How to separate earnings winners from losers: Asset manager

Mahoney Asset Management CEO Ken Mahoney joins Wealth! Host Brad Smith to break down his earnings season dos and don'ts as well as take a look at his artificial intelligence (AI) picks, including Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), and Walmart (WMT), during third quarter results.

“Jumping in front of earnings, that's a no-no,” Mahoney says, adding, “That's like Russian roulette again.” He outlines, “What we like to do in our kind of playbook, as you said, is actually find those companies that beat estimates, raise guidance, and then the analysts trip over themselves.”

Conversely, “stay away from the other ones,” Mahoney says, explaining that when a company reports an earnings miss and the stock takes a nosedive, “It looks cheap, [but] I'm telling your viewers that's quicksand. You’d rather go with those companies that beat and raise guidance, even if you have to pay up for it.”

Mahoney says he's looking for companies he wants to buy again. “They're going to appear to be kind of expensive. They may take out the year high, but behind it is momentum. Behind it is still those analysts [who] are still playing catch up. So, to us, it separates the men from the boys, so to speak. We'll see that this earnings season as we'll see every other earnings season.”

As far as specific names, Mahoney says, “We like technology because they're more consistent.” With consideration to his earnings framework and the ongoing AI trade, he says “We love Nvidia, Microsoft, Apple. All those names kind of and most of those names are going to beat raise guidance probably buy back stock” as well as “companies like Walmart who are actually using [AI] data” to boost productivity.

To watch more expert insights and analysis on the latest market action, check out more Wealth here.

This post was written by Naomi Buchanan.

Video Transcript

And earnings prints from a slew of blue chip names.

They could have an impact on market performance.

Our next guest says, regardless of the quarter, his earnings checklist never changes with more.

I'm joining by Ken Mahoney.

Who's the Mahoney Asset Management?

CEO Ken.

Great to have you on the programme here with us.

All right, so your earnings checklist never changes what is on the checklist and and why is it so ironclad?

Right, so they kind of a playbook.

First of all, jumping in front of earnings.

That's a no, No.

OK, that's like Russian roulette.

Um, again, not if you have Microsoft for nine years.

I'm saying jumping in front of these earnings, you know, they usually have a 67 8% move up or down.

We don't know.

But what we like to do in our kind of playbook, as you said, uh, is actually find those companies that beat estimates, raise guidance, and then the analysts trip all over themselves because a lot of people don't like that.

So wait a second.

The stock goes up nine points to 4%.

They beat, they raise guidance.

Yeah, you could jump on that train and also again.

The key is the analysts go from, like, hold to a strong buy or they go from 100 and $10 price target to 100 and 40 price target.

So again, stay away from the other ones that go the other way, Brad, which is, you know, they miss numbers both times stocks down 20%.

It looks cheap.

I'm telling your viewers that's quicksand.

You rather go with those companies that beat and raise guidance, even if you have to pay up for it.

You know, even as we were discussing this earning see in during the last hour at the beginning of catalysts, when we were what we were hearing from one of our guests was expect fairly modest growth.

There's a low bar to be, and then additionally, you're gonna hear more, A lot about Cap X here.

So all of these things considered.

I mean it.

It doesn't really sound sexy.

When for the last couple quarters we were talking about What are you guys doing with a I and that is what companies were moving off of.

So what is this?

The common denominator that you're anticipating?

We could see this earning season.

Well, I think there's still gonna be some top line growth.

I think there's investments that are going into a I obviously.

But now return on investments.

I think.

Look, we're growth managers.

We love NVIDIA, Microsoft, Apple, all those names, kind.

And most of those names are gonna beat, raise guidance, probably buy back stock.

But there's also companies like Walmart who are actually using this, this data, the great DA data dives, helping their logistics, helping their inventory, helping a whole bunch of factors that pretty soon transition from OK, we know the PS and shovels very well.

We know their names, right, Brad?

But how about those companies that are using that technology and with that, have more profitability?

Because they have more data which they, you know, go to the C suite yet they they pivot to area to area.

That's where I think the next step of this a I is gonna mature to is the use of this technology and those companies really kind of really doing a lot of good things with it.

And so how can investors out there who are trying to position themselves both going into and during earnings season when they're hearing from executives really tell the difference and set their strategy from a company that is fundamentally strong versus one that is jargony misleading.

Yeah, well, the market will tell you that a little bit too, right.

And you see, like companies like Nike, they miss their numbers.

They missed their estimates.

Going forward, stock takes a hit.

Uh, Intel has done it like the last six quarters.

They're very consistent.

They miss their numbers, they got lower, so we know the ones to stay away from.

But I have to tell you, a lot of indi individual investors, uh, Brad are gonna go in there and try to buy those ST E companies that this earnings season be down 10 or 20%.

We think that's a no no, we want to buy those companies again.

They're gonna appear to be kind of expensive.

They may take out the year high, but behind it is momentum behind it is still those analysts.

They're still playing catch up.

So to to us, it separates the men from the boys, so to speak.

Uh, we'll see that this earnings season as we'll see every other earnings season.

But again, we like technology because they're more consistent.

You mentioned before about small cap.

We don't like small cap space.

The Russell 2040% of those companies are not profitable.

We'd rather be with the market leaders where there should not be any surprises or there.

Hopefully not could be any big surprises.

It seems like for several quarters there's been one key, make or break name for earnings season.

And then that's been invidia.

Largely.

What is your earnings bellwether?

One company or even one sector that could set the tone.

But I think the video again.

They're a bit a little bit off on their earnings, right?

They come out the third week of November.

They're not in the kind of, you know, in September.

And but the CEO just said last Wednesday an interview that the helmets coming out as scheduled remember, that was a kind of not sure it was gonna happen and that the sales are insane.

I mean, I don't know if you remember Crazy 80 commercials, you can just go.

Oh, our prices are insane.

When a CEO tells you that sales are insane, you gotta listen.

You gotta listen to these conference calls, these interviews.

So I think from, you know, we're in a second or third inning, maybe fourth inning of this A I move.

And really, the the epicentre of all this is in the video.

And the CEO just said, um, and gave you a fat P. Our sales are insane.

Stock gain probably about 1415 points since last Wednesday.

So I still consider the video to be about weather, though the earnings a little bit funky it comes in the third week of November.

Earnings growth rate anticipated by facts had to be 4.4%.

Uh, do you believe that we will hit that I?

I think, Yeah, I look a lot of companies do a good job guiding a little bit softer so they can get over that bar easier.

I think those numbers are kind of soft.

I think we expect, uh, higher numbers.

And also on top of everything this earnings season.

Well, we have a federal reserve.

Put the pal put in place after one half, you know, 50 basis point in September, maybe another quarter in November, another court in December and if needed, be.

There's that kind of sense, false sense or otherwise.

But I don't think it's false sense of this kind of circuit breaker of this cushion.

The Fed has her back.

Ken Mahoney of Mahoney Asset Management.

Thanks so much for taking the time here with us, certainly.