The best investments when dealing with a global sell-off

The major indexes (^DJI,^GSPC, ^IXIC) are sinking after July's weak jobs report stoked recession fears. Zacks Investment Management client portfolio manager Brian Mulberry joins Wealth! to break down the movement and how investors can best navigate the sell-off.

"The market's been a little bit overdue for a pullback like this," Mulberry argues. Amid the sell-off, he encourages investors to focus on companies with high-quality balance sheets, multiple revenue streams, low levels of debt, and good cash flow metrics. He points to consumer staples (XLP) as good investment opportunities, highlighting names like Walmart (WMT) and Coca-Cola (KO) since "being concentrated on quality is how you're going to survive this particular sell down in the market."

As major tech stocks have dipped amid the global market sell-off, Mulberry believes that the