The Hidden AI Stock Trap in Your Portfolio — What To Buy Instead

Joining us now to kick off the week is Michael Landsberg, chief investment officer, Landsberg Bennett Private Wealth Management. Michael great to have you on. Thanks so much for being here. My pleasure. So, Michael, the S&P 500 is coming off its best week since April. Closed Friday at a record high. Seeing some early green arrows this morning, although not a lot of conviction. Is this a market investors should still be buying or is it come too far too fast at this point? There's been a couple sectors that probably have come a little too far too fast, but this is an earnings based rally. I mean the earnings have been phenomenal. This is seventh straight quarter double digit growth. It's been the best of the seven. So I mean we don't think there's any reason not to be excited about this market because it is earnings based. And it's gotten to be much broader you know for years. The seven names kind of carry the weight. The other 493 have picked up their game a lot. So we think there's a lot of opportunity. And the growth seems to be accelerating. So we'll get into where you're seeing that opportunity. We'll talk about which sectors have come too far too fast. But to your point, earnings have been enough to really keep pushing stocks higher. At what point or I guess what would derail this rally. Well again I think from an earnings standpoint, you might get a little copy here, given the fact that we have come pretty quickly and fairly far. And putting the geopolitical out, you know, because that's, that's always kind of a curveball, we kind of focus on the things that we can control, which is kind of mapping the earnings inequality, the earnings from our companies. So we feel pretty good about that. Unless there's some geopolitical shock or something that comes out of the fed, that's kind of unexpected. I think we're kind of all systems go for the back half of the year. Okay. What does all systems go look like in terms of market returns? I think, you know, when we look at kind of the overall returns, I would expect that 8 to 10%, you know, return on the back half of this year. I think things seem to be going well works rating. You know, given the fact that I don't think the fed is going to do a whole lot here, given that, you know, job numbers weren't, weren't outrageous, inflation, I think is going to kind of bump around here a bit. You know, we had a big draw down actually CPI last month. I think this month we may tick up a little bit to to being flat. The question is going to be what happens with inflation if this war continues. If we see inflation you start to take back higher. Then the fed may come back in and may raise rates. And that may be a scenario that that is concerning a little bit to some. But I think until that happens we kind of like investing for what we've got, which right now is good earnings. I don't like to try to figure out what the Fed's going to do, because I think Wall Street typically overestimates what the fed is going to do to begin with. But we do have CPI this week. That's kind of the big test on Wednesday. How hot would inflation have to come in for you to seriously worry about a September rate hike or something that could really get in the way of this market's rally? I don't think you're going to see that in this one. I think it would be pretty flat. Maybe, you know, a couple of basis points here or there, up or down. I think the real test comes in August when you get to the September number. The August numbers reported a couple of days before the September 11th. The September 11th. Is that the CPI reporting before the fed meeting the week after? That's the one I think you're going to see maybe potentially, you know, 15 to 20 basis points higher. So for three and a half to 355 on this number no big deal. I think if you start to see a 25 to 25 basis point bump, I think that could be a concern right before the meeting. It's going to be right in everybody's head. I think there's a chance maybe 5050, you get a September hike of probably just 25 basis points. I don't think they're going to do much more than that. If we don't get that, I think it's even better, because honestly, I think if we look at it from the standpoint, if we can keep kind of rates where they were, if inflation doesn't get too frothy, I think the market again is going to churn much higher. Okay. So let's kind of dig into strategy a bit. You talked about some sectors that may have run too far too fast. What do you like right now and which have, you know, gone a little too far too fast? I think you want to kind of get first run the context. We used to always talk about risk on and risk off. I think now we're pretty much in the I on and I off business, because it seems like no matter where you are and this is a global comment, if AI is up everywhere all over the world, it's AI related is up, and then you've got the flip side of that. So I think you want to be very cognizant of what you have for sector exposure. So if you have industrials that are AI related, that's not an industrial, it's an AI stock. Same thing with with energy and same thing with some of those things. So I think you really want to diversify, find that where the growth is, but also make sure you've got an amount of non AI exposure that's appropriate. I think I have this is a big theme. We're going to have a lot of it for investors. But you can't have every single stock and every