Transcript:
Caroline Woods
Joining me now, Kevin Mahn, president and CEO of Hennion and Walsh Asset Management. Kevin, back by popular demand. Great to have you. Thanks so much for being here. Thank you for. Normally we don’t bring people back two weeks later, but you’re a fan favorite. And we actually got a lot of audience questions for you. So I will bring those in.
Caroline Woods
So stay tuned for those. But first we have the Nasdaq hitting another record. Tech is absolutely ripping this week. And that’s happening as we have oil still above 90. We have the ten year flirting with 5%. And we have the fed that’s potentially not done hiking rates. Is this market even stronger than you a bull you know we’re expecting.
Kevin Mahn
I would say yes because investors continue to climb that proverbial wall of worry, whether it’s escalating tensions between the U.S. and Iran. The hope that the Strait of Hormuz will open again, the hope that oil prices will start to come down and stay below, hopefully $90 a barrel below $80 a barrel. And of course, what is the Federal Reserve going to do next?
Kevin Mahn
I think we may look back, Caroline, two weeks, two months from now and realize that what the Federal Reserve did last week was a mistake. I recognize that was a credibility hike. 90% of the market thought they should raise interest rates. But I still question what’s a 25 basis point rate hike going to do to open the Strait of Hormuz?
Kevin Mahn
What is a 25 basis point rate hike going to do to lower oil prices? And if the fed is so concerned about energy induced inflation, why is there forecast for a core CPI, their preferred inflation gauge coming down to 2.5% next year, not because of more rate hikes, but perhaps they believe that inflationary pressures will continue to moderate.
Kevin Mahn
So why rate wiser is right now.
Caroline Woods
So in two weeks or two months if we decide that that was a mistake, what does pricing in that mistake look like for this market?
Kevin Mahn
I think in all likelihood, and remember that the fed did update their dot plot chart. Everyone thought that went away when Kevin Warsh took over. But they’re still issuing it. Kevin worships and supplying it that, but they’re still issuing it. As it stands right now, the fed is not forecasting any additional rate hikes next year and no cuts next year either.
Kevin Mahn
However, they are forecasting cuts in 2028 and 2029. So if in fact, after the midterms this trade opens, oil prices come down, inflation moderates. We may see one of those rate cuts pulled forward into the beginning stages of next year. The markets are not pricing that in yet, but once they do that’s another tailwind.
Caroline Woods
Okay. So you were actually calling for some short term volatility or that weakness heading into that rate hike mostly because of midterms. Not correct the actual hike to still expect. What should we be prepared for, especially now that we’ve run even further?
Kevin Mahn
Yeah, the fact that we’ve run further, the fact that in all likelihood, the fed may raise interest rates at the end of October and may raise interest rates again in December. I don’t believe that they should, but they may in certain areas of the markets are pricing that in. But it’s interesting when you look at the bond markets right now, they believe that the ten year Treasury is going to come back significantly by year end.
Kevin Mahn
So that tells me that that ten year Treasury is a buying opportunity right now because as yields come down, prices go up. So I think that’s a tremendous opportunity for investors to consider. We always talk about stocks when I’m on and rightly so. There’s tremendous growth opportunities that still exist in the stock market. But there’s also now opportunities in the bond market.
Kevin Mahn
But don’t think that those days of volatility behind us, they’re likely to come back and return again once escalation tensions come back again in Iran. And of course, not knowing what’s going to happen in the midterm elections.
Caroline Woods
So if we fast forward to this or that and I said stocks or bonds right now, you’d say.
Kevin Mahn
For growth or income opportunities. Both. Yeah, I would say I’d overweight stocks, but I still would have bonds in the portfolio. If you’re looking for income, of course, bonds if you’re looking for a blend of growth and income, bonds are very attractive.
Caroline Woods
Where are those opportunities within bonds? Sure.
Kevin Mahn
I would start with municipal bonds. We authored a piece to our investment team back at Indiana Walsh. And what we found is that over the last 25 years, the 20 year municipal bond index has only approached and broached 5% in just 6% of the months over the last 25 years. Here’s the interesting part. Once it hit that magical 5% level, it didn’t stay there for long.
Kevin Mahn
Measured in months as opposed to years. And what we found is that in those instances, one year out, yields came down by an average of 80 basis points. So if that is the fact and you were to buy those municipal bonds today at a yield of 5%, and yields come in 80 basis points by average a year later, well then you’re going to get a nice price appreciation plus the coupon income all along the way.
