Caroline Woods
Joining me now with his six stock picks is Will McGough, chief investment officer at Prime Capital Financial. Well, thanks so much for joining us.
Will McGough
Thanks for having me Caroline.
Caroline Woods
So well we’re going stock picking today. But first give me the setup. Is this the market where you want to be putting new money to work right now.
Will McGough
Caroline it’s the question we get us all the time. We’ve got over 200 advisors and 20,000 clients. And everybody’s obviously curious about what the market’s up to. If you think about it, we’ve got really great earnings learning seasons over. So we’re in a period between earnings season where macro is going to drive it. We’ve got oil geopolitics midterm election coming up and rates and the fed obviously you know causing a lot of consternation at the end of the day.
Will McGough
I like to think about the S&P 500 simplistically. There’s only one way to value it. It’s the earnings per share times the price to earnings ratio. And as long as earnings per share goes up, the market should go with it. Without the p e ratio changing. And p e ratio is actually super attractive right now. So I think that’s supportive towards equity markets going forward for the this fall and the rest of this year.
Caroline Woods
So the short answer is yes. Still money to work right here.
Will McGough
Absolutely.
Caroline Woods
What’s the biggest risk that you’re watching right now that could change your tone.
Will McGough
So that’s a great question. There’s all sorts of risk. And it’s really the unknown out there that nobody knows. At this point, I would say you have to think about how trends form. You know, when you get a lot of people talking, a lot of buzz and a lot of headlines with a certain topic, money starts to flow.
Will McGough
And when money starts to flow one way, it has consequences. And right now I think the rate environment, especially the ten year yield hovering around 5%, is a little scary for a lot of folks. If for any reason it starts to push into the mid fives and approaching 6% is when we’re going to start to see the equity markets break.
Will McGough
But you have to put this in context. Higher rates is actually good for a lot of different investors, especially those in or near retirement.
Caroline Woods
Is that when you would start with some fixed income picks though versus stock picks?
Will McGough
So that’s kind of the catch 22 of just being a chief investment officer for a wealth management firm. Fixed income plays a role in a lot of different portfolios for a lot of different reasons, for a lot of different advisors. And so I think it gets back to unique circumstances there of each individual investor. But when you have attractive rates, you mean the ten years, you know, pushing 5% investment grade, high yields, high single digits.
Will McGough
So at some point, if you’re looking at a financial plan and just trying to get, you know, 8 to 12% per year, and you can get a lot of that through the debt markets, it’s more favorable, obviously, to the debt markets. Then you’re taking that allocation away from the equity markets, especially as we’re kind of at some point nearing peak enthusiasm and optimism with regards to equities.
Will McGough
So I do think those conversations are going to be had. A lot of our themes that we’re working on with our advisors as own the rate environment. So what that means is work with clients and go get the easy singles and doubles from the fixed income and debt markets to help get you where you need to be with regards to where clients want to go.
Caroline Woods
Okay, so let’s get into your stock picks right now. First up Nvidia. Obviously it’s not the most unique name on the list, but what convinces you that Nvidia still has more room to run from here.
Will McGough
Yeah. So this one in a sense kind of baffles me to some reason. Caroline. It’s the number one spot from a market cap standpoint in the world. It’s the largest and it’s undervalued relative to the market on the PE ratio. And so I think that’s very attractive. You know when you’ve got Nvidia at the epicenter of everything I from GPUs, CPUs, the build outs, I’ve got a good friend in the industry that’s now using the term DOJ, which most people think of Bank of Japan as the Bank of Jensen.
Will McGough
And here you have Jensen. If you listen to his last earnings call, he essentially was saying his free cash flow and Nvidia’s cash flow is going to get better next year because they’re making all sorts of investments this year. Where is he making investments? Startups, private companies. So to me, if you have the top CEO with regards to the number one slot, from a market cap standpoint out there, investing in private markets, access is the new alpha.
Will McGough
And, you know, some investors can get access to private markets for, you know, their portfolios, but you don’t necessarily need that in this day and age when you have, again, Nvidia out there giving you access to private markets from all the startups and, acquisitions are making to help insulate themselves in the build out. The other thing I like about what Nvidia is doing is they’re pretty apolitical with regards to frontier models versus open language models, which is important to me because a lot of big companies right now are having good reason to look at cybersecurity information.
Will McGough
Data sharing policies and open source models help alleviate some of that to some degree.