single sector be an AI adjacent theme. And that to me is important. I think a lot of investors are missing that. They're saying I've got utilities, I've got, you know, industrials, I've got, you know, REIT and they're all data center or AI, related. That's not true diversification. So I think sector diversification to me is Debbie I think you got to be looking at theme diversification to make sure you are not going to run into this creep or you're creeping into all the AI sectors and you're just calling it an industrial. In reality, it's the clouds of AI play. So what does a properly diversified portfolio actually look like to you? Well, I think one of the big misses that we're seeing for investors right now is when you look at the average, you know, investor at a major wire house is 6 to 8% international. That's a huge miss. When you look at kind of the Footsie, the all world index right now shows 64% of the world stock market exposure is U.S, 36 is international. We don't have you know, we see most investors at 6 to 8%. We're at 25 for our internet, for our clients, the vast majority. We're probably not going to get to 36 anytime soon. But we have a large exposure to international because I think that also way you can play the I story. But there's a lot of economies in the world that are growing quite quickly that you can get exposure to. Like if you diversification that aren't AI related. One of the misnomers, I think, when people even think about that, 6 to 8% is the biggest holdings in the world, and these indices are Taiwan Semi, are Samsung or SK Hynix ASML. They're all AI place. So to me you got to start looking at some of these countries that have exposure, that don't have exposure to the larger indices that aren't tech stories. Maybe, you know, like a Poland is one that pops out that we've owned for a while, that continues to do well. A Belgium, even a newer name like a New Zealand that's kind of popped in our screen more recently is make sure that you get exposure. That's pure international. That isn't AI relying on that kind of story. Where I get the Taiwan semi is a huge AI story. It trades correlation wise very closely to Nvidia and to the mag seven y own that, just own that. You got to own some other stuff. Of course we we love Taiwan semi. We just want to own more than just those hand volumes. But why take money out of some of us winners and actually put it overseas? Is it just a valuation play at this point? Absolutely not a valuation, but I'm not a really big believer in the valuation stories. When we look we did a screen of the top 200 fastest growing for the EPs earnings for the next five years of, on the Footsie, the all country world index 200 names a large majority of those were or international or emerging markets. And there's only one mag seven that was on that 200. So growing at 25% or more EPS for the next five years. Only one mag seven. So that's 199 non mag seven names. And a lot of it was overseas. So I think when you look at mag seven the analogy I give you is we've got to start skating or the earnings are going to be not to beat, not to skate to where they've back. And a lot of great earnings have happened, a lot of great returns in mag seven. You still can own the Mag seven. You still want to have that gross overweighting that many investors do because of success. And it's great that we've made money in the space, but we want to rebalance and take some of that exposure. Moving to things that are going to continue to grow, still keep some mag seven, but at the same time, where's the earnings? Where are they going to come in the next five years. And a lot of it's going to be smaller U.S. companies medium sized US companies and again, international and even emerging markets. I think you're going to get some of that growth. And that's where I think you want to look to some of that international exposure to give you broad swaths of exposure, that are growing faster than currently in the US. And you're seeing that in the US now, the small mid markets done better than, than the large cap this year. International. This is the second year in a row international has done better than the S&P. So I think it makes sense to have more of your money to those faster growing spaces. Not take it all out of the US, but trimming it makes a lot of sense given, some of the names in the US are trading at big multiples and probably can't can justify some of those multiples. All right, quick break. We spend a lot of time talking about what stocks to buy. But before you invest your next dollar, it helps to know how much you actually have available to invest. That's where today's sponsor monitor can help. Set of bouncing between your bank, brokerage, credit cards and other accounts. Monarch brings everything together into one clean dashboard so you can see your spending investments, net worth, and recurring bills all in one place. I also like it it separates fixed expenses for more flexible spending, and the AI powered insights help explain what's changing in your finances based on your own data. This is a demo mode, not my personal accounts or my own data. So stop your judgments right now. Monarch is private and ad free. You're the customer, not the products. It's syncs with more than 13,000 financial institutions and works across both web and mobile. If you'd like a clearer picture of your finances, check out monarch using my link below and promo code Street 50. That's promo code Street 