Kevin Mahn
That’s something you should really consider.
Caroline Woods
We’ll talk about your stock picks in just a second. But just in terms of the overall strategy, given the fact that you’ll say you can’t time the market, but given the fact that we haven’t seen this run higher, would you put new money to work in stocks today or would you wait a bit?
Kevin Mahn
I would put new money to work, certainly, because again, I can’t time the market. No one can efficiently. But if you continue to follow the money into all those areas in our economy where all the billions of dollars are being spent, you’re continuing to see growth opportunities. We always talk about AI infrastructure that’s going to continue. In fact, Goldman Sachs recently came out and said there’s going to be over $1 trillion spent by companies on AI and I infrastructure this year alone.
Kevin Mahn
Jensen Wong thinks it’s going to be between 3 and 4 trillion by the end of this decade. That’s a lot more spending coming down the road. But don’t forget about power. Don’t forget about water. Don’t forget about aerospace and defense and of course, health care innovations.
Caroline Woods
That’s where your RS7 comes in. But how do you know if you’re following the money or just chasing momentum?
Kevin Mahn
Yes, I would separate those two, because often what you’re going to find is if you follow the money where all the money is being spent, you’ll have the momentum trade come in behind that. That’s what happened with aerospace and defense and defense needs. We saw all of this planned expenditures across the globe to upgrade military and defense capabilities, and we saw opportunities in certain stocks rise dramatically.
Kevin Mahn
But we also saw valuations go up. And now it’s come back in and settle somewhat. And the money hasn’t been even spent yet. So to me as a portfolio manager that likes me like those areas even more. So use momentum as your friend. If in fact that momentum trade goes away and those stocks pull back.
Caroline Woods
I said I was going to incorporate some audience feedback. Yes, I’m starting with a negative comment. You got tons of love though guys. This guy just follows what’s hot. That is trader’s logic. Not for long term investors. Your response?
Kevin Mahn
Are utilities hot? Is aerospace and defense right now hot? Is health care hot? I would say none of those areas are hot right now, but if I follow the money in terms of all the planned expenditures in those areas, they may very well become hot again. So I don’t think it’s just looking at momentum and looking at what’s working.
Kevin Mahn
Now. The eye trade is working now. I concede that point to the viewer, but if you look at those other areas where the money really still hasn’t been spent yet, and all the additional M&A activity that we believe will take place in biotech over the upcoming years, that’s where you want to start giving some allocations into your portfolio as well.
Caroline Woods
So last time you were here, and we’ll link to it at the end of this video. You gave a lot of stock picks 15 according to my list Nvidia, alphabet, micron, Taiwan Semi Digital Realty, American Electric Power, CrowdStrike, Fortinet, Duke, NextEra, RTX, Moog, Dick’s, IBM, and Apple with an asterisk.
Kevin Mahn
Yes.
Caroline Woods
They’re all off the table. Give our viewers a new name that you’d buy today.
Kevin Mahn
I would suggest I’m going to give you two biotech names that I believe have a high potential of being acquired for two reasons. I’ll tell you the names in a second, but bear with me. As it stands right now, there are multiple headwinds facing large cap pharmaceutical companies. One, first and foremost, they continue to be pressured to lower their drug prices.
Kevin Mahn
Perhaps it’s the only thing that Republicans and Democrats agree upon these days. Two, they have several large revenue producing drugs that are scheduled to come off and now be subject to generic competition. In fact, over the upcoming years, 200 drugs are scheduled to lose their patent protection, with 69 of those deemed blockbuster drugs with over $1 billion in annual sales.
Kevin Mahn
So two names that I like and I think have an opportunity to be acquired by large cap Pharma, who’s going to need to replace all that lost revenue potential? Somewhere is a name like individual ticker symbol I, MTV. They have two drugs right now in the FDA approval pipeline to treat substance abuse, such as opioid disorder. Another name I like is aloe gene ticker symbol Aloe, another small cap biotech companies working on innovative treatments for bone cancers and other types of cancers.
Kevin Mahn
Exactly what large cap firm is looking to buy. So those would be two names that I would add to the other 15. And again, Apple with a question mark for me okay.
Caroline Woods
And or.
Kevin Mahn
Asterisk.
Caroline Woods
Asterisk. Yes. Given the run up that we’ve seen, especially this week in some of these tech names, would any of those names that we mentioned previously be just holds at this point, or would you still put new money to work in all of them?
