Episode 367: Where to Find the Biggest 'Hidden Gems' of the AI Boom
On this week's Stansberry Investor Hour, Dan and Corey welcome Marc Chaikin back to the show. Marc is a 50-year Wall Street veteran and the founder of our corporate affiliate, Chaikin Analytics. He also created a popular Wall Street indicator that appears in every Bloomberg and Reuters terminal in the world.
Marc kicks off the show by describing why he's so bullish in this presidential-election year. He explains that we're now entering a "sweet spot" for the market, and if there are any election surprises, that would be even more reason to buy in. Marc also lists off some sectors that he's bullish on today, especially in mid-cap stocks. These areas of the market aren't making headlines, but they're seeing steady gains and present attractive buying opportunities...
I think stocks like Nvidia, and Google [parent Alphabet], and Microsoft, and Oracle, now Adobe, they're all riding the AI wave. Very, very positive impact on earnings, but I think it's going to broaden out. And that's what we're really looking for – the sort of undiscovered stocks that aren't in the headlines right now.
Next, Marc shares his thoughts on the current AI boom and compares it with the introduction of the Netscape web browser in 1995. He discusses profit margins versus valuations, the potential loss of jobs due to AI, and the usefulness of large language models like ChatGPT. According to Marc, there are companies across a variety of industry groups that are going to benefit from AI. Investors just have to find them...
Obviously, health care is going to [use AI as] a major breakthrough tool to create new drugs. But also, in finance, we found a company that has a digital banking platform for regional banks, and they're starting to use AI to make the customer interaction better. So you can find these companies across a broad spectrum of industries.
Lastly, Marc shares all the details about his newest, most personal newsletter service that will be launching soon. He explains that it's going to focus on finding "hidden gems" – mid-cap or small-cap stocks that are undiscovered but have great valuations. As Marc says, "The focus is prospecting for gold nuggets." With his custom Power Gauge system by his side, Marc is going to find hidden winners – in a range of sectors – that are set to profit from the AI revolution. You can get all the info here.
Click here or on the image below to watch the video interview with Marc right now. For the full audio episode, click here.
(Additional past episodes are located here.)
Dan Ferris: [Music playing]
Marc, welcome back to the show. Always a pleasure to see ya.
Marc Chaikin: Dan, good to be with you.
Dan Ferris: All right, let us begin where we last left off, which was a pretty good point for you. November 2023 was the last time we spoke, and the market's done pretty well since then and you've been pretty darn bullish, haven't you?
Marc Chaikin: Yeah, I have remained bullish for the last six or seven months, Dan, and part of the reason is the election year cycle, which has really been like a roadmap for us for the last three years. So what this tells us is that, in a presidential election year, the market finishes strong. Sixteen out of the last 18 presidential election years, the market's been up, and there's a sweet spot in that cycle, which is the June to August time framework. So, we were expecting a little bit of chop in the market, which we got in April when the tech stocks corrected, but we're entering that sweet spot right now.
And even more to the point, from June 1st through the end of the year, the market is typically up, in a presidential election year, an average of about 10%. So there's a lot of you can call it seasonality, but I prefer to call it the presidential cycle that's supporting a bullish outlook here.
Dan Ferris: All right, sounds great. Thanks for being with us, Marc. I mean, what else do I need to know? [Laughs]
Marc Chaikin: Good to be with you.
Dan Ferris: No, there is more to that. So, if it's bullish because it's a presidential election year, do you factor in or think about or try to prepare for a surprise to that? I mean, elections can surprise people... they sure surprised the heck out of a lot of people in 2016. How do you feel about the prospects for an election year surprise this year?
Marc Chaikin: Well, the market is typically very nervous in the four to six weeks leading up to the election. So in 2016, the market was actually down for about a month heading into the election, and then after Trump beat Clinton, the market took off again. So, yeah, there's always the possibility of a surprise, particularly in this overheated political climate, and that's why it's really the June to August period, then a bit of a pause and preparing for a potential surprise, and then finishing the year strong. So, yeah, a surprise is possible, but it certainly, it would be a buying opportunity... it's not something that spooks me.
Dan Ferris: Oh, OK. So, let's keep on this election year theme just as long as we can, as long as you tell me it makes sense. So the next question then is, does it make sense to look at specific sectors in an election year?
Marc Chaikin: Well, I prefer to look at more of a real-time snapshot of the sectors, because they pretty much tell us everything we need to know. And right now, even though the headlines are dominated by tech, and obviously AI and the software that's going to benefit from these AI chips that Nvidia is making, you also have financials, utilities, health care strong. So the market is, in a sense, broadening... it's just not garnering the type of headlines that you would expect. But for instance, in the insurance industry, lots of attractive stocks based on the Chaikin Power Gauge rating. Again, when I talk about attractive or good sector, it's based on our proprietary 20-factor Power Gauge model.