50. What's the magic seven name that screens with the impressive earnings growth that you're talking about? It's it's it's in Nvidia I mean it's it's just kind of one of those companies that when you look at it you can't get enough of their product. So that's the name that I think you've got to own regardless. It's our largest holding. The difference is we rebalance our portfolio. So it's not 8% of our portfolio. We first brought in Nvidia in January of 2019 for an entirely different company. We bought it because of GPUs and what it did in the graphics space. And obviously it's morphed into, you know, parallel processing and AI, but it goes to show you you can buy a stock. I don't get caught up in kind of price targets as you can buy a stock and ride it. It continues to do well. You don't want to change it. And Nvidia still has that earnings growth, that we think is going to continue to be there. And there are some up and comers we don't some of the other up and comers to Nvidia. The numbers two, three and four kinds of names. I think that's a great way to diversify. It doesn't need to all be Nvidia, but obviously that has been such a good story for us, for our clients. And we continue to think it does real well. So what are those two, three and four names? I think names like like an AMD, I think you start to look at that. They've made, the new rack system is starting to make some inroads. Lisa su's a phenomenal CEO. Ironically she's she's Jensen's cousin, which is kind of a crazy thing that you've got two of these powerhouse companies that are that are run by people related to each other. You know, that's a name that we've added in the last couple of years, a Broadcom. We actually added Broadcom in January of 2015. It's one of our longest held names and continues to do really well. So I think you want to continue to own some of those names. You don't have all your eggs in the Nvidia basket. But there's going to be enough of this pie to go around for all these names. I don't think it's a it's a zero sum game here for chips. I think what happens is this they're going to continue to grow the space. The pie is going to get bigger and bigger and bigger. And even though Nvidia shares may come down, it's going to be a share of a much larger pie. You can own those other names that continue to do well. I think you want to look at the the memory as well. The micron's the sky next is in the Samsung's is also ways for you to diversify and give you exposure to what's going to happen with chips. Because they're not they can't make them fast enough. And I think that's an important component. But with that being said, some of the faster growers are non-U.S.. So you were saying continue to to own what if you don't already own those? Or for investors who are thinking about what do I buy right now, really with stocks at, at at or near record highs, where are the opportunities right now? I can't imagine anybody, not only video, but yeah, it's possible. I think that's a name that you'd start with. Obviously. I think it's the name, the draft. So that to me is a name that you look at again, if you're looking at it, what's been interesting about these names in micron would be another name in the space. You don't have to chase. Yeah. I'll look at the last two months and micron it's gone from 912 hundred back to 900. Nvidia was 90 bucks 14 months ago. So you get these opportunities where they hop around. So I think you want to have your wish list of things you want to buy. If you don't own some of these names and use the volatility is your friend. Whether it's a tweet, whether it's something that happens over in the street, you see a lot of volatility. That's a good way for you to have a couple dollars at set aside to say, this is my list of things I want to buy, I'm waiting for the opportunity to go do that and take advantage of that. So I think those are some of the names that you look at. I never like the Chase. But with that being said, if you get a drawdown in Nvidia of 10%, which can happen, I mean, we have a 50% from last year. We had the tariffs. You've had some opportunities where the stocks have traded off. They're going to report earnings in a few weeks. Maybe that trades back a bit and you get an opportunity to buy. You just need to make that list whether it's AMD or micron or those names and say, okay, these are names I want to add if I don't own them and take advantage of those dips when people are saying, oh, what's going on? And I remember a few weeks ago, everyone was talking about how bad some of the some of the names were in AI and, you know, concern about CapEx spending and there's some opportunities to buy. And then obviously earnings came out and how these things have rallied. So you had to be patient. But with that being said, you need to know what you want to add to and then take advantage of the volatility. Yeah. So help me understand the strategy a little bit more though, because the kind of the first half of this entire year, you're talking about diversifying away from tech and now you're giving a bunch of your tech winners. So obviously tech is still, you know, a part of your portfolio as you think about this back half of this year and maybe the outperformance that you think we'll continue to see in international and some smaller cap companies, how much of our portfolios should be in tech right now and how much should be in everything else? It's a great question because I would tell you, the S&P 