Transcript:
Caroline Woods:
Joining me now, Ken Mahoney, CEO of Mahoney Asset Management. Ken, great to have you back. Thanks so much for being here.
Ken Mahoney:
I love being here. I’ve got lots of talk about.
Caroline Woods:
We certainly do, including the upcoming fed meeting. All eyes on that of course. And the market is getting more uncertain of a rate hike. Ken, does a rate hike kill the rally? Though?
Ken Mahoney:
It might not. You know, maybe hitting the brakes a little bit is a good thing. You know, you go back to 2021 and again, it sounds like ancient history, but in 2021 we kept on here transitory, transitory. And maybe in 22 we tap the brakes a little bit and did a quarter, a quarter. Maybe when you get into that mess where we had a raise, some five basis points for meetings in a row.
Ken Mahoney:
So maybe this is what the like the market. The yield curve looks like it’s expecting a quarter. The betting markets look like it. And for credibility purposes you know one of the first things that the new fed chair said is that 2% inflation target. That’s a real target. They have low you know, numbers that we saw on Friday don’t necessarily add up to that because we’re still going further away from that 2% target.
Ken Mahoney:
So I think for all those reasons we will see a rate hike. And I’m not sure the market’s going to sell off sharply. I think it’s starting to price this in.
Caroline Woods:
If we did see a reaction though would you be buying any pullback or would you be waiting to see what comes next.
Ken Mahoney:
That’s a really good question. I mean we’re just. Most of the time we’re buying tactically, you know, putting a bit below the market on an index or perhaps the stock. So again, if there’s a big push down. Yeah we’re set. We’ve been raising cash. We don’t have bonds. Most of our portfolios depends on the kind of course it’s about two thirds equities one third in cash.
Ken Mahoney:
So we do welcome with within its own framework that you know catastrophic drop. We would like that. But definitely by the dip we’re into that theory that we’re going to be getting gains really for remainder of the year through alpha so to speak. Through that of actually seeing, you know, those tactical ways, getting into a stock, you know, averaging into a little bit.
Ken Mahoney:
And I guess that would be a welcome event, post Wednesdays meeting.
Caroline Woods:
Explain this idea of buying below the market. How does the everyday retail investor buy below the market?
Ken Mahoney:
Right. So let’s say Apple is trading at about 330 or so. It’s kind of it’s one of our keepers. We’ll talk about that in a bit. But you could buy some at 320, maybe buy some 300. Some are 290. I think the investors get really messed up and have big draw downs is that, you know, they go in one, one price.
Ken Mahoney:
So it’s Microsoft all in at $5 a share and that leaving more room tactically to put some prices below the market. Go often. You know, golf, play mahjong play pickleball, enjoy your day and come back. You make it filled. And conversely, since we have volatility, we might as well make volatility your friend, right? We might as well.
Ken Mahoney:
Pulitzer Prize below the market on your favorite stocks. And once you get filled there’s nothing wrong. You know putting some offers out there. Well play golf mahjong do those type of things and find that you may get filled that way as well. So the choppiness at this point, we’re embracing it. Of course, we rather have a nice trend going higher.
Ken Mahoney:
Right? All of us would like that. But we’re in this chop chop, chop mode. The best way we feel to take advantage of it is that tactical approach.
Caroline Woods:
So you were bullish but cautious when we spoke in June. How are you feeling now given that we’ve been seeing some of that chop chop as you call it?
Ken Mahoney:
You know, look, we look at it so many different ways. Somebody different angle. I’m actually sitting here thinking pretty resilient. I mean considering we said beginning of the year this campaign and I ran, it’s not going to be weeks. It’s going to be running into the months with no end in sight. We’re going to the Federal Reserve again, push the how to raise rates because, you know, inherited more inflation than the target.
Ken Mahoney:
And the S&P 500, about two and a half, 3% from its all time high. Now underneath it, by the way, the the breadth have been pretty ugly. You know the events the long lines not been strong but the think the market’s been if you look at it this way, the market’s been pretty resilient considering everything that’s been thrown out.