Kevin Mahn
I would look to continue to diversify across the entire ecosystem, and I’m still favoring the receivers of the money as opposed to the spenders of the money. Now, you could argue that Nvidia is both a spender and a receiver because they have the data center business and the chip sale business and all their strategic partnerships and fundings. Clearly they have the Midas touch, right?
Kevin Mahn
Everything Aditya touches turns to gold. But if I look at other areas, the Taiwan semiconductors, the microns in the world, micron still trading at less than four times forward earnings. And they’re turning away business. There’s an insatiable demand for memory. Apple time is going to tell if that foldable phone actually sells. And if the new CEO can be as innovative as perhaps two CEOs ago were.
Kevin Mahn
But all those other names I really still like, especially on the cybersecurity time and I only through those names. And last time CrowdStrike and Fortinet because you asked for a software play as it relates to I could have said ServiceNow. I could have said.
Caroline Woods
Yeah, you tried to say Apple and Alphabet. I’m pretty.
Kevin Mahn
Right? Alphabet I still think it’s a software play to a large degree. But cybersecurity is of paramount importance because now I’d be using for nefarious purposes. And how do we combat that with I use for goods and that’s what CrowdStrike and that’s what Ford and that’s trying to build.
Caroline Woods
Albert said. Did he say CrowdStrike is undervalued?
Kevin Mahn
I think they’re underappreciated, not undervalued. Because if you think about the cybersecurity space right now, everyone’s trying to chase the hot dog, the software name that’s falling too far, the semiconductor chip that’s going to rival Nvidia. But we need cybersecurity. It’s the glue that holds the technology puzzle together. I put CrowdStrike above everyone else in terms of their capabilities the USA, I want to talk a high powered cyber attack, but for now, that’s not far behind.
Caroline Woods
What’s one stock that you think has the most upside between now and year end?
Kevin Mahn
Well, that’s a great question. Of the ones I’ve given already, I would say.
Caroline Woods
That 1718 stocks have already given.
Kevin Mahn
Yes, I would suggest of all of those names.
Kevin Mahn
Is Nvidia okay.
Caroline Woods
What’s a contrarian pick a stock or you know that investors you think might be overlooking right now that they’ll be chasing six months from now?
Kevin Mahn
I still go back to IBM and I’ve said it time and time again, people don’t appreciate that Big Blue is much more innovative than anyone believes. They were the first quantum computing. They’ve done multiple acquisition during the tenure of their most recent coach to try and expand their tentacles across AI. They have a very strong balance sheet, but another one that’s underappreciated.
Kevin Mahn
So I would not bet against IBM, but you have to be patient there, Joe says.
Caroline Woods
Next time, Caroline should ask him if he’s ever owned Palantir, and Tesla is just a perma bear on those stocks. Anyone who bought them at the many right times has significantly outperformed despite the drama.
Kevin Mahn
Yeah, so for some of our were index based strategies, you’ll see names like Palantir and Tesla come into them. For the other strategies where I supply an overlay or my selection criteria, the way that they burn through free cash flow, their lack of profitability, the fact that they don’t have positive trailing 12 month free cash flow, they don’t pay dividends.
Kevin Mahn
All those different areas, keep them off of my screens or get them knocked out. Now, I love what Palantir is doing. I love the area that they operate in, but they’re still trading too rich for my liking. Right now, Tesla is a whole different story.
Caroline Woods
What price would make you a buyer of Palantir, and is there a price that would make you a buyer of Tesla?
Kevin Mahn
Tesla I have to see. Same with SpaceX. I need to see profitability, sustainable profitability. I need to see focus on those areas. I think there’s better opportunities in the market than Tesla. And I can see that Elon Musk is the Willy Wonka for our times. And people believe in an Elon Musk. I think he’s brilliant. I think he’s innovative.
Kevin Mahn
I’m just talking about from investing in the stock side. Palantir, we need to get forward looking below 100 at least, perhaps under 50. And then or when he hit my selection criteria.
Caroline Woods
We saw huge moves in AMD, Intel and Qualcomm yesterday.
Kevin Mahn
Chips are back.
Caroline Woods
Which one of those is worth chasing AMD?
Kevin Mahn
I think AMD is going to be a very formidable competitor to in video, the way that they specialize in chip design, the way they’re trying to lower the cost of new chips. I think it’s going to not only add to their bottom lines, but also increase their sales, which are already off the charts.
Caroline Woods
We also saw meta up double digits. I don’t think that’s a favorite of yours though. Anything that’s changed your mind, they’re not necessarily.