Corey McLaughlin: Oh, insurance stocks, that's exciting for me to hear, believe it or not. I do like the insurance business. I mean, because we keep seeing – I think there was a report I saw, the other day, about more and more people actually publicly referring to insurance prices being so far up, you know, 40% for their premiums and whatnot. You've got to think that the right businesses are benefiting from that in insurance.
Marc Chaikin: Absolutely, I mean, and it's not just property and casualty. There's a recent spinoff out of AIG called Corebridge Financial, which just has a really positive Power Gauge rating, but outperforming the market since it was spun off back in 2023. And there's opportunities everywhere, you just have to dig them up.
Corey McLaughlin: I didn't want to get too off track from the presidential cycle, there. I did want to ask you about that, too. So my question about it is, obviously the track record of it's there, but, you know, the why. Why this year this leading up to elections does the stock market tend to do well? Is it just the promise of politicians, no matter who they are, you know, heading into November, or is it something else?
Marc Chaikin: No, I mean, in this case, it's the fact that the Fed has stopped raising interest rates, and whether they cut in the fourth quarter or not is still to be determined. And strong corporate earnings. So, you've got this AI boom, which is driving a whole sector of the market in the cap-weighted ETFs like SPY and QQQ, they're dominant and, therefore, any money that's coming in, there's an awful lot of money flowing into the market, over 96 billion, so far, in 2024. A lot of that goes into these passive funds that are capitalization weighted, and they've got to buy Nvidia, Apple, Microsoft, in proportion to their weightings in the ETFs.
But the bottom line is earnings are going up and profit margins are improving and inflation is going down. In spite of the headlines that you're seeing about stubborn and so forth, you've got a number of very positive factors driving the economy. And so, I think in any election year, something is a hook that the market keys on. In this case, it's earnings and, you know, if not an easing by the Fed, certainly no more tightening, and that's very bullish for stocks.
Dan Ferris: So, I see a lot of a lot of commentary about it anyway, about the incredibly narrow breadth and narrow leadership, it's never been like this, the market has never been so concentrated, many people are noticing. That doesn't bother you.
Marc Chaikin: No, it's just an oddity. I just read a study, today, there were five instances, since 1990, when we had this kind of breadth, although the S&P and the Qs are much more overbought. And in each of those 5 instances, the market was higher 6 and 12 months later. The period from, say, two to six months is choppier where some years are up and some are down, but I actually think there's going to be a broadening out. And that's part of what we're very excited about, about this upcoming product launch, because I think stocks like Nvidia and Google, Microsoft, Oracle now Adobe, they're all riding the AI wave, a very, very positive impact on earnings. But I think it's going to broaden out, and that's what we're really looking for, the sort of undiscovered stocks that aren't in the headlines right now.
Dan Ferris: What tells you that? Is it is that another sort of Chaikin Power Gauge rating or something else?
Marc Chaikin: It's something else. There were a series of momentum patterns that triggered in December of 2023 and January of 2024. The most obvious one is, the percentage of stocks in the S&P 1500 index, so that's large cap, mid-cap, and small cap, 90% of those stocks, in December, were above their 50-day average. And every time that that's happened, the market's been higher 6 and 12 months later and mid-caps have outperformed large caps. So that was what clued me in, and then you had the mid-cap index making a new high after failing to do so for a year.
So, a lot of things are falling into place that tell me this market's broadening out. Now, if you look at the headlines, you'd never know it, but that's why we think there's opportunity coming up very soon.
Dan Ferris: All right, and you already named some sectors, what did you say, utilities, health care, a few other things. Do you focus your bets on those or no?
Marc Chaikin: Well, we'll be looking for the strongest stocks in the industry groups. Utilities is a really special case. You know, normally, this is a defensive sector and these stocks tend to go opposite to the tech sector, but it's all about power. AI chips and AI data centers require power, and so, there are a lot of alternative energy companies in the utility sector that are generating power or capable of doing that for AI data centers. So, it's sort of a different ballgame with utilities. I was surprised, but my partner, Pete Carmasino, has picked up on that in his Chaikin PowerTactics, where he's looking for these shifts and there are a number of stocks in that sector that just are dynamite, and also in health care.
So we're very opportunistic. We want to find the strongest stocks based on the Power Gauge, in the strongest sectors and industry groups.
Dan Ferris: Yeah, throw consumer staples in there and those are three defensive – normally thought of as defensive sectors, but you like them.
