Desert Island Stocks: The Long Game — With An AI Kicker
What's next for the Fed and stocks ...
[Editor’s Note: As part of our mid-year review, SPC’s Bill Patalon interviewed friend and investing expert Keith Fitz-Gerald about 2024 — what’s happened so far, and what comes next. Here’s a transcript of their talk.]
Hi folks, I’m Bill Patalon, co-founder of Stock Picker’s Corner (SPC) … and I’m here with my longtime friend and collaborator Keith Fitz-Gerald.
Keith has been called “somebody you should pay attention to” by No. 1 New York Times best-selling author and personal finance expert Suze Orman, “always insightful” by Constellation Research CEO Ray Wang, and a “market visionary” by Forbes. Fitz-Gerald has 45+ years in global markets and more than 3,000 prime-time appearances to his credit on the Fox Business Network, CNBC, Yahoo! Finance, Bloomberg and other networks around the world since beginning his career at Wilshire Associates in the 1980s.
Keith’s commentary, observations and market analysis have been featured in such notable publications as The Wall Street Journal, The Times (of London), Wired, and more.
Keith is Principal at the Fitz-Gerald Group, which provides bespoke consulting to professional wealth managers and publishes the popular and free 5 with Fitz as well as One Bar Ahead® for individual investors.
It’s the midpoint of the year … so I’m asking folks in my network for their top observations about the 2024 first half.
And what they’re forecasting in the second half … and into 2025.
I’m also asking them to take part in our “Desert Island Stocks Challenge,” which has been running over the past two weeks.
WPIII (Q): Welcome Keith … really happy to have you here.
KFG (A): Glad to be here, BP.
And thanks for the kind words.
WPIII (Q): Kind … but true … I’ve watched you work … have had a chance to work with you on some cool and innovative projects … and have enjoyed watching you create something special at One Bar Ahead ®.
In fact, before we get started … let’s give folks a quick rundown on OBA … and what you’re doing there.
KFG (A): Great … happy to do that.
I began One Bar Ahead ® - OBA for short – for two reasons.
First, because I wanted to shine a light on what it really takes to help people build and keep wealth.
And second, because I believe anybody can be fabulously successful in today’s financial markets when armed with the right education, tactics and knowledge.
Today we’re read by customers in more than 40 countries, many of whom tell me that what they’ve learned as a member of the OBA Family has changed their life.
WPIII (Q): I love it. And there’s a link folks can check out here.
Let’s turn it forward … to our Mid-Year Review … and our “challenge.”
What, in your opinion, was the most striking element of the first six months of this year?
KFG (A): There were three big things that played out in the first half of the year … played out as I expected them to.
I say that not to be boastful, but as an affirmation that my analytics … and the models I created … proved to be accurate. That gives me confidence in what I’m projecting for the rest of this year … into 2025 … and beyond.
Here are three hallmarks for the first half of the year … that will continue to have influence in the six-month run to the end.
I’m talking about:
The Ongoing Fed Follies: Coming into the year, Fed-watchers saw as many as six — count ‘em, six — rate cuts here in 2024. I’ve never been in that camp and, in fact, repeatedly emphasized on TV and to the OBA Family that it would be mid-summer at the earliest before the Fed got benched. Now, the Fed is caught between a rock and a hard place which is why I don’t think there will be a single rate cut prior to the election ... just more jawboning.
The Bull Keeps Running: Once again, I had a different view than the “smartest people in the room” - many of whom were not only calling for a recession ... but have successfully predicted 10 of the last two recessions. I predicted a close last year at 4,750 more than a year in advance and the S&P 500 closed at 4,769. I could very easily have been wrong, so admittedly, there is that. My point is not to brag but to set the stage. This year I see 5,751.51 now that the S&P 500 has taken out my initial target of 5,500. Structurally speaking, the path of resistance is still considerably higher. AI will play a key role. The mistake I see so many investors making right now is that they’re thinking about it as “a” technology when it may well be the single-biggest, most-valuable investing theme in recorded human history – a remark I made on CNBC several years ago that raised a lot of eyebrows. I might have been on to something. Which brings me to that third point ...
The AI Revolution: Investors who are worried this is some kinda “bubble” are underplaying their hand. Far from being a bubble, this is the single-biggest investing window … not just of this generation … not just of this lifetime … but EVER … as in EVER IN HISTORY. The wealth-creation potential here is … staggering. Stocks like Nvidia Corp. NVDA 0.00%↑ will continue to be massive beneficiaries of what I’ve described here.
WPIII (Q): Good stuff, Keith.
Let’s turn to the “what comes next.”
What do you see for stocks … and the markets in general? And why?
Because I know you have an upbeat, longer-term outlook for stocks.
KFG (A): That’s right, BP. I like what I see.
And for a couple of reasons.