Ken Mahoney:
So bullish cautious bullish. So yes. So the same definition of the bulls right. Yeah. Still bullish here.
Caroline Woods:
Okay. But back in early June I think it was what a third of your portfolio was sitting in cash. You had a lot of cash on hand. Did you put that cash to work over the summer. What does that number look like now.
Ken Mahoney:
Yeah we’re almost not there. We only put a few percent. Yeah. We we didn’t really get a bit worse down. You know, we had some challenging days, some challenging weeks, but we didn’t have, like, anything worse down. I mean, look, we’re in that we’re in this seasonality period September and October. You know, that’s why we’re still holding on to cash.
Ken Mahoney:
It seems like in market cycles, October turns out to be the lull in from midterm elections. The uncertainty about that or perhaps uncertainty about that, may come into play as well. So we really haven’t moved too much out of cash into stocks. It just hasn’t been this big reset, a big downturn. But we’re ready in October or sooner.
Ken Mahoney:
So that happened because we know the cycles typically fall the lows in October and hopefully we have better opportunities. Are fatter pensions they call it. No, it’s not that just the not.
Caroline Woods:
So what’s the signal though. What are you actually waiting for before you deploy more of that cash? What would make you say, okay, I want to buy here.
Ken Mahoney:
Right. I think the Federal Reserve raising rates and the market digesting it. I think that’s important. Test. Sometimes you just want to sit out a little bit. You know, we’re we’re we’re not fully invested. We’re still investments. The whole home team wins. You know album stocks do well. So I think one one would be the Wednesday’s meeting, it seems like a foregone conclusion.
Ken Mahoney:
They’re going to raise rates and see what the reaction is. Not that day. It’s usually a couple of days. Right. We’ve seen sometimes counter reactions on the day of the Federal Reserve announcement, and the next day unwind it the other way. So a couple days after that would get us think, well, you know, I think the market really has digested this storm.
Ken Mahoney:
Seeing oil come down a bit would be another factor, a major factor.
Ken Mahoney:
Happy with the earnings there. And now it’s about, you know, put the index maybe 3 or 4 or 5% below the market, maybe get filled in a couple of days. But, you know, I think also we have more confidence should we be able to get through this period of time. It’s a pretty volatile period of time between Iran, higher rates and the midterm elections all in the next six weeks or so.
Caroline Woods:
But there are the, the people that come on. And when I say do you buy here, do you wait for lower. They say well you can’t time the market. So you’re better to put the money in now and not risk missing any sort of more upside. But you would say it’s better to kind of sit in cash and wait for this to shake out.
Ken Mahoney:
Yeah. Like what you said about 30% of cash, nothing in bonds allocated and 70% stocks. And look, every has a different flavor on this and how to do it. Like we’re still long term bulls. You know we’re zero in stocks. If we really were that bearish with what’s happening again the plus side again we know that. We know the headwinds and headwinds are well documented.
Ken Mahoney:
I start feeling that sometimes, investors like when I trade, which was April May, that became a crowded trade. Right. Everybody’s on one side of the ship. I also think shorting this market is also akin to that, which is kind of overcrowded as well. So we recognize that, again, it’s nice that money, but we also know that this can take off very quickly.
Ken Mahoney:
So we’re mindful that. But I guess since we’re already invested, it gives us confidence that we can put more chips on the table when there’s a higher degree of confidence that we got over these big hurdles that the market’s been, dealing with.
Caroline Woods:
Okay. Certainly fair. Let’s talk about some of the names that you do like here. Apple is still one of your top picks. And it’s not too far from the highs right now. Why do you still like Apple.
Ken Mahoney:
Yeah I mean can you even double down on Apple in the way they’re doing. Things are 2.5 billion devices out there. That’s a lot. I think Planet Earth has 7 or 8 billion habitants. There’s just you know, you can really monetize that. Right. And also I think they’ve done a good job with this. I, you know, they kind of set out they weren’t the first movers like Amazon, Google, Microsoft, the hyperscalers spending $200 billion a year.