Marc Chaikin: Yeah. Well, health care has always been a problem for me and an opportunity, because was defensive, but there's really a lot of growth opportunity in health care. So, I mean, just look at Eli Lilly and, you know, that is not a defensive stock or a defensive sector, anymore. But we'll find them wherever they come up. There's still some software stocks that haven't gained a lot of public awareness in them in this mid-cap sector. And when I talk about mid-caps, I'm talking about stocks with market caps of $2 to $10 billion, roughly.
Dan Ferris: Interesting. Wow, that harkens me back. I remember attending the Value Investing Congress, and I wish I could remember the guy's name who showed up every year and said his fund was totally focused on mid-caps. And they were kind of a focused value-oriented firm and they did really well, and I remember thinking, "Why doesn't everyone imitate this guy?" because he did so well. [Laughs] But there's a lot of good brands down there and a lot of good names in the mid-caps that they just don't get as much press because, you know, it's kind of a mega cap world for the past several years, isn't it.
Marc Chaikin: It is indeed. And when you think about it, what is a mid-cap stock? Let's just look at the S&P MidCap 400 Index, these are stocks that are on the verge of being added to the S&P 500. So, they're your next wave or next generation of stocks that are going to be on people's radar screens. But there's another reason that I like mid-caps, and, of course, when I see a trend or an indication that things are going to change, I always try and figure out why, apropos of what Corey asked before.
And I think mid-cap companies are in a position to implement AI and be more nimble than some of the large companies in the S&P 500 who have legacy software or a much more layered management structure before they can make changes. So, for instance, a friend of mine, who was on our board until three years ago, is on the board of a private equity company, and they have an annual conference in Florida, in Naples, every January. And at this year's conference, there were 23 CEOs from the various private equity investments that they have, and there was a whole panel devoted to implementing AI in your business.
And the message from the private equity management was you've got to be using AI to increase productivity, the supply chain, make it more efficient, have better interactions with your customers. So, I think mid-cap companies are in a unique position where they can implement AI and boost profit margins. And I think that's what the next five years are going to be all about, increased profit margins across the board.
Corey McLaughlin: That's interesting, yeah, I haven't heard that kind of explained that way before, that these mid-cap, you know, smaller companies will be able to implement whatever technologies, whatever solutions, quicker. Which brings me to a question I did want to ask you about. With AI, how does it compare to, like, what comes to mind for you? I mean, obviously, you have five decades of experience, at least, right, in the markets. How does that technology, how does it compare to other technologies that you've seen? Like, what comes to mind?
Marc Chaikin: That is a really interesting question, and I compare the AI boom to the introduction of Netscape browser in 1995. The market leading up to that introduction had been very choppy in terms of both inflation, interest rates, the economy. Netscape browser was introduced, and if you look at what happened between '95 and 2000, you see two things. Inflation went down, profit margins went up, and the Netscape browser basically democratized the Internet. And people started adapting their business models to start selling online or interacting with their customers online.
And I think we're in a comparable situation, now, where the AI boom is going to trigger a wave of profit margin increases, for the next five years going out. And it's so comparable to that period. We're probably in 1996 to 1997 right now, so there were some pretty big drawdowns in '97 and '98, in October, but we all know what happened in 2000 when the tech sector blew off. So, it was a good period to be invested in stocks, and I think that's where we're headed now.
Dan Ferris: Wow, so, and the overall market's rather exorbitant valuation by various measures doesn't bother you at all?
Marc Chaikin: Well, it's that seven stocks in the S&P that are very highly inflated and I think profit margins are way up. On the other hand, they contribute 27% of all the earnings to the S&P. You look at the other 493 stocks and P/Es are pretty much in line with the norm. And then when you go down to mid and small cap stocks, P/Es are actually below historical norms. So, I always worry about valuation, you know, we all know what happened to Cisco in 2000, you know, everybody's comparing Nvidia's chart to Cisco.
But Cisco was making a machine, basically, that was put into data centers to drive the Internet demand for processing power. This is a whole new ballgame, and, sure, Nvidia is very richly priced, but look at their earnings growth. So, you know, if P/Es are all about forward growth, then, so far so good.
Dan Ferris: Yeah, I saw something that said semiconductors generally, it's not just Nvidia, it's semiconductors generally are set to become the biggest piece of the S&P 500, soon, at about 11% or so, still currently just a hair behind software, which has been the dominant one for a while. And the Cisco example reminded me of that because its industry was the leading one in March of 2000. Generally, historically, has been a bad sign for longer-term returns, but in the short-term, it sure can get pretty exciting, can't it. [Laughs]
Marc Chaikin: Indeed, and profit margins are the key to future returns. And if we're entering a period where, because of AI, companies are more profitable, they cut some people where the fat is there, and then they implement AI and, as I said, supply chain management, customer support, HR, and so forth, profit margins are going up. That's where I see this headed. And in that scenario, valuations start to readjust to better profit margins. So valuations typically are not as much a function of earnings growth as they are a combination of earnings growth and profit margin growth.