Caroline Woods
Okay. All right. Next up on your list, Taiwan Semiconductor. More impressive year to date and one year chart than Nvidia. But still room to run there.
Will McGough
Yeah with TSM I think it really hits kind of more of our broad macro thesis. If you think about investing in this day and age. It’s really I or not. TSM is obviously not an American company. It’s overseas. It’s actually in an emerging market, definition through Korea and Iran, through Taiwan as well. And so I think when you look at investing this day and age from an asset allocation standpoint, you need to shed the labels.
Will McGough
What’s growth is becoming value. Let’s developed market does could be in an emerging market. And so you really need to look to build portfolios across the labels. A third of emerging market is TSM, SK Hynix and Samsung. Most people think of emerging markets as commodity producing economies and country as well. AI is a third of emerging markets right now.
Will McGough
And so I think if you’re going to have a prudent portfolio of an asset allocation standpoint, you got to go straight to the epicenter of, who’s manufacturing all these chips. It’s TSM. TSM is also an international company in an emerging market definition. So we like TSM for a lot of different reasons. But the most is that if you’re just an American investor, unless you’re one through an ETF, you’re not usually getting access or having allocations to the like of TSM.
Will McGough
But again, so again, it’s the manufacturer of all the, GPUs, processors and chips, which we like, and don’t see any reason that they’re not going to start manufacturing all the important components that I build out.
Caroline Woods
What’s the biggest risk to the TSMC story.
Will McGough
So it’s the geopolitics. International tailwinds like dollar plays a big role, in my opinion. You also have to think that at some point, I mean, I just mentioned the Nvidia and their free cash flow getting better, which means they’re doing less investing next year as relative to this year, you know, at some point the build out is going to get to the point to where it’s just going to flatline right now.
Will McGough
One hyperscalers negative free cash flow is semiconductors manufacturing GPU hardware data. You know all the infrastructure that surrounds Ise positive gain there. And so again we’re watching kind of the CapEx number has been a big fan of like you need to earn the hyperscalers and the memory hardware names side by side. A lot of people try to do an either or standpoint there.
Will McGough
And again, I think in this rising environment of all the yields going up, you see them ebb and flow like semiconductors was hyperscalers performance Yang’s and Yang’s again as an asset allocator for financial advisors and wealth management practice. It’s about having exposure to both, not necessarily choosing one or the other.
Caroline Woods
Okay. All right. Third on your list is another tech name AMD an even bigger winner, up to over 180% year to date. Why aren’t investors too late to this name at this point?
Will McGough
AMD is an interesting one here, and it’s really perked up. And you asked for five stocks originally, and I kind of did a three for two with these three names here. Just because I had trouble picking one where we looked at Nvidia and then TSM as a manufacturer. So Nvidia does GPUs. They also do CPUs to some degree.
Will McGough
One of our advisors used to work at Circuit City back in the day. So he was able to explain to me the difference between GPUs and CPUs. But if you think about hyperscalers before I it was cloud. That’s pretty much GPUs. And AMD is the semiconductor name that is more predominantly built out in that space. The reason AMD has perked up now after its huge run, like you just mentioned, of a 180% is the news out of Facebook with news.
Will McGough
And so you start to run agents. They’re going to need CPU to be run to be run themselves on. And I think that’s where AMD comes in and helping the hyperscalers and their cloud and kind of getting like, we’re winding the clock back a couple of years to where cloud infrastructure was the name of the game that doesn’t necessarily compute and GPU horsepower for AI.
Caroline Woods
Okay, so you talked about how much it’s run, though, especially just in September alone up double digits, not too late. At this point. You have to wait for a pullback to get in.
Will McGough
If you’re trying to time it tactically, I mean, maybe you wait a little bit to see if it cools off to some degree. But again, if we would have played this, should we wait for the find the perfect entry point? We’ve been I’ve been waiting on 108% run to the upside. So again, I think it’s all about again, prudent asset allocation.
Will McGough
You’re going to get exposure to these names being a passive investor. And you can look at certain ETFs like semiconductors or, you know, memory ETFs to kind of help get more targeted exposure there. But if you’re investing for the long run I still think the I will build out mid innings. So a lot of runway left for. And if it like with anything else in this you know all of this massive amount of money following it, there’s going to be volatility.
Will McGough
And if you can’t stomach the volatility then maybe you shouldn’t be an investor here. But if you want to participate in long term growth AMD is a great way to go about it. Sure, it may get things up a little bit in the short term, but over the long term we like it.