Ken Mahoney:
They’ve kept the balance sheet pretty clean. They haven’t been jumping. Again. Some people are frustrated that they haven’t not been enough innovation. But Tim Cook, I don’t think gets enough praise. I know, the how to change the leadership there. But the last 15 years is the average 20% per year under. Again, no one thought they could replace Steve Jobs.
Ken Mahoney:
But that’s that’s pretty good. So anyway, 2.5 billion, devices out there. And again, the new products that consumers want, I know that, the new product launch wasn’t huge and people are so excited becomes the holiday period. I think that’s that’s where you going to start seeing some some more demand and and so hey we’re going to learn a lot about elasticity.
Ken Mahoney:
How much can you raise prices without demand waning. What we’re going to watch study of the last definitely of demand.
Caroline Woods:
All right I know you also like Microsoft, but you say to buy that one on a pullback. So what level are you looking for to add new money to Microsoft.
Ken Mahoney:
Yeah. Nothing crazy. Maybe 20 points 25 points lower. The one thing you have to look at Microsoft. You know, for some time software companies are kind of galvanized and crushed on the market. And Microsoft did two took a trip below $4 a share. But all right, there was a software company there, an eye company. So you can’t count them out with but they have they also have Azure which is their cloud.
Ken Mahoney:
And you know, when you have 1.1 billion licenses out there like Apple with that wide moat, you can really monetize it. So I think Microsoft, you know, it’s got some time to make up. Do you again trading well since its last earnings but a couple earnings ago the stock has hit hard. Software stocks get hit hard and relative speaking for PE in the mid 20s not not again it’s not that expensive.
Caroline Woods:
And then Nvidia too. Would you buy Nvidia at today’s price.
Ken Mahoney:
Yes. We were yes we weren’t in any pullback. I guess people are bored and they’re trying to fund in next one. But there’s not a company out there that’s doing the doing. I mean they are forecasting through 2028. You’re looking at 80% growth rates. And it’s £0.04. Yeah. We don’t like these. That’s backwards looking rearview mirror.
Ken Mahoney:
But forward PE is 25. Historically it’s anywhere from 30 to 35 for Nvidia. So again we look at stocks whether cheap or not cheap. You know there’s a lot of debate about that. But the for PE right now. Well and a growth rate of 80% and a backlog and visibility to 2028. Yeah to us Nvidia Apple Microsoft the three strongest right now we believe the three strongest leaders most because of what they’ve done okay.
Caroline Woods:
So if you could only add money to one of those names Apple Microsoft or Nvidia which gets your money first.
Ken Mahoney:
I think I’ll go to Apple. Apple. So I think there’s a lot of modernization, through AI, more connectivity with these new products, along with the Mac and the ecosystem they have, I think I think Apple has a lot of upside.
Caroline Woods:
So all three of those topics that you brought to us are, of course, magic seven names. Does that mean that tech is still where you want to be in this market?
Ken Mahoney:
I think so, I think so because of these wide moats I mentioned. You know, you hear different stories when the second inning of AI, they’re in the fourth inning of AI. Who exactly knows? But these are your leaders. These are what they mean. Microsoft and other verticals they have. I mean, how they can go to a customer and quick add add ons, $25 for your copilot, $25 for this.
Ken Mahoney:
And and then multiply by building, you know, and Apple with 2.5 billion, you know, an extra $5 a month, $10 a month per user. You know, these are some, some, some huge points to be able to leverage. So, you know, we like these big companies, hey, they may not grow like a small cap start going up 50% given year.
Ken Mahoney:
We get it. But we can we buy right. We buy tactically the low the market, sell some into rallies, keep a core holding. I think investors I don’t think there’s any other place as compelling as those names.
Caroline Woods:
Where else are you finding opportunities outside of tech, though?
Ken Mahoney:
Yeah, we don’t have a long list and that could work. Wealth managers, one area that we have not invested in yet, and we’re really trying to sink her teeth into it was Merck, American Moderna. That was just an amazing announcement in the area of skin cancer. We had that with my and her family, and it was just awful to see her what she went through.