Kevin Mahn
I mean, I like what they’re doing as it relates to ad sales and using AI effectively. But if I got to look within the old mag seven, not my AR seven, I would still put alphabet above metal.
Caroline Woods
And in terms of, another audience question, I was pulling up here. Object says, while I completely don’t agree with everything he says, that’s all right. It’s my money. I’ll sit on the sidelines a little bit, build up my egg, nest egg, I think buy on the dim. What’s wrong with that strategy?
Kevin Mahn
I never think it’s a bad idea to buy on that dip. If you find opportunities at trading at a more realistic price. I’ve just never been able to try to time the market effectively, and I’ll just give some stats to object to consider. I believe was object to who sent that in. We looked at the last 20 years worth of actual traded stock market data, and what we found over those 20 years.
Kevin Mahn
If you just missed out on the ten best days in the market, returns cut in, have missed out in the 30 best days. Returns cut by 84%. Furthermore, over the course of that 20 years, seven of the ten best days in the market came within two weeks of the ten worst days. Now, I don’t have a crystal ball.
Kevin Mahn
I don’t know have effectively time when they come in and come out. I don’t know when those ten worst days are going to be, but if you’re not in the market on those other seven days, you’re likely to miss out in the most significant returns the market has to offer. So stay invested, keep some dry powder, keep some cash on the side consistent with your risk tolerance.
Kevin Mahn
And then when you see attractive buying opportunities in the software space, in the chip space, when companies pull back too far like Nvidia did, in my opinion, that’s a good opportunity to actually put more in by the do.
Caroline Woods
Well, let’s talk about the pullback that you’re expecting. I know you don’t have a crystal ball I said that. How big of a pullback do you think we’ll see. Will it be between now and your end. And how would you know three part question here that it’s just a buying opportunity versus something that would change your mind about the market.
Kevin Mahn
Sure I think we’re going to see multiple pullbacks between now and the midterm elections. And those pullbacks could be anywhere between 1 to 5%. And each time we see a pullback you’ll see some money coming off the sidelines and buying that dip in different areas. What would make that pullback even more so if you’re going into correction territory.
Kevin Mahn
If you saw it more widespread, not just poking the eye bubble once again, looking for a different area of the ecosystem that’s vulnerable, I have in fact, this situation between the U.S. and Iran escalates even further. And now we have oil prices above 110, $120 a barrel for a sustained period of time. Now you’re not looking at just two more rate hikes.
Kevin Mahn
Maybe you’re looking for rate hikes into the following year. The markets are pricing that in right now. So then you could see a more serious pullback potentially getting into correction territory. Not my base case but that’s something I would pay close attention to.
Caroline Woods
I do want to ask you about Bitcoin trading around 86,000 right now. Do you have Bitcoin in your portfolio.
Kevin Mahn
I don’t I don’t understand cryptocurrencies wish I did I can’t explain other than supply demand why Bitcoin or any cryptocurrencies goes up or down on a given day. But I do like the underlying technology. And I think blockchain technologies. I think cyber security plays a role in that. I think all the infrastructure component, data centers, cooling solutions, power all play into cryptocurrencies as well.
Kevin Mahn
So to me, I’d rather invest in the digital asset ecosystem as opposed to the digital assets themselves.
Caroline Woods
Give us one name there.
Kevin Mahn
Right.
Caroline Woods
Okay. Old miner said, so are you saying by the gold and silver miners, I don’t remember you talking about commodities last time, but are you saying to buy the gold? Yeah.
Kevin Mahn
So I don’t invest in the commodities directly. I invest through the miners because I can look at the companies and tangible strength of their balance sheet, all the measures. I look for it for any stocks. So if I’m going to give allocations into a commodity area, I generally look for the companies associated with those. So not that I’m overweight or looking to add exposure to gold right now, but if I were to do so, I would do it through the gold miner.
Caroline Woods
And let’s go back to your utilities. I don’t want to end on a negative note because you get so much love if you really are the fan favorite here, but cool into that. What’s gray Suit doesn’t like for real? He’s recommending utilities in a rising yield regime. That’s like operating a lighthouse and cheering for the fog because it makes the lamp look brighter.
Caroline Woods
Yeah.
Kevin Mahn
Very clever, very clever. The only thing I would suggest is that utilities aren’t necessarily your father’s or my father’s utilities. Yes. They historically have held up well in the face of volatility. Yes, they’re generally known for paying good dividend yields. But now they’ve also become a backdoor play into the I revolution. And if in fact they’re such a critical source of power, whether it’s natural gas, nuclear or traditional forms of electricity to all these data centers across the country right now, regardless of the interest rate environment, that strikes me as an allocation I want to have within my portfolios and utilities would be great.