500, when you look at tech, we've kind of snuck some names in there like communication services. Yeah Amazon and discretionary I tell clients all the time I think the real tech number, probably 45 or 50% of the index, is there. I think for the typical client that we have that's a retired or near retirement client, that's way too much exposure to attack. So I mentioned a lot of tech names. But the difference is our largest holdings in Nvidia, it's 2.5%. It's not 8% like it is the S&P. So I think you can own some of those names. But the dosage has to be the right amount. So I think that's important. Again we like areas that are diversified away from tech. Again because diversification the whole point is to lower risk. So health care is an area that we think continues to do well. I think there's financials that we like that will continue to do well and give you some exposure, to things that are different than tech. And then I and when I say tech versus AI, AI is one trade. We also have really liked for a long period of time the cybersecurity trade. We think that's a great space as people have gotten faster and faster, criminals have gotten faster and faster. So I think you want to have that. But it's a great point about how much people have in tech if they want to benchmark the S&P, they end up with 45 plus percent in technology. And for a 70 year old retired person, that's probably too much, Jack. So we don't really go by the benchmark per se. We'll own a lot of the similar names. We just have a lot lower exposure to some of those, you know, some of those names because of the volatility surrounding them. Because I think it's important to have an Nvidia, but I don't need that 8% for a 75 year old client in Nvidia because the volatility is there. Okay. So I was taking a look at some of the stock picks that you brought to us in your notes. Speaking of cybersecurity, Okta was one of those names. It's a name that's up 76% year to date. Still enough upside ahead to buy it here. Yeah absolutely. I mean, it's it's a different name. We really like cybersecurity. This is like the fifth or sixth name we own in the space. But they're more in the identity business. And I think that's a valid thing where, you know, some of the other names are a little bit more broader at the enterprise level. This is going to make sure that you are, you know, who you say you are because, as we mentioned, these criminals are really good at being able to figure out ways in. And we just saw that from an open AI standpoint. Some of the, hacking that went on is a concern. So I think cybersecurity is not going to go away. And again, we're looking at this from a valuation standpoint. It's it's dropped off a little bit. It's up a lot this year. But it's pulled back a bit. And it's one of those names. It's got EPS growth north of 25%. And so if it's traded back a bit again do I want to buy it at 52 week highs? I don't. But if I got the opportunity to have that pullback that's one thing that we like. Again it's a smaller name. It's not probably a name that's going to be owned by many people watching this, where they're going to own some of the biggest names. And again, this is where that diversification valuables, we think cybersecurity can have a lot of winners, as we do with AI. So instead of having our money in one, and we want to lower some of the idiosyncratic risk and have multiple different layers of cybersecurity, in this case, exposure. Okay, another name that's not as well known, although Okta I would say is pretty well known at this point is fabric. Net ticker symbol FS. And that's up about 17% year to date. What makes you bullish on that name. Again these electrical there's this kind of these industrial that's basically morphed into an AI supplier story. We think that's an interesting you know concept because more and more of these businesses are relying on these companies that are kind of morphed. Amphenol is another one in the space that we've owned before. So in an adjacent space, so industrial names in, I give you the opportunity to have some of this exposure, but it's not a name that people are going to be very familiar with. They actually have a foreign component, and we consider them to be actually, you know, I think a Canadian definitely an international stock. Right. Our international portfolio. But again, it's got EPS growth north of the 25%. It's not a household name. It's not a $200 billion, you know stock. So it's got some exposure we think some upside given the fact that's a smaller name that's growing. And at some point maybe it's a takeover target. I mean, we don't buy things because we think they might get taken over. We buy good names that if they continue to grow, start to show up on people's radar screens. And we think that's an opportunity. Again, when it trades back a bit, not trading at all time highs. Yeah. Some of these names can be up 75% year. But I look and they were up a buck in the quarter. I've got a 30 or 40% drawdown. That's an opportunity sometimes to be able to to buy some of these. And that's that's kind of what we look for in some of these names, because sometimes just buying the ones that haven't participated. The problem is there's a reason why they haven't participated in. So if someone are kind of stuck between that rock and a hard place of the value names, sometimes their values because there's just nothing going on. So we're looking to use the volatility to create some value. But sometimes