Caroline Woods
Okay, so as we think about what leads the market between now and year end and even thinking into next year based on the fact that three of your top picks are tech stocks, safe to say that you think it’s going to be tech that leads us higher?
Will McGough
Yeah, I would say for sure tech it’s going to lead the trend higher. We had a market environment that’s been really healthy. Threats have been really good for the mid part of the year. Everything except magic seven and tech made new highs over the summer. So that just goes to show you the old adage that, you know, the market’s going to rebalance for you and you don’t have to do much in the rotation.
Will McGough
Underneath the hood is a good thing. But if we think about really the market since global financial crisis, it’s been a tech led market for good reason. We’re a tech service economy here in the States. We have the best people, the best infrastructure for that to happen. And so tech joining the train and making new highs is just going to broaden the market out even more.
Will McGough
When you have everything else working as well. And again, until we start to see earnings revisions, just call it flatline. Not necessarily go down. The momentum of the trade is still to the upside. It will come a point in time where the market has to adjust and, you know, consume all of this earnings growth. But that time is not yet.
Will McGough
We just don’t know. Nobody knows when it’s in the future. There’s no crystal ball and investing unfortunately. But you know we are watching for signs for that. And do you like to be continued invested in all things technology. You know, for the for the short to intermediate term.
Caroline Woods
Okay. And the first sign that you would look for is just not earnings.
Will McGough
Revisions earnings growth. Right. Yeah. So earnings have been growing astronomically well well above you know any historical norms. If you look at the last the last earnings season year over year was like 50% earnings growth. Now there is some weird numerology behind those numbers. You got a lot of tariff refunds. And there you had companies like Google that were invested in space helping their earnings grow.
Will McGough
So I think when you back out all the kind of the weird nuance, you were still looking at a 30% ish earnings growth year over year, which is phenomenal. I mean, no change in the price to earnings ratio means that the S&P should fall about 30%. P e ratio is actually come in a little bit. We started the year like 23 price to p e ratio.
Will McGough
We’re down to like 19. Now a lot of people say historical norms like 1617, 18. I would say in this day and age, 19 is probably your historical norm. If we’re looking back, you know, 20 years from now to this point in time. So I think if a fairly valued market and earnings growing and let’s not forget the government still continuing to print massive amounts of money, that money has to go somewhere.
Will McGough
A lot of it goes into things including risk assets. So a couple of big factors at play. Don’t overthink it. When there’s a lot of liquidity, a lot of money sloshing around, it’s going to cause prices to go higher. You know, kind of even the taboo words of inflation in this day and age, it’s going higher because of real growth.
Will McGough
Right? So it’s, you know, when things are growing, you need to be growing your portfolio. You’re going to get left behind.
Caroline Woods
Okay. Let’s get back to your picks. Next up, not an eye stock necessarily, but certainly connected to the I trade that’s Eaton. Eaton also having a good year to date so far. Kind of a power play. Talk to us about what the opportunity is there and why Eaton versus averted say.
Will McGough
Yeah. So I mean, our analysts and portfolio managers in Overland Park, like Eaton for good reason. We just feel it has a little bit more insularity around specifically part of the I build out here. We in our stock portfolios, we own Eaton. We’re also a big fan of an ETF called Zap zap. So you can think of a lot of these is like somewhere in between an energy company and a utility company.
Will McGough
And they both kind of have the old mantra of like just kind of a slog of a growth. Call it like 8 to 10% per year. So they’re not going to really do much historically. But you throw in all of this CapEx and data center buildout, no surprise they got to be powered. And, Eaton is our play for the, power angle here as well.
Will McGough
And so again, we like Eaton broader just the whole theme through an ETF. And, you know, I don’t necessarily want to kind of get into like either or here, but, you know, again, it’s just, if you’re looking for a stock Eaton, what we like, otherwise the ETF zap, is a great way to add a broader exposure to the same.
Caroline Woods
Okay, shifting gears a bit, J.P. Morgan is on your list. That’s, I guess, pretty much the the weakest performer of the bunch, only up about 5% year to date. Is that a way to play defense? Is that a way to play the higher rates? What is it for J.P. Morgan.
Will McGough
Go on. So like we do get to do a lot of client events. And oddly enough, one of the most questions we get asked a good debt is from clients. How do we diversify away from AI? And you have to just think about just normal, average, everyday people. It almost seems too good to be true. Like AI is taking over jobs, it’s making everybody more efficient and it’s causing gas prices to go up and electrical bills to go up from data center buildout.