Ken Mahoney:
Well, and now there’s a phase three that got through. I also think the portfolio pipeline from Merck and some others now to be reevaluated to the upside, the I of crunching numbers and picking up designs, and picking out, how these, trials will be set up. You know, that could be the big win for AI.
Ken Mahoney:
Everything in data centers, robotics, cloud. But that announcement of now going back 2 or 3 weeks ago, it is really insane how many people that can help around the world getting money behind that. It’s been pretty volatile since the announcement. We hope it settles down a little bit. But again, we’re growth managers, but we also could see growth in pharmaceutical vs EV.
Ken Mahoney:
All the technology that goes into making these, making these drugs.
Caroline Woods:
Okay. So waiting to sink your teeth into it means you’re waiting for it to get cheaper before you actually take a bite.
Ken Mahoney:
Right? Right.
Caroline Woods:
Okay. So like, all right, I think this is a great time to pivot to our rapid fire game of this or that you’ve played before. We do quick questions, quick answers. No hedging if you can help it. Are you ready Ken okay.
Ken Mahoney:
I’m ready to hatch now. I’m ready. Yes I’m ready.
Caroline Woods:
All right. Here we go. Fall market choppy or trending higher.
Ken Mahoney:
Trending higher.
Caroline Woods:
Fed hike. Rally killer or buying opportunity?
Ken Mahoney:
Buying opportunity.
Caroline Woods:
One hike or multiple hikes. Multiple hikes $100 oil. Temporary problem or lasting headwind? Temporary ten year near 5%. Buy stocks or buy bonds.
Ken Mahoney:
Move stocks. No bonds.
Caroline Woods:
Cash. Right now. Offense or dead money.
Ken Mahoney:
Offense will be offense oil.
Caroline Woods:
Oil and rates. Risks or noise.
Ken Mahoney:
I’m sorry. Sad question.
Caroline Woods:
Oil and rates are those risks or noise risks?
Caroline Woods:
If we see a 3% pullback buy or wait.
Ken Mahoney:
Be nimble by a little bit. Yeah. Buy incrementally.
Caroline Woods:
So 5% pullback back up the truck or still be patient.
Ken Mahoney:
By incrementally be patient.
Caroline Woods:
When do you back up the truck.
Ken Mahoney:
You’re closer to a 10% decline. You know 10 to 12% decline.
Caroline Woods:
Okay Microsoft or Nvidia.
Ken Mahoney:
Oh my gosh love them both is like you know two sons and say who do you love more. Microsoft.
Caroline Woods:
Nvidia or the S&P 500.
Ken Mahoney:
Nvidia.
Caroline Woods:
Meg seven or everything else.
Ken Mahoney:
Nine seven.
Caroline Woods:
Okay. So playing off your Microsoft Call AI software or AI infrastructure.
Ken Mahoney:
Come on I infrastructure.
Caroline Woods:
Best non-tech play in the market right now.
Ken Mahoney:
Pharmaceuticals.
Caroline Woods:
One stock you’d avoid right now.
Ken Mahoney:
Macy’s, Nike, those type of companies.
Caroline Woods:
Because the consumer is resilient or cracking times cracking.
Ken Mahoney:
And again all the ways.
Caroline Woods:
One consumer stock you would buy right now that’s not Apple.
Ken Mahoney:
I was in Seattle. It’s not fair. So gosh. I don’t know. It’s just an apple minded, because that’s that’s the ultimate consumer product.
Caroline Woods:
Good stocks by year end, higher or lower.
Ken Mahoney:
They’re from higher.
Caroline Woods:
How much higher?
Ken Mahoney:
In the next 3 to 5%.
Caroline Woods:
And finish this sentence I’d get aggressive on a pullback when.
Ken Mahoney:
The rate hikes the rate, the first rate hike is behind us.
Caroline Woods:
Ken Mahoney CEO, Mahoney Asset Management thanks so much for joining us and for playing along. Really appreciate it. Great to see you.
Ken Mahoney:
All right.
Caroline Woods:
Thank you. If you enjoy this street talk check out our full interview with Justin Bergner. He says a larger market pullback may be justified and explains how he’s getting modestly defensive.