Kevin Mahn
Over the last two years, they’ve kind of been idling thus far this year. That presents an opportunity to me. But you want to find those utilities that are diversified. I mentioned Duke Energy. That was one of the 15 names that highlighted American Electric power. Duke energy owns and operates nuclear power plants. Today. Everyone always assumes nuclear is the future, right?
Kevin Mahn
Nuclear is actually 19% of the electricity production in the United States today, not as much overseas, but we continue to try and expand nuclear. It’s clean energy, it’s relatively low cost. And now you look at these small modular reactor planes. So don’t count on utilities.
Caroline Woods
All right. I think it’s great time to pivot to our rapid fire round of this or that. I’m focusing on current events and movers because we just did one with you. Let’s start with the Trump XI meeting this week. Market mover or more noise, more noise. This rally investor is looking past the risks or underestimating them. Underestimating ARM or Intel.
Kevin Mahn
Intel.
Caroline Woods
AMD at 1 trillion fairly valued or a stretch.
Kevin Mahn
A stretch. But I still like tech stock.
Caroline Woods
That’s the best value right now.
Kevin Mahn
I would say Nvidia trading at 24 times earnings.
Caroline Woods
Tech stock you wouldn’t chase. That’s not Tesla or SpaceX.
Kevin Mahn
Can I include Palantir.
Kevin Mahn
I know Palantir kind of crosses different categories. I’ll say can.
Caroline Woods
Costco buy before earnings or wait until after.
Kevin Mahn
If you like Costco buy before earnings.
Caroline Woods
Very good. Alibaba down double digits in 2026. Opportunity year trap.
Kevin Mahn
I don’t invest in many Chinese stocks, but I do like the e-commerce space. It shows the strength and resiliency of the U.S. consumer. If you like the e-commerce area, you can consider Alibaba. I prefer Amazon.
Caroline Woods
Dial up more than 300% year to date opportunity or trap.
Kevin Mahn
Potential trap.
Caroline Woods
Meta up double digits this week. Believer or avoid.
Kevin Mahn
Surprised.
Caroline Woods
So I or.
Kevin Mahn
I hold meta. I’m not a strong believer in them. I’m very surprised they’re up as much as they are.
Caroline Woods
This week on holding this sneaker company Nike competitor a big this week but down big this year. Get in or avoid.
Kevin Mahn
I avoid all this all those names right now I can’t find one, consistent competitor that has a wide enough moat to provide profitability, going forward. So I would stay away from that.
Caroline Woods
So consumer discretionary buy selectively or avoid altogether I.
Kevin Mahn
Would buy selectively.
Caroline Woods
Give us one name. You would buy a that’s not Dick’s because you gave us that last time.
Kevin Mahn
Well Amazon is consumer discretionary. I keep going back to that one. It is consumer discretionary. It is I know in the Mac seven.
Caroline Woods
But okay that’s.
Kevin Mahn
It.
Caroline Woods
You’ll work day or Salesforce.
Kevin Mahn
You you might argue Salesforce.
Caroline Woods
Going back to stocks or bonds for new money today.
Kevin Mahn
If you’re an income oriented investor. Bonds if you’re a growth oriented better Mr.. Stocks if you want a combination of both I still say bonds municipal bonds in particular.
Caroline Woods
So finish the sentence between now and your end. The best place for investors to put new money is.
Kevin Mahn
The capital markets.
Caroline Woods
More specifically.
Kevin Mahn
I kind of get away with that one. I would say again, it depends on what you’re looking for. If you’re looking for growth opportunities, stocks, if you’re looking for income opportunities, bonds a blend of both municipal bonds. But stocks still have a lot of potential upside, especially if you look at the period after the midterm elections. It’s hard to time that, but I think we’re going to have a strong close to this year.
Caroline Woods
So if I gave you $1,000 today and said you have to buy one of the stocks that you mentioned today, that’s not Nvidia, which one would it be?
Caroline Woods
Taiwan Semiconductor I I’ll leave it there. Kevin Mahon I always appreciate you joining us. It’s a back to back interviews here Kevin Mahn president and CEO of Hennion and Walsh Asset Management. And as promised, if you want to check out Kevin’s interview from earlier this month where he offers 15 stock picks that he still buy now, click here.
