Buy Exxon & McDonald's, Sell Macy's: Strategist's stock picks

Energy stocks are pushing market indices higher in Monday's trading session as oil prices remain elevated. Mahoney Asset Management CEO Ken Mahoney shares some of his latest stock trades and sales, endorsing Exxon Mobil (XOM) and McDonald's (MCD), while advising against buying into Macy's (M) or small cap stocks from the Russell 2000 (^RUT).

"For investors, they kind of know the downside, something like $70 a barrel," Mahoney says on Exxon. "I think it's a good way to invest outside of tech as a way to get a decent dividend, more of a value play, and hopefully there is that clip... in the low $70s."

"Then you look at Macy's: the entire year they do about $25 billion in revenue," Mahoney compares Macy's sales to Amazon's (AMZN) Prime Day success. "So basically one day in Amazon is about six months of buys and sells of Macy's. I think it's a pretty big difference."

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Video Transcript

JULIE HYMAN: Well, stocks are mixed today. The S&P's 500 gains are being led by energy stocks. That group is up to date even as oil prices are falling, and energy stocks have underperformed the underlying commodity this year. In other words, it hasn't been sort of neck and neck between the two. Let's talk to an investor who likes one oil stock in particular.

Ken Mahoney, Mahoney Asset Management Chief Executive Officer is back with some picks here. And let's start with that oil stock, Ken. It is ExxonMobil. And it has been an interesting ride for these oil stocks. They've been performing very well this quarter, but they haven't necessarily kept pace with the gains that we've seen in the underlying commodities. So why are you looking at Exxon?

KEN MAHONEY: Yeah, your math is correct. Actually, we went sub $70 a barrel a couple of times now. So from 70 to 90 something, yeah, it's like 27%, 28% increase in the underlying oil. And of course, Exxon didn't go up that much altogether. But you know, look, we are mostly growth managers. We like technology, but we're trying to find some positions outside of technology should they falter, should evaluations come in a little bit.

You know, it seems like there's a $70 put somewhere there. Every time we go down there, Saudis come up and say, hey, we're going to cut a million barrels a day. And they've done that twice. So I think investors can feel comfortable there's some type of downside. When you invest, it's always risk and reward.

And I think for investors, they kind of know the downside is something low $70 a barrel. Exxon pays a 3.5% dividend. You can see the kind of chart there, again, made a nice move after being choppy most of this year. But I think it's a good way to invest outside of tech as a way to get a decent dividend, more of a value play. And hopefully, there is that put, which I believe there is, in the low 70s.

JARED BLIKRE: It seems like it's been energy or tech. But I want to talk about another field, consumer discretionary. You're also talking about McDonald's, which you like. And I want to go to the YFi Interactive here. Just looking at the year-to-date chart, it is off of its highs here, record highs. But on a 10-year basis, you can see maybe it's just come down to the lower end of its channel here. I'm talking technicals. What do you like about the fundamentals here?

KEN MAHONEY: So the fundamentals are interesting. It's always one thing to say, oh, technology is going to help a company. With McDonald's, it's really amazing what they've done here. They have kiosks now if you've gone into McDonald's. And you can order kiosks. And it's a nice environment. It's a screen and so forth. And they found that people that actually go on there onto the kiosk spend maybe 20% or 30% more than if they wait in line.

You go up on line and you kind of look up. And you're kind of [INAUDIBLE] and then you move over because people are waiting and so forth. But the kiosk is very interesting. Not everybody's going to order in kiosk. It's not going to be everything there. But the look of those numbers. And again, we can't extract 20% growth because of the kiosk.

But that's, again, when you try to find a catalyst, what's going to bring the stock back near your highs, I think technology. They've really taken a big bite into technology. And I think it's really-- again, it could be one of the discretionary consumers, as you said. That's kind of a sleeper. Everybody knows the name, it's McDonald's. But again, that kiosk could be a game changer.

JULIE HYMAN: And let's talk about stuff that you don't, Ken. And we start here with Macy's. Now, I think you're not alone on this one. This has not exactly been a loved name. But it has come back to some extent. And we were just talking in a segment a few minutes ago about going into the holiday season here. Why should investors steer clear of Macy's?

KEN MAHONEY: Well, the management guidance even told us. We like companies that beat estimates and raised guidance. And they actually lowered their guidance. And you think about, if you're going to be in retail, if you had to pick one out, it wouldn't be Macy's. And think about Prime Day for Amazon. They did $12.7 billion of revenues in one day, July 12, and July 14.

And then you look at Macy's, the entire year, they do about $25 billion in revenues. So basically, one day in Amazon is about six months of selling there in Macy's. So I think it's a pretty big difference. Again, I think stocks that make new lows continue to make more lows. So I think technically, it's kind of trapped, lower guidance. And if you're going to a retailer, why even be around Macy's when you have companies like Amazon that in one day do half to revenue they do in the entire year.

JARED BLIKRE: All right. I also want to talk more broadly about US small caps. And for that, we're looking at the Russell 2000 or the IWM ETF. And I want to pull up the YFI Interactive one more time just to show the choppiness that we have seen this year. We've seen a couple of highs here. And we are marching back down to the lows. And in fact, if we look over the last three years, maybe we're just going sideways over the last two. What are you seeing in the small cap space?

KEN MAHONEY: I'm seeing that the lot of nervous investors. We are in a narrow market, whether we like it or not. We always tend to underweighted, so S&P 500, and then put in Apple, Microsoft, and all them, and kind look at the difference. Look, investors are still very nervous. They want big, liquid stocks. And small caps don't fit that definition. So for us to get a rally, I think first is to be led by those tech names, Microsoft after having a really difficult August, September.

The leadership, I believe, is going to come back to Apple, Microsoft, all those leaders that happened before this mess. And before we get to small caps, it's going to take some time. So I think most money is going to go into liquid names, big names. Hopefully, they carry the day with good earnings coming up in the third, fourth week in October. And really I think small caps right here is really an afterthought.

JULIE HYMAN: All right. We'll see what happens. Ken Mahoney, CEO of Mahoney Asset Management, thanks. Good to have you here.

KEN MAHONEY: Great. Thanks.