Mag 7 "In Back of the Bus:" Jeff Mortimer on "Power of Diversification" in Stocks

back to Opening Bell. We're getting you ready for the trading day. Joining me right now Jeff Mortimer is here. Chief investment officer Illicium wealth. Thank you so much for being with us. My pleasure. Diversification is always the word we use over time. It's the safety net. But you really are seeing a real rotation. Tell me about that. You know markets while while history teaches about the power diversification, the last free lunch available to all of us, there are periods of time, sometimes decades, where diversification is diversification, where just having been in the S&P 500 would have been the play or even the mag seven. What we're seeing really in 2026, I think, finally, is the power of diversification both internationally down in capitalization, over to value. You are at a part of a market cycle where history says that growth at a reasonable price should dominate. And so you're seeing the mag seven take an unusual position this year, sort of at the back of the bus. And I think powerful earnings, right? Inflation, all these types of things are helping with diversification from portfolios. And I think that will be a trend that continues for the years ahead. So with AI and the CapEx spending, and while there's been skepticism, you're saying stay in tech, that AI is real and you have to have that in your portfolio. AI is definitely real. You have to be on that train, no question. But please also look at companies that will benefit from AI itself. So I think you get a broadening. You get right. We know about profit margins, about earnings growth. We know about the power of earnings this year and into next. And so think about the beneficiaries of AI as well. And that's what I think the market will continue to do with the AI skepticism and the speed of the adoption of AI. I think you're going to get people as AI sort of the the wind beneath the sails of the pure AI companies diminishes a little bit. You'll get companies looking at second or investors looking at second and third derivatives, which again talks about the broadening and the power diversification. So you're picking not only the main hyperscalers, but all the names that trickle out overall. When you looked at the earnings. Oh, we're pretty much wrapping it up. Tech was somewhat mixed. I mean there was certainly a bright spots and CapEx spending seems to be okay as long as you're getting return on investment. We saw that with certain companies over others. But there's still a sense of frustration and caution. Right? There certainly is the free for all the spending numbers, the 800 billion that everybody sort of knows about. You are getting a little bit of skepticism, even on return, on investment, and even on the timing of these things happening. And when it's interesting, growth stocks like that, they don't have to stop growing, right? But if you have the line of growth that was like this at a 45 degree angle, and now it's at a 35 degree angle, the price will it has to reflect that. And so you get these growth companies where you will get a sell off on the stock itself. And I also want to talk to about investors, about growth managers own these names. And when you get slowing in growth, it's not as though a value manager is coming right up beside you to buy that stock from a growth manager. That growth manager must sell to another growth manager who still believes in that name. So always be careful of who you're buying from, who you're selling to. And that's why those air pockets can form in some of those companies. And I think that's why some of the volatility that we saw over the summer in some of these names, because there's no value there from a value manager yet at those prices. So you can get those air pockets that can be can be hard for some investors to stomach. I mean, because they were saying that some of the mag seven names even were value plays. Would you agree with that? I do right depending on on earnings and depending on history. I mean Nvidia reports after the close tonight and certainly had struggled seven out of the past eight days. I think you're getting a lot of people who are are cautious about what what their earnings report may may show tonight. Whether that's a value stock. I wouldn't quite go there yet potentially. But look at Apple clearly was right. It attracted the likes of Warren Buffett and right over a long who has a long term vision and loved that that that company had, you know, its customers in the palm of, you know, representing the most coveted real estate on the planet, right? The palm of the hand. So, and it's sold down at levels that made it attractive to value managers. But those are rare. And those take right. That's Apple, an incredibly mature company. A lot of these other AI stocks not even close to value names. You're still playing growth. Some not not pre-revenue, but still growing, not earning yet, not profitable yet. But you talked about what the other the second order beneficiaries to to and we discussed that a little bit. And that would be sectors such as, you know, you could get into anything from you think about companies with high levels of employees. You could get into anything from industrials, anything where AI could begin to take over. And I think it's going to be interesting going forward. I think one of the measurements we're going to start to look at and pay a lot of attention to is revenue per employee for companies. Interesting. Yeah. And so I would even go after, you know, the potential to which companies have the potential to have incredibly high revenue per employee, which can leverage AI, which can get into profit margins and do all of those things. So I don't know if it's necessarily per sector, because each sector, I think will have adopters and maybe non-adopters. But what I would look for is companies that are, that are adopting AI, that will continue to push that envelope regardless of sort of what sector, because there's the build out of AI. We think about the infrastructure and what it takes to build that. And then there's the usage and adoption. And I guess they both provide opportunities because you have the infrastructure or utilities or things like that, but then, you know, specialized software or companies that are using the AI, you know, I mean, it's really hard to decipher what's going to work. It's very true. Again, the power diversification you have had the market and the market's trying to discern that as well. You know, I was I actually boy worked for Charles Schwab during 1999 into 2000 during the tech bubble. And clearly this market is nowhere near what that market was. The p e multiple on the Nasdaq 100 back in 1999 was 100 times I was about to say triple hundred times earnings digits. I remember it well. It was here. Unbelievable. Yes. The the the euphoria and the optimism. I love that their skepticism within AI. I think it is healthy for the market to rotate like it has. But it's not a bubble. It's not a bubble. It's not not a bubble. Like like 1999 defined a bubble. I so I think it plays out and I like the corrections that have that have taken place. I think markets need time to, to digest moves like that question moves like that. And I love that, you know, many times when you're just makes it not a bubble, right? It's interesting, back in 1999, we were not discussing that it was a bubble because the internet was the next thing. Right. And, and people would pay any types of money for anyone who even had a domain name. So we are certainly not there. All right, Jeff, it's wonderful to have you here on the set with us today. It's a pleasure to be here.