Dan Ferris: So generally speaking, when we get these big technology revolutions, really, people just, they become more valuable and more productive. Although, there is this aspect of what's famously known as creative destruction, right? And you mentioned possibly replacing people, almost definitely replacing people, in this case. I wonder if we, and of course I'm hopeful, that we will get that effect, right, and people will find ways to be more valuable than whatever machine-like task they're currently doing that can be replaced by artificial intelligence-driven software and hardware.
Is there – it makes me wonder, there should be an opportunity, there. In a healthy economy, there should be an opportunity, there, for people who are no longer doing this lower-value thing, but it makes people nervous, doesn't it? It makes them very nervous.
Marc Chaikin: It does indeed, because it makes great fear headlines and that's what gets clicks and that's what our world has devolved into, in some sense. But I don't know where these workers are going to go, and, you know, some of it's just superfluous. Some of the big tech companies have, Elon Musk, of course, called out the people at Twitter that they just got a lot of fat, a lot of people sitting around not doing very much, and they're starting to cut. They were starting to cut before AI, so this isn't, strictly speaking, just related to AI.
But, I mean, think of one area where, really, I've recommended some stocks that haven't done well in the short term, and that's the consultants, the IT consulting business. They're going to be in big demand, because if you're a mid-cap company, for instance, and you want to implement AI, what are you going to do? Well, you're going to go to one of the big consulting companies, McKinsey or Gartner, and try and get a little bit of knowledge, Accenture. So, I think consulting is going to become a big growth industry, it already has, in many cases. These stocks sort of ran ahead of themselves in the last quarter of 2023, first quarter of 2024, but that's a growth area that I think is related to AI.
Dan Ferris: Yeah, and an area where there's plenty of fat to cut, I have to say. [Laughs] There's a lot of people in that business who, you know – you know how this works, Marc, they show up with their charts and their ideas and they've never done anything but being a consultant before. They're going to have to get real jobs, aren't they?
Marc Chaikin: They are. I'm not a big fan of consultants in general, but I think in the case of AI, they are essential, because how is a small company going to have the internal resources to figure out where, what, and when to do this.
Dan Ferris: Agreed.
Corey McLaughlin: I've read a couple articles where some AI, I guess – I think AI consultants have actually said that a lot of workers themselves are becoming the first people to try these AI tools without, you know, just on their own and seeing how they work. And so, what you're saying sounds like just an extension of that as it filters up from the bottom in management.
Marc Chaikin: Yeah, I mean, here's a very small sample. AI voice generation can actually save time. So, for instance, they could clone my voice, and if I've got a routine message to deliver, instead of me sitting in front of a studio like this, but without the benefit of two knowledgeable hosts, I can just write the script and an AI voice generation program will make it sound like Marc Chaikin. So, but why is that good? Because I'm freed up to do more productive things like find winning stocks for people.
So, it's just a changing world, and as long as we recognize that there are pitfalls and there are going to be bumps in the road in terms of fake videos and so forth, we're going to be fine. We lived through Facebook... we can live through anything.
Dan Ferris: That's right. Maybe we should rename the podcast "The Turing Test Hour," and we can figure out if our guests are really there or if they're AI bots. [Laughs]
Marc Chaikin: There you go [crosstalk].
Corey McLaughlin: Evidently, it doesn't take much sound or video to be able to keep you going when you're not there.
Dan Ferris: [Crosstalk] get a sample, yeah, that's right.
Marc Chaikin: Yeah, it's really amazing. A little scary. That part is scary to me.
Dan Ferris: It is. I mean, that's obviously an amazing accomplishment. I have to say, I'm still not real impressed with the chatbots like ChatGPT and so forth. I keep asking them if they know who I am and if they can make an investment recommendation in the style of Dan Ferris. And they know who I am, and they seem to know better than ever who I am, but they still have no feel for what I think or what I've published or anything like that. So, I figure maybe it's because it's all behind a paywall, so we'll have to get some of the – but we have free stuff. Actually, I'm wrong about that, aren't I, because our Digest goes out to the whole world. So, I'm not real impressed, so far, but I understand lots of people are doing amazing things with it.