Will McGough
So there’s actually a little bit of what I would say, like a negative sentiment around AI. And so we could ask as portfolio builders, how do I diversify away from it. It’s actually harder than you would think because AI is touching everything. And so even JP Morgan, is one of those names. But you can also look at like the GLP one stocks as well as so with financials, it’s really of course JP Morgan Goldman Sachs.
Will McGough
So they have some AI embedded. Play it because they’re using a lot of AI. We do a lot of work with JP Morgan and see it. But ultimately in this rate environment where rates are higher and going higher with the fed, having raised rates recently, you have to look at the financials, I think is the way to diversify away from AI because higher rates are more beneficial to their overall business, get more spreads on their loans, they have more opportunity to use their balance sheet, to do different things with some of the like these mega financials, they have asset management arms that they’re participating in, the market growth, access to private markets,
Will McGough
private banking, you name it, they do it. And let’s not forget the IPO market with investment banking as well. It’s pretty hot right now too. So again, you got to go with the best of breed here, which kind of comes down to Goldman Sachs and JP Morgan. We just like JP Morgan a little bit better. Should we do on both of them.
Will McGough
So I would go with financials here also an ETF to play this theme as well. It’s more of a sector not necessarily a theme. But again, if you’re looking for ways to diversify away from AI, financials are a good option here.
Caroline Woods
Although interestingly enough we recently saw financials get hit because of Meta’s new AI agent muse and the concerns that it will disrupt the financial services industry. Probably not what you want to hear as a wealth manager, but are you concerned that in the same way that we saw software sort of get hit because of what I could do to that, that it could also disrupt the financial services industry?
Will McGough
Yeah, I mean, we took the view on software earlier this year. Is anthropic and cloud really going to cause all these fortune 500 companies to build their own CRM and get rid of Salesforce? Just just like there is in software, there’s winners and losers. There is software that’s ripe to be replaced by I, and their software that’s ripe to be enhanced by, with the financials and muse.
Will McGough
I mean, sure. Do we end up in an environment where muse could, you know, take over a lot of what JP morgan’s doing? Maybe. But what’s the more likely scenario here is that JP Morgan is going to have their own agent slash whatever they call their muse, that does the JP Morgan things for you. And we’re going to end up in a day where everybody’s got tons of AI assistants and like a master assistant, but now we’re kind of get really down the rabbit hole here.
Will McGough
So I’m not too worried about where, where it’s going to go other than I is going to make all of our lives that way more efficient, way more productive, which is going to feed into real GDP growth. If we can just kind of maybe get the government to stop spending so much money, inflation can come down. And then, you know, all of that nominal GDP growth turns into real GDP growth, which is how we get our way out of the debt problem that we have.
Caroline Woods
Okay. Your last pick is not a tech play, but I want to squeeze a little more out of you before we get to that. If you had to give us a software play that you don’t fear will be disrupted by AI. And that looks attractive here. What is it?
Will McGough
That’s a tough one. You know, I do like what Salesforce is doing, and they basically are getting closer to eye than otherwise. We also see it in our industry because we’re wealth management, a lot of fintech. And what’s interesting to me is Claude is basically just creating MSPs to all of these fintech companies, which have APIs. So I’m more concerned about the data sharing here.
Will McGough
Software, I think is, you know, I could probably tell you the ones I would not recommend here. Like we’re not big fans of Adobe. For good reason. Anybody that uses a lot of PowerPoints and tries to make stuff in Adobe just knows how clunky it is. And so I think it’s the software companies that are willing to work with.
Will McGough
I like Salesforce that are more poised to go better versus like an Adobe or like a Figma is more ripe to be replaced, like I do with regards to, you know, a lot of the work that they can do from a design standpoint. So again, this, software is going to have winners and losers. The market will sort that out for you.
Will McGough
So even if you’re in the ETF, the winners will have more of a wait than the losers. Just by you know, how market cap weightings work. And so, again, I think also more importantly, as we watched in January, software rewrite from growth, the values of their price to earnings ratios came down. And we’re starting to see that a little bit with the hyperscalers now too.
Will McGough
If you look at large cut value indices, they’re littered with mag seven names, which makes sense to me. So if you think about lots of growth going forward, it’s space is anthropic when it comes online as OpenAI when it comes public, Databricks when it comes public. So I think a lot of folks need to start rethinking what these old school definitions and growth and value are.
