about a quarter of the newcomers coming up.

Caroline WoodsName one of the newcomers that you’d buy here first.

Ken MahoneySo again that would be Veritas or GeV, you know, the General Electric spin offs. The there’s there’s so many up and comers, you can buy a basket of them Dram if you really want to get more memory instead of trying to buy individual stocks, ETFs, Dram.

Caroline WoodsI trade overhyped or under hyped.

Ken MahoneyThat’s a tough one because I don’t know the multiples that can come out of this is something we haven’t seen. So I’m going to go with it’s not hyped enough. It really is transformative. It really is a total disruptor. Yeah. So I’ll go with that one.

Caroline WoodsEarly innings or middle innings for I.

Ken MahoneyEarly innings technology wise, and how it could be used for middle innings valuations. Right. That’s not second third inning anymore after Molly start some quadrupled or doubled. So that’s the way we look at it.

Caroline WoodsI infrastructure I software.

Ken MahoneyI infrastructure.

Caroline WoodsOne I software a stock you’d add here.

Ken MahoneyA software stock.

Caroline Woods

Ken MahoneyI would say Google down quite a bit. The Gemini is a really strong AI.

Caroline WoodsOkay. Nvidia or micron. Micron Broadcom or AMD.

Caroline WoodsAMD another non-tech stock you like here. That’s not JPMorgan.

Ken MahoneyMost like Walmart. It’s hard. It’s hard. You know we have some utilities. So Southern Company again the play of both demand and actual demand because of it, because of the data centers.

Caroline WoodsWhat’s one stock investors are sleeping on these days?

Ken MahoneySo I’m sorry, what do you mean by sleeping on.

Caroline WoodsOr just, like, one under the radar play that isn’t getting enough love?

Ken MahoneyI guess that’s Microsoft. I mean, the verticals from cloud to gaming to, you name it. I mean, they have it all. And yet the stock is really stock. We have it also, it’s tough to watch and then meander, especially to some of the parts are greater than the whole. But I think that’s one could be a sleeper of some day we wake up and give them that kudos.

Ken MahoneyThe stock can get going. But again, it’s just it’s tough. It’s a tough stock to hold, I’ll tell you that.

Caroline WoodsBigger market risk geopolitics or valuations.

Ken MahoneyI’m going to go with geo geopolitical concerns because, you know it seems like the earnings are supporting this move. It’s not actually, you know 1,520% earnings growth year over year. So yeah geopolitical. And it’s something probably not on a bingo card like Iran probably wasn’t a bingo card coming into this year.

Caroline WoodsOne word to describe how you’re feeling about the market right now.

Ken MahoneyConsider.

Caroline WoodsKen Mahoney, CEO, Mahoney Asset Management. Thank you so much for your picks and your insights. Really appreciate it.

Ken MahoneyThank you. Thanks for having me.

Caroline WoodsIf you enjoyed this street talk, check out our full interview with Sonali Basak, where she lays out the unloved sector that she think Wall Street should rotate into. It’s not technology.