Marc Chaikin: Well, I did an experiment in the early going with the second generation of ChatGPT... we're now up to four. I said, "Write a research report on XYZ Company in the style of Stansberry Research," and they were able to do it. And then as a test, I said, "Now write one in the style of David Ogilvy," who's one of the great advertising gurus, and they were very different, very different. So, not necessarily ready for primetime, but I agree with you – they know me because of the Power Gauge and there's a lot of public sort of information or dialogue about the Chaikin Power Gauge rating, so they'll – and they can dive in and find the Power Gauge [crosstalk]. [Laughter]
Corey McLaughlin: Uh-oh, yeah.
Dan Ferris: We'd like to ask them how they have access to the Power Gauge. We should ask ChatGPT that question. [Laughs]
Corey McLaughlin: Yeah, because I was just going to say, it is exciting, these new tools that are out there, and companies that some of them aren't even created yet. Have you guys seen this perplexity AI it's called?
Dan Ferris: Mm-hmm, yeah.
Marc Chaikin: I have [crosstalk].
Corey McLaughlin: Yeah, so that's, I mean, I've felt, in just the work I do, you know, writing, trying to keep up with stuff every day, it was becoming harder and harder to do that, the last couple of years, or the last 5, 10 years, there's just so much information out there. And I feel like that tool – which, by the way, Stanley Druckenmiller said he used to research Argentinian stocks after Javier Millet got elected and he decided to buy them just based off Perplexity's recommendations, I guess, which I wouldn't suggest to people. But that has helped me just keep up with, you know, you type in a question there and there's new, you know, it gives you the sources, it gives you the news. And I don't know that kind of thing, that's helpful. I mean, that's like leveling the playing field for me, almost.
Marc Chaikin: Very, yeah. Stanley Druckenmiller was a client of mine when he was at the Soros Fund in the late '80s and early '90s, and I can promise you he didn't buy stocks just because [crosstalk].
Corey McLaughlin: All right, well, that's what he said on CNBC, but, yeah.
Marc Chaikin: I know – it points you in the right direction for sure, for sure. But, I mean, the trick is finding stocks to benefit from AI, and, you know, we're seeing it in a variety of industry groups. Obviously, health care, it's going to be a major breakthrough tool to create new drugs, but also in finance. We found a company that has a digital banking platform for regional banks, and they're starting to use AI to make the customer interaction better. So, you can find these companies across a broad spectrum of industries and – energy.
AI and energy is going to become very big in terms of optimizing pipeline flows and maybe convincing some government somewhere to let us build more pipelines, so that we can get our natural gas where it needs to be, which is in the consumer's hands or exported. But AI is being seen across a broad swath of industry groups, already being used.
Dan Ferris: All right, and we're nowhere near, I mean, Nvidia is richly valued and has a had an epic run, but – maybe rather than asserting, I'll just ask the question. Are we anywhere near an AI bubble, in your opinion?
Marc Chaikin: That's above my pay grade, because you're dealing with psychology and that's a tricky bit. But let's look at another stock that's actually in our 2024 portfolio in the Chaikin Power Gauge investor, and that's Qualcomm. And since we recommended it in February, it's up about 50%, best performer in the group, and I don't see anybody talking about Qualcomm as part of the AI revolution. And Qualcomm is sort of the intersection of AI and mobile devices.
There's a company called Zebra Technology, which has the scanners that they use in the supermarkets to read the barcodes, and they're handheld. Qualcomm is now putting chips into the Zebra handheld scanners, and it enables a supermarket manager to order strawberries, if they're out, without connecting to the Internet, using Qualcomm's AI chip. So, and you don't see anything about Qualcomm associated with AI, or at least not in the major media. So, Qualcomm, in my view, it's not a recommendation, obviously, because we're talking to a broad audience here, but it is in our 2024 portfolio.
And I think it's got a three-year runway where their chips are going to go into things like handheld scanners and computers, as well. So, there's plenty of pockets of opportunity away from Nvidia. Will there be a bubble? Sure. Always is. This is based on earnings. In 1969, or '73, I shorted a stock called Four Seasons Nursing Homes, in my personal account – I was a stockbroker. It was in Oklahoma and I think they had four nursing homes, and it had a bigger market cap than Montgomery Ward or Sears or something. And unfortunately, it went – I shorted it at 99 and I covered it at 119 and 7/8. A lot of shares for a young kid.
That was one tick away from the all-time high, and 12 months later, it was bankrupt. But there were a whole group of stocks like that in I guess it was '70. There was a company called Levitz Furniture, which –
Dan Ferris: Oh, yeah, I remember Levitz.