Will McGough
And that’s what actually an area we’re working again with our advisors on the shedding the labels. Like we don’t need to call stuff growth and are you. And when we build portfolios we need to think about like what’s the underlying stock exposure. So we like to keep things core and then go into certain growth or value names based upon what they are.
Will McGough
Think like I we’re like a dividends versus what somebody is going to call a growth in value. So again we saw that the software earlier this year, you know, probably going to be a value play going forward. But if you’re looking at value would you rather be in Adobe, Salesforce or JNJ and Walmart and Procter Gamble? I would argue that.
Caroline Woods
Your response would be okay. Yeah. All right. And finally, your last your sixth pick, which I haven’t been actually keeping track, but I feel like this is a top pick for so many people that we bring on. That’s Eli Lilly and it’s actually underperforming in the market year to date. So when do we see for being such a top pick.
Caroline Woods
When do we start to see that reflected in the stock price? I shouldn’t say I’m forgetting basis. It’s doing a lot.
Will McGough
Yeah yeah totally. Year to date. Yeah. And for good reason that everybody’s picked because if you look at the top ten S&P 500 stocks by market cap is really the only non-tech name in there which is quite amazing. And the thesis is again keep things simple like what’s going to cause Lily to go higher. It’s the GLP one that are helping, you know, make America healthier again.
Will McGough
So I think you have to look at things again. These are megatrends in my opinion. There’s a lot of money flowing, a lot of users into the GLP ones. So you have to look at the producers and manufacturers of those, drugs, which is Eli Lilly. So we we think it comes online at some point. And then some of the issues you have to watch here is, again, more healthcare related, a lot of government regulation, you know, pharmacy pricing, you know, a lot of negative investor, you know, basic average person sentiment on health care prices going higher and continuing to go higher.
Will McGough
And so I think that’s, you know, for being a top ten stock, it’s the only one that’s not tangentially related to eye. If you’re trying to track and build portfolios according to the S&P 500, you should certainly have Eli Lilly in your allocation.
Caroline Woods
Okay. All right. I think this is a great time to pivot and go to our rapid fire portion. This is going to be quick questions quick answers. No hedging based on your picks. Are you ready.
Will McGough
Yeah I’ll try.
Caroline Woods
All right. Here we go. If you could only own one of these stocks for the next five years, which one is it.
Will McGough
Go in Nvidia just based on multiples today it’s got a lot of name written in.
Caroline Woods
Which name which should cut from the list first.
Will McGough
AMD what’s the most overvalued stock on the list? AMD what’s the most undervalued?
Will McGough
I would go with JPMorgan here.
Caroline Woods
If we see a bigger pullback, which is the first name you’d buy.
Will McGough
I’m going to go in video.
Caroline Woods
Which stock on the list doubles first.
Will McGough
Again I’m going to go all in on number one. Here is Nvidia for good reason.
Caroline Woods
What’s the most resilient name if the economy slows.
Will McGough
Our economy start slow and health care probably the best. So I would think Eli Lilly.
Caroline Woods
Which name has the biggest competitive advantage over its rivals?
Will McGough
I would say none of them.
Caroline Woods
JPMorgan or Eli Lilly for diversification.
Will McGough
Eli Lilly.
Caroline Woods
Public markets or private markets for the next five years.
Will McGough
If you get private market right, and what you allocate to I’m going to go private.
Caroline Woods
What’s the biggest risks to all six of these picks?
Will McGough
Out of control rate market.
Caroline Woods
If I gave you $10,000 and these are the only six stocks you can own, which name gets the most money? Which name gets the least?
Will McGough
One? Yeah. I would given video of the most.
Will McGough
And probably AMD the least.
Caroline Woods
Let’s make it seven. Even though we asked for five and you brought six, we want one more. What stock did you leave off the list?
Will McGough
That’s a great question. I’d probably go with,
Will McGough
With a tick tock tick.
Will McGough
I’m gonna go with Apple.
Caroline Woods
And finally, just to go back to your market, view stocks by year end the S&P 500 by year end higher or lower.
Will McGough
I think we end up marginally higher.
Caroline Woods
All right. We’ll leave it there. Will McGough, chief investment officer at Prime Capital Financial thanks for playing by the rules and thanks for all of your picks and your insights. We really appreciate it.
Will McGough
Yeah, thanks for having fun.
Caroline Woods
Will says the S&P 500 will be marginally higher. Rich Ross says the S&P 500 will be at 8300 by year end. Check out a history talk here.
