McMahon: AAPL iPhone Duo Adds Mag 7 Muscle, Likes MSFT & GOOGL

SPEAKER_1 (0:00)

Let's turn our attention to the broader market. I want to bring Harley back into the conversation, turn our attention to some of the standout areas within equities and the broader market as well. Chris McMahon, who's the president and CEO of Aquinas Wealth Advisors. Chris, thanks so much for your time today. Let's just start with technology because of what we're seeing right now.

You say tech cooling is healthy, not harmful. Just unpack exactly what you mean by that and what areas of the tech trade you're looking at.

Chris McMahon (0:26)

Well, I think, you know, software's recovered a little bit, hasn't it? I think we've been just looking at the great elixir, all the technology stuff. And we saw that AI was going to kill software altogether. We've seen it recover a little bit. So I think this is reasonable to see the market give back a little bit. There should be some profit taking. I think there should be rebalancing back to a more modest allocation. In our firm, we had an allocation, normally around 16, 17 percent technology. At one point, we were as high as 25 percent just because those stocks had done so well. And we're saying to ourselves, and I think a lot of advisors are saying, how do we get that back down to what a normal allocation would be, or even slightly underweight? But there's still opportunity there. We were talking about it in Microsoft just a moment ago. We think, isn't it funny to say that Microsoft and Alphabet are undervalued, but we think they are right now. We think there's an opportunity there.

And Apple, I think that we've been waiting for innovation. I think we'd all say the folding phone, although they're not the first to the marketplace, that is innovation. And I think there's an opportunity in Apple as well.

SPEAKER_3 (1:21)

So let's walk through those three big names that you just highlighted there. Because you've got Microsoft, you've got Alphabet, and you've got Apple. As we were also talking about this cooling off in Megacap Tech. So as we look at these valuations coming under scrutiny for these big names, what makes you comfortable owning those three specific names?

Chris McMahon (1:39)

I think the Mag 7, they're still valuing the Mag 7 I think those are the three most undervalued stocks in the Mag 7 I think we're looking at earnings, and earnings have still been spectacular in their opportunity. I think those three securities particularly have room to grow. And I think people have cooled greatly on Apple. And I think the reality is that they are kind of flexing their muscles a little bit. I think this whole stack of innovation they announced last week will bring people back to Apple. And I think, dare I say, people are going to start buying $3,000 cell phones, which I never thought I'd say those words. And I think that's going to help particularly Apple quite a bit. So I think those are the three most undervalued in the Mag 7 And I think there is room in each of those securities based on their earnings alone and where they sit in conjunction to the other Mag 7 for sure.

SPEAKER_1 (2:21)

And obviously these names, Chris, right now are spending a ton of cash on AI. I mean, obviously with Apple being the exception here, and that's why it's sort of been put in the category of the sort of anti-IAI trade, excuse me, alphabet soup here. So if that's the case, we've been looking at the check takers, if you will, this year, which have been performing quite well with the exception of more lately. How are you looking at the AI bottlenecks in the market right now as to who is benefiting from all that money?

Chris McMahon (2:56)

I think the storage guys are going to win this game more than anybody else. I think the two winners long-term are going to be infrastructure and builders. We talk a lot about John Deere. John Deere, for example, got through this.

It was not a good period of time the last four or five years in agriculture heavy equipment. Yet John Deere, to look at their numbers, were very strong through that period. I think now is this AI, this capex spend which seems bananas to normal people, that capex spend is going to have to be spent somewhere. We think companies like Caterpillar, we think Deere is very well uniquely positioned to benefit from that. So I think it's going to be downstream a little bit. And I think we have to start looking at the companies that are actually going to be building these. I know we have a lot of pushback on these centers, the data centers right now, but they are going to be built. And the question is, who are these normal companies that had tremendous earnings, their stock hasn't really moved as much as it should, in my opinion, relative to their earnings. I mean, I know we talked about the three horses from the apocalypse a few minutes ago, oil, interest rates and just general political unrest, which are all huge things, but when we look at where earnings are today, we have to look back the last 12 months and say we've had a spectacular period of earnings across the market, which has not been has not gotten down to the broader market yet. And I think that's the next, assuming we get assumed, it's a big assumption, assuming that we clean up the war ends, as we've been promised multiple times, if that war ends, then there's a possibility that we see a really strong rally coming to the end of the fourth quarter in the broader markets.