Marc Chaikin: They had about 18 furniture stores and they were bigger than Montgomery Ward in terms of market cap. So, you know, this has happened for time immemorial, but if you invest by always looking for shadows around the next corner, you're never going to be in the market. You're never going to make any money.
Dan Ferris: Right, yeah, today is always the hardest day to invest, my friend Chris Mayer likes to say. Right now is always the hardest time.
Marc Chaikin: Exactly. Yeah, that doesn't mean you throw caution to the winds, and I respect the work that you do, Dan, where you see pockets of insanity in the market and shy away from them, and that's good, I mean, that's good for investors. And if you have something like the Power Gauge rating on your side and you're looking at Dan Ferris' research, it's even better.
Dan Ferris: There you go.
Marc Chaikin: So, you know, any time you can eliminate some of the losers or the potential losers, you're a winner in the stock market.
Dan Ferris: Right. That is not a sexy thing, but it's got teeth, doesn't it, you know, eliminating losers, sort of counterintuitively, a way to make money is eliminating losers. So, gosh, I didn't know we were going to spend all this time talking about AI. We just can't help ourselves, though, can we? It's like talking about Netscape in 1995, I guess. [Laughter]
Marc Chaikin: But can we talk for a minute about the upcoming product launch?
Dan Ferris: Yeah, let's do that. I'm sorry, we got off on that AI thing, but, yeah, tell me about this. You mentioned the new product, briefly, several minutes ago, but let's get into it. What is it?
Marc Chaikin: It's called Marc Chaikin's Power Picks. And for the first time, we put my first name in a product, and the reason is, this is very personal to me. This is what I went to Wall Street to do, pick stocks. But unfortunately, I was with a big wire house or investment firm back then, Shearson Hammill, and they said, "You're not going to be one of those young hotshots who wants to pick stocks." "Oh, no, I'll sell the firm's research." But what I always wanted to do was pick stocks.
And I like discovering new stocks. I'm entrepreneurial and I think that the mid-cap sector is populated with entrepreneurs who've been successful. And so, we're coming out with Marc Chaikin's Power Picks, and in the monthly reports, we're ging to zero in on what we call hidden gems. Mid-cap stocks, sometimes small cap, that really are undiscovered but have great valuations, bullish Power Gauge rating, in the right industries, and so forth. So, very excited about the launch, because it's almost like completing the circle for me to be very deeply involved in finding hidden gems.
Dan Ferris: Hidden gems, boy, I'd like to find a few of those. I can't wait to see what you come up with. I could use a few hidden gems. We are, just in the work I do, we're kind of running out of thoughts. Maybe we need to start reading your stuff. Well, we found a few things on the short side, but that's a different subject. So, wow, this is a personal thing, it's got your first name on it. I mean, is there anything different about it? You know, what are the differentiating factors between Marc Chaikin's Power Picks and just sort of Power Gauge output, let's say?
Marc Chaikin: Well, that's a good question, and it starts with the market cap segment that we've chosen to focus on, which is mid-cap stocks. And then, we're looking for stocks where AI is already making a difference. So, they're not going to be AI stocks, but they're going to be companies that are using AI, for instance. I mentioned a company with a digital banking platform that's potentially going to be in our launch portfolio of five stocks. We're looking for health care names where AI is starting to play a bigger role in their business.
So there are a lot of software companies that have customer-facing software in the health care industry, and they're all using AI right now. So, we're going to look for really special situation hidden gems, stocks that aren't on everybody's radar screen. I mean, there are some mid-cap stocks like Super Micro Computer – well, that was, it's now in the S&P, that are on everybody's radar screen. But, you know, as you go deep into it, use the Power Gauge, you find some really interesting names. And that's what we're going to be focusing on.
Our other publications are much more structured in terms of top-down strong sectors, strong industry groups, strong Power Gauge, and those may be characteristics of our hidden gems. But the focus, here, is really on prospecting for gold nuggets. We're looking for the big finds.
Dan Ferris: You mentioned that you're going to launch the new product with a five-stock portfolio? Do you have the five names you picked out? Sounds like you have at least one of them.
Marc Chaikin: We do. We're launching on the 26th, so, it's getting pretty close, and we've got the five stocks picked out. Hoping the market pulls back a little bit, so we get to buy them at a discount to the recent highs that we've seen in the market.
Dan Ferris: Sure. But if your [inaudible] seasonality is good, you couldn't launch the thing at a better moment, it seems. [Laughs] I mean, June of an election year sounds perfect.
Marc Chaikin: It's a good time. And July. By the way, the first two weeks in July are the best single two-week period, going all the way back to 1928, in the stock market, year in and year out.
Dan Ferris: Oh, best single two-week period regardless of election year or anything else.
