When it comes to AI, most people think of big tech companies. But Jeremy Bryan, Senior Portfolio Manager at Gradient Investments, says Goldman Sachs and Morgan Stanley could benefit from the AI hype. Bryan also lays out why he is not a fan of Molson Coors and Caterpillar.
Video Transcript
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- Well, they're having fun. As investors, potential headwinds for the recent market rally. We're looking at potential stock opportunities and names to steer away from. And to do so we have Jeremy Bryan back with us, Gradient Investments senior portfolio manager. Jeremy, let's get right into this and start with your picks first, who are your faves?
JEREMY BRYAN: What we're leaning towards right now is a little bit of a derivative play, if you will. It's Morgan Stanley and Goldman Sachs. And the reason why we say that is that I believe that over the next year, pretty much every new company that's going to be introduced is going to have AI after it. And how these two are going to be affected by that is that I really think that we're at the bottom or bottoming process of the investment banking IPO cycle.
And I think if you look at AI right now, it's really favored the incumbents to start, as your Microsofts, your Alphabets, those types of companies. Where I think this evolves to in year 2 and going forward will be new companies that start up that have technologies, services, applications around AI. And I think there will be somewhat of a frenzy to get out and get public as a result of that. And I think the beneficiaries of that are going to be Morgan Stanley and Goldman Sachs.
So from that perspective, they have good wealth management, traditional asset management businesses that I think are still going to be relatively healthy. And then a second wave coming from the IPO side, which should benefit them over the next two to three years, I'd be buying these right now.
- Jeremy, what is it more specifically, maybe it might be that wealth management exposure there that you just mentioned. But what makes Morgan Stanley and Goldman Sachs better positioned in your eyes than their big competitors here like a city, like a-- what else do we have? JP Morgan, Wells Fargo, some of those other larger Banks?
JEREMY BRYAN: Very simply is less banking exposure. Is that they are not-- the Citigroup, Wells Fargo's of the world, a lot of their revenue, a lot of their earnings comes from the traditional banking structure. Morgan Stanley, Goldman Sachs, to be honest with you, Goldman Sachs failed at their traditional banking offering. Is that they're really pulling back from that and going back to what their core is, if you will.
So that's what we want as an opportunity going forward is much more of that investment banking oriented wealth management side. While Citi and Wells will definitely benefit from those kinds of things, the traditional banking side is what we want to have away from to a certain extent to focus on. And Morgan Stanley and Goldman Sachs will just benefit to a greater degree from that.
- Jeremy, let me ask you a leadership question about both of these banks. So Morgan Stanley, of course, we know their CEO is heading out. They haven't named a successor yet but, one, are you satisfied given that the trajectory of who's possible-- who's being talked about as a potential new CEO. And then of course, Goldman Sachs. They've been in the hot seat David Solomon being criticized for his handling of different things.
And one of the things, of course, that Goldman is under the microscope about as is its role with SVB and possibly playing both sides of the coin. You have the government looking at them. Regarding that, does that give you any cause for concern?
JEREMY BRYAN: Sure. Always cause for concern but it's more of a monitoring situation. Is that these are not companies that are brand new. By any stretch of the imagination, leadership can certainly have an influence and an impact on what their future trajectory holds. But really the businesses in the exposures generally tend to win out. And if they're truly destroying capital, there will be an adjustment that will have to be made at the top. And we're going to monitor it.
We're going to pay attention to it. We understand it as a risk potential factor there. But really what we're buying is that business exposure. And generally these companies have benefited from those. And we don't think enough of their business has changed to really say that that's not going to happen in the future.
- All right. Jeremy, let's get to some of your icks here, some of the stocks that you're saying to avoid. Molson Coors was the one that stuck out to me because quite frankly it has been a top performer since the start of the year. Why do you see that momentum fading here in the back half?
JEREMY BRYAN: A lot of it has been a controversy from a competitive brand. That's why people have flocked to this in a market share shift. But really that's why we're looking at this and saying, I would not be buying here now as the stock has massively accelerated. This year alone, it's sitting at near five-year high valuations. And from my perspective, it does not change the course while market share could absolutely shift.
They may be right in that regard. I don't know yet whether the long-term trajectory has changed or not, we'll find out. But what I do know is that the overall industry is still relatively challenged. The domestic US beer market is still not, what I would call a growth market by any stretch of the imagination. So from that perspective, that's where it becomes a little bit challenging, to say I would be buying here right now.
And so from that, if you've made profit in the name great, good, I would be looking to maybe take that profit. And then secondarily, if I did not own a position, which we do not, I would not be looking to add here right now.
- Well, you're certainly not contrary to the broader analyst list of where they stand. I mean, look more than half of analysts see it as a hold. So you fall in line with that. But let's talk about your other caterpillars on the list. Explain this one.
JEREMY BRYAN: The cyclical trade might run a little too far too fast. That's really-- the thought there is that we've seen a mid-teens, I believe, rebound off of the recent lows here to where the stock has really propelled higher on just a hope that we're done with the fed or those things. But this is a heavy cyclical name and we don't think that that area is ripe for re-acceleration as of yet.
And so from our perspective, it's just saying that this is probably not an opportune time to be buying into caterpillar. We think more likely there's downside in the future in the next 6 to 12 months to where if you want to own caterpillar for the long term trends of growth, whether China comes back and does industrial type of things or whether the US continues to build in the infrastructure, we think there's better entry points down the road than there certainly are right now.
- All right. Buy the dip. Jeremy Bryan, thank you so much, we appreciate you as usual.