First, BP, markets aren’t as “long” as the prevailing wisdom wants us to believe. By that I mean: Short interest remains low and appears to be peaking as a percentage of total market capitalization – even as the amount of applied leverage remains below historic levels.
If I translate this a bit … this data tells me that stock ownership (right now) isn’t as high as it’s been in the past. That means there’s buying power on the sidelines. The actual dollar figures support my conclusions. I believe there’s a good $3 trillion to $5 trillion sitting out there. And my friend and colleague Tom Lee of FundStrat has mentioned the $6 trillion figure several times in the last few months.
Corporate earnings – I’m thinking $285 to $290 a share on the S&P 500 next year, which is higher than the $250 forecast – will also help stock prices. The latest FactSet numbers tell us that analysts are looking for stocks to reflect 11.3% profit growth on average this year and 14.3% on average next year.
Like the actual dollar estimates for earnings, these are probably conservative, too. And if those numbers ARE conservative, we’d be looking at the third time in 15 years that the S&P turned in two straight years of double-digit-earnings growth.
The two preceding two times before this were 2010-2011 and 2017-2018.
WPIII (Q): FOMO will kick in …
KFG (A): That’s right, BP, FOMO … Fear of Missing Out.
There are a lot of folks seeing their friends, family members and coworkers making money while they sit on their hands – that’ll draw money into stocks like popsicles attract kids on a hot summer day.
My new annual target for the S&P 500 is 5,751.51 but even that could prove to be conservative.
WPIII (Q): And why is that, Keith?
KFG (A): Innovation creates profits and profits, in turn, drive prices. The markets have a very defined upward bias over time.
WPIII (Q): Do you worry about valuation?
KFG (A): No. That’s a common mistake. People have spent generations using the P/E ratio and other classic analysis to drive their perception of value.
The problem is twofold.
First, P/E ratios have no predictive value, whatsoever. Zero, zippo, zilch. This catches a lot of folks by surprise simply because it interferes with what they think they know.
And second, accounting regulations were built to reflect physical investments — inventory, people, R&D, etc. — more than 100 years ago. Today’s world is digital.
High P/E ratios are exactly what you want to see when it comes to tech.
Using history as our guide, I believe there will be more profits created in the next 10 years than the last 50 combined.
WPIII (Q): Okay, well, before we get into our “Desert Island Stocks Challenge,” let me ask you … name a company or two that’ll ride this wave higher … longer-term.
KFG (A): Nvidia is the clear poster child here. But people are totally underestimating Apple Inc. AAPL 0.00%↑ which will, once again, set the bar here for decades to come just the way it did when it launched the iPhone.
The fact that Wall Street doesn’t get it only adds to the potential in my mind.
WPIII (Q): We finished the important business.
Now let’s have some fun. Let’s tackle the next installment of our “Desert Island Stocks” series …
Just to “set the table” for readers.
We’re “Wealth Builders” here at SPC.
In other words – we play the long game.
The concept of “Desert Island Stocks” embraces that same spirit.
The backdrop: You know you’re gonna be banished to a desert island – and be incommunicado – for, say, two, three, five, eight, 10 years. And you want to park some money in one investment – knowing you can’t hedge it, trade it, sell it or adjust your stake for that entire stretch … what would this “desert-island pick” be?
And why?
KFG (A): Well, BP, there’s really one “best” stock that fits your parameters here.
And that’s Apple.
And with good reason.
Apple is part of the OBA Model Portfolio.
Investors are too predictable. They’re impatient. They obsess over every near-term wiggle. They crave the predictability ... even certainty – that’s tough to find in good markets, and impossible to find in bad ones.
So they miss the proverbial Big Picture – and the profits that pour out of it.
That’s especially true of a company like Apple, a proven player that faces some intermediate-term challenges – even after kicking butt with its AI strategy announcement in early June.
My POV is pretty simple: Apple has more than 2 billion of its “iDevices” in play across the globe. And those devices work together – meaning Apple devotees tend to want anything “new” that the company unveils.
Apple’s wares touch consumers and businesses – including customers who run as both. There’s a “multiplier” effect here, too – since Apple can leverage that huge installed base of computers, iPads, iPhones and watches to offer “annuity stream” subscription services. I love the business model.
The focus now is on a new antitrust case, the China market, a spiked auto project and AI.
But I think CEO Tim Cook and his team will handle those challenges … I really do.
That’s a stock I can buy … allow to sit and grow … while I’m meditating in the sand on that desert island, BP.
WPIII (Q): I like it ... thanks for joining us here.
KFG (A): Always, BP.
WPIII (Q): For you folks who want to check out Keith’s work … take a look at 5 With Fitz … I dig the name … and the work he does.
And swing by tomorrow for the next installment of our “Desert Island Stocks Challenge.”
See you then;