things have lagged for very good reasons. And I don't want to be buying laggards in a market where growth is really happening. I want to buy when there's a temporary dislocation in the stock price. Okay. And another name on your list that is technically a household name because it might be in your refrigerator. It's V to Coco CAC oh up 20% year to date. Is that are you bullish on coconut water or are you bullish on the consumer more broadly? I'm a little we're bullish on the idea that people are kind of more healthy. So and I think when we look at that, it's a name like word for example yum. Quest Diagnostics, for the same reason people are taking more important look at what they're eating, what they're doing, what's their body chemistry, all those things. And coconut water has a proven value for people from health standpoint. So it's a it's a theme, if you will. We're thematic investors. So I look at the aging of Americans, things where we look at different scenarios, where we're owning things, staying healthy and staying on top of what you're eating is important. So this is a name again, it's certainly not an I name. So it's definitely a diversifier from that standpoint. But the consumer specifically spending a lot of money on themselves. Now, whether it's the self-care concept, we think that's important. We don't think it goes away anytime soon. Their leader there, they also do private label coconut water. We think that's a scenario where people are going to look more and more to to stay healthy. And I think that's something as people are. I look at GLP one sales, I look at people losing weight. They're going to continue when you when you thin down a bit, you start to look at what you're putting in your body. There are some companies that don't work in this space because a GLP one, a coconut water story or water in general is going to probably work very well because people do look at, hey, I don't need these salty snacks anymore. I can do something that's good for me. Yeah or if those GLP ones are making them nauseous, I feel like people drink coconut water when they're not feeling so well. Or maybe that's when they're hungover. I want to circle back to a few quick things before we get to our rapid fire round. You talk about buying, basically buying on a pullback, buying the dip. What constitutes a dip? Is it 2%, 5%, 10%? It's a great question. I think it depends on the names. So I'm of the belief now that you've seen for example, for a while like software gotten crushed while I continue to do well I mentioned micron earlier in micron out of here in time, it went from nearly $1200 to $900 in short period of time. So I like 10% is a number because the volatility. And again I'm looking at individual stocks here. I'm not saying if the S&P goes down 10%, I don't know when you're going to see that. But there's individual rotations whether it's sectors or individual names. That 10% number for us works pretty well. So you know so if a name like Nvidia was was 215 out stream or 225, I think you can start to nibble. That's kind of the area that we look at, I think I don't pay much attention to the broader market from a pullback standpoint because again, so much of the broadness, I'm not buying the market. I'm buying individual names so markets can go higher. And individual names may not participate or vice versa. You may have markets that are starting to roll over, but the individual names are doing well. So we're going to look for opportunities in their 10% kind of an idea. We have a portfolio strategy that we buy only stocks that declined 20% or more. It's call our distressed strategy. And I kind of like you into just buying some junk that's left in the side of the road. That's a more of a strategy. We use it in retirement accounts because it's not tax efficient. But that type of strategy works really well in an environment where some things just get sold off. Often we don't really know why they get sold off a lot more than the 10%. So and again, some good name is managed to make it into those portfolios because this market moves pretty quick. And so you can see that those things. So I think again having a list this is where I'm going to buy knowing what it is as opposed to reacting and getting emotional to the market. Hey, this is my laundry list of 5 or 10 names I'd like to add to the portfolio. I'm going to see what I can add over the next month or two, and you may may get a couple of those done. And just to circle back to your you don't have a price target per se, but to your market outlook. You talked about, I think 10% more in the second half of the year. So the S&P 500 is up 13% year to date. That's 10% on top of what we've already seen. Yeah I think you could I say I think I use 8 to 10 I expected you know, we're thinking we're gonna get 20% this year, which would be great because I think the environment for the for the third and fourth quarter very strong because of earnings, again, notwithstanding something happening out of left field that we put that we can't model. But basically we're seeing obviously this environment where earnings are really good. The job market is very good. I inflation's under control. We think we're more of an environment of earnings driven markets which we like in before. You're getting into this sad doing this. And I don't like that I actually want to buy companies based on what they're earning. We can model that. I can't you know, kind of justify the curveballs that