Marc Chaikin: Any year.
Dan Ferris: Wow.
Corey McLaughlin: Wow, I'm hearing 1996, '97, broadening market, AI going to boost everybody's productivity, like, is that what I'm hearing? Is that correct?
Marc Chaikin: You are. It sounds like you're going to write something up. I love it.
Dan Ferris: Yeah, that's right. It sounds like [crosstalk] stocks, that's what it sounds like. [Laughs]
Corey McLaughlin: [Crosstalk] I'm more bullish now, yes.
Marc Chaikin: Yeah, Corey, that is – well, you know, I've been consistent recognize – even pullbacks are hard to find in an election year. I've heard people talking about, "Oh, we're going to get a 5% to 10% pullback. It's inevitable." Not in an election year, not necessarily. So, you know, I think we just saw a 3% pullback, recently, in the major averages. That usually translates to give to 8% in individual stocks, especially smaller-cap names that are more volatile. So, we're looking at that as a buying opportunity. Whatever pullbacks we get on a short-term basis, a la Dan's comment about seasonality, the way we look at it, I see that as a real buying opportunity.
Dan Ferris: Yeah, you're not alone in this. I've talked to a couple other folks who do, well, obviously, they don't have the Power Gauge, but I would say they do generally kind of similar work to you and are saying very, very similar things. In fact, one of them is pointing to this week and maybe next week, hoping to get a little pullback, to get really bullish and really sort of pile into it and take advantage of what he expects to happen for the rest of the year, which is exactly what you expect. So, gosh.
Marc Chaikin: Yeah, I know, Goldman Sachs had a very bullish piece out, late last week, and they talked about a flood of passive money that's due to come into the market in early July, based on some of these passive volatility strategies. You know, when volatility gets low like it is now, a lot of these strategies, there's trillions of dollars being deployed, based on computer models, have to go into stocks. So, in June, you may see some frontrunning. I mean, smart people know this is coming, and you may actually be frontrunning that right now, you know, by the more aggressive hedge funds and trading desks. So, Wall Street's become a little bit more complex, but at the end of the day, it's all about earnings and profit margins. The rest is just noise.
Dan Ferris: And it's funny, because for some years now, there's been this constant talk. Actually, Jeremy Grantham from GMO is a typical voice in this, he constantly points out that profit margins are what he calls the most mean-reverting data series in all of finance. And the mean reversion hasn't come. It simply has not arrived. And we don't count, really, COVID, that was sort of an anomalous thing. But right. But dare I suggest we're in a new era. I hate to use the term, but it seems like the long-expected mean reversion has not arrived. And if you're right about AI, Marc, what you see over the next few years, again, using that sort of 1995 analogy here, it's not going to arrive for three or five more, so.
Marc Chaikin: Exactly. Take a look at profit margins between 1995 and 2000 and you'll get a sort of roadmap or an analog to what I think is going to happen today. And you've summed it up really well there, Dan. So, it's a good time to be invested, as a friend of mine in Philadelphia says, who is always fully invested, but has a sort of side portfolio of smaller stocks, and he said, "Marc, it's a good time to be in the market."
Dan Ferris: Does he do similar work to you or analogy no?
Marc Chaikin: Fundamentalist, was a partner of Alex Brown, did fundamental research was a floor trader, but he uses the Power Gauge.
Dan Ferris: Oh, he uses the Power Gauge, OK.
Marc Chaikin: He does, and so do his money managers at Wilmington Trust. So, yeah, if you combine the power gauge with any other discipline, whether you're doing your own fundamental research, whether it's Morgan Stanley, Goldman Sachs, your friends, you combine the power gauges and overlay, you've got a really powerful tool to narrow the playing field because. because you and I both know that, to make money in the stock market, you need two things. You need a plan and you need a focus and have a repeatable process.
And for my friend in Philadelphia, the Power Gauge is his final filter. He may not go looking for new stocks with the Power Gauge, but when he gets an idea himself by watching CNBC or reading – he's 84 years old and very active investor – he then filters it through the Power Gauge. So, if you filter anything through the lens of the Power Gauge, you're going to improve your results. And that's a story I've been telling for 10 years, and hopefully be telling it for another 10.
Dan Ferris: Right. And as a reminder just to listeners, although I bet most of them have heard of you by now, the Power Gauge is Marc's system that, first time he told me about it, it blew me away. What did you say, it's 80% fundamentals?
Marc Chaikin: Exactly, and only 20% technical. And it's based on the factors that my clients like Stanley Druckenmiller looked at. I had a lot of successful investors, not just hedge-fund people, and I was privy to what they did, because back then, we were showing them how to use technical analysis in their decision-making, because that was our institutional brokerage terminal. I learned what they looked at. Some were value investors, looked at P/Es and book value... some were growth investors.
Some were looking at, back then, things like earnings surprise and analyst earnings estimate revisions. All of those successful strategies and those factors have been distilled down into the 20 factors in the Chaikin Power Gauge rating. And it's stood the test of time, launched in 2011, so, 13 years in and it's still working, with no major revisions. So it's not curve fit, it's just, it's based on how Wall Street works, Dan.
Dan Ferris: That's impressive that it can, that it can undergo no major revisions in 13 years.
Corey McLaughlin: Yeah. Well, you were way ahead of your time, I think, right?
Marc Chaikin: [Laughter] Yeah, that's right. Thank you. Yeah, quantitative analysis was not on anybody's radar screen [crosstalk].
Corey McLaughlin: Yeah. I want to ask you, before we close out here, you mentioned, or I mentioned Stanley Druckenmiller. Tell me a story about him as a client, working with him, what you learned, or something that comes to mind.
Marc Chaikin: I learned you damn well better be prepared when you were in a room with him, because he was the smartest guy in the room. And he does like to sail. I had a sailboat that I chartered from a friend down in Virgin Islands, and one year I couldn't use it and Stan rented the boat and went out with a captain. So, he's a good sailor and he is smart [crosstalk].
Corey McLaughlin: Yeah, whenever I hear him talk, you know, he obviously does interviews and then presentations, occasionally, I mean, he just seems like – I don't know, I'm obviously quite a bit younger than him, but I find myself agreeing with almost everything that he says. I don't know if he's saying, if he's just one of the lone voices saying it or, I don't know, but I just like listening to him. Kind of like you, so.
Marc Chaikin: I do, too. Oh, you're very kind. But be mindful that when he was bearish in 2023, in the beginning, or at least leaning toward a big correction, he was buying Nvidia. So, on CNBC, he was telling people to be cautious. But if you look at his trades, which someone did analyze them, he was buying Nvidia back in the early part of 2023.
Dan Ferris: Right, when he claims not to have been able to spell it, "I couldn't spell it," he said, "But I was buying it." [Laughter] I've learned to listen to Stan through a particular filter, where he has these usually more bearish kind of long-term concerns, you know, things like just the usual debts and deficits and government spending and so forth. But then, as you point out, you know, there's the other question, which is, what are you buying right now? And that's a totally different question for him, so.
Marc Chaikin: That's really perceptive on your part [crosstalk] absolutely true.
Dan Ferris: You got to learn to separate [crosstalk].
Marc Chaikin: Well, I mean, Jeff Gundlach's another guy, he's out there, you know, panning the economy, but he's buying stuff. You know, they say what – sadly, they know how you get on CNBC, and that's by being a bit controversial. So, you know, nobody's getting invited back to say, "Hey, I'm bullish and I'm buying Nvidia," [crosstalk].
Dan Ferris: [Laughs] That's right. Yeah, that ship has sailed to get invited back for that trade. All right, well, listen, Marc, it's great to talk with you. We do have our final question to ask, which is the same for all guests... you've answered it a few times. And it is simply this, if there were just one thought that you could leave our listeners with today, what would it be?
Marc Chaikin: Vote in November of 2024. This is the most consequential election in our lives. Whatever your point of view is, vote, and get your friends to vote.
Dan Ferris: All right, that's a simple message. Thanks a lot for that, Marc. And thanks for being here. It's always a great pleasure to talk with you.
Marc Chaikin: It was fun for me, Dan and Corey. Thank you so much. Look forward to the next time.
Dan Ferris: [Music playing]
All right. Folks, as you heard today, our friend and 50-year stock market expert, Marc Chaikin, is preparing for a critical announcement. He's just spotted a dramatic shift in the markets. One that he expects will likely determine some of the biggest stocks of the next decade. And now, for the first time ever, he's unveiling what he believes is the perfect strategy for getting ahead of it, one he's been waiting to share his entire career. Let me repeat that. Marc has been studying this market phenomenon for decades, and it is by far his No. 1 favorite way to profit from the system he spent his lifetime creating.
In other words, the folks who understand this stand to make a lot of money. Within days, Marc will show you exactly what's happening and how his team can help you build more potential wealth than you ever imagined. So if you do one thing for your wealth this summer, make sure it's this. Head to www.june26warning.com. Again, that's www.june26warning.com, where you can get all the details directly from Marc. I consider this a must-see for all Investor Hour listeners.
One last time, that's www.june26warning.com.
Outro: Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stansberry Research, its parent company, or affiliates.
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