that fed policy. You know, fiscal monetary policy throw at you. So this is an environment. It's a it's a good stock picking environment because we can model things out of earnings. So I think a 20% overall return this year is reasonable. You know, kind of given kind of where we are and it's not that much further to go. And earnings momentum is definitely there. And again, that's really what we are focused on is who's making the earnings. Again. We look at can they continue to replicate this growth maybe this quarter maybe not so much because it's such a strong number. But you're seeing double digit earnings growth the seventh quarter in a row. That's a that's a really positive sign. We haven't seen much. And until it doesn't work we want to continue to ride okay. All right I think this is a great time to pivot to our rapid fire game of this or that. It's your first time playing with us. So just quickly quick questions quick answers. No hedging. Are you ready I'm right. Here we go. Market at record highs. Buy strength or wait for weakness by strength. Next 5% for the S&P 500. Higher or lower. Higher. Bigger risk right now inflation or geopolitics? Geopolitics. Oil at 80. Market headwind or event. Nonevent. Next fed. Move hike hold or cut. Hold for the rest of 2026. Offense or defense? Offense. Next dollar U.S. or international? International. Developed or emerging markets. Emerging I trade from here and leaders or laggards. Leaders. One tech stock you'd buy here. Arista networks one that you'd avoid. Can't count Tesla or Space X or. I would you would avoid both. Yeah I think space I think space X a cool business. I just think it's overpriced here. The one stock in your portfolio you'd never sell even in a crash. I mean you share. IBD and Nvidia right now. Finish this sentence. If the market gives investors a pullback this summer, the first thing I'm buying is. I, I got my list. I would probably say more international okay. So give us a few things on the list here. We continue to obviously like so there's a company in Israel called Taiwan Semiconductor. We like that name again. It's a it's a tech name. I think it's a cool name that a lot of people own it. I think international exposure is, is really under most people's, you know, kind of radar. So I think you want to continue to add names that are out of the country. In the U.S., there's nothing I really have that I, that I don't own. I mean, we are we're buyers of what we like, and we don't keep what we don't like. It's not like I get married to these names and and like, I got to keep that because I've owned Broadcom for 11 years and Broadcom doesn't do what it's supposed to do in the next couple quarters. We give it the boot. You know these aren't these. It's not my wife. These aren't my children. They go with that being said international there's more these faster growers. They're kind of coming on our radar. So there might be some names out there that I really like that I don't even know at this point. And that's kind of what we're doing from a from a due diligence here, but just trying to find the kind of the newest names that are going to continue to work, you know, and that to me is, I think, interesting. I think there's some interesting names that are not household names. I think that people need to go. You dig a little deeper to find. Okay. And just finally, one name that should definitely be on our radar right now. I think a name like micron or SK Hynix, I think memory problems, memory supply is not not going to be fix anytime soon. You saw Tim Cook say that, at Apple, how much you gonna have to raise the prices because of these memory chips? What's happened is these memory companies have started to make these high bandwidth chips, and they've stopped making a lot of or slowed down the production of a lot of these regular chipset that the phone makers were making. You can't get enough micron that's KNX and Samsung chips right now. In fact, you know Apple's even talked about trying to get them from China. So I think that memory is a name. Yes, it's run up a lot. But I look at it and still think it's trading pretty cheaply, given the fact that I think they've switched their business to being more cyclical commodity to more high value add and again, these, these chips that no one can't seem to get enough of them. I think that's probably a good spot because most people maybe they have a micron. They may not have Samsung or SK Hynix exposure okay. All right. And micron is 30% off the highest. So it moves that 10% dip. It makes sure that you talked about. In another week or two it might be back to 1200 bucks. And that's how fast micron works. So you and again I wouldn't buy your whole position. Great point. Don't run and say if I'm going to have 2% micron don't buy 2% this week because it's down 30%. It might be down 10% next week, but you start putting in a quarter of a percent, a half percent. You start nibbling. Obviously we're allowed to do that now. I mean, we don't pay commissions, but the average person margin is not very much in commissions. You don't have to kind of worry about all these at dollar cost averaging. You had two, ten, 15 years ago. You can nimble and buy these things on ugly days. All right. We'll leave it there. Michael Landsburg, chief investment officer, Landsburg Bennett private wealth Management thank you so much. Really appreciate your picks and you're taking the time to share your insights. And my pleasure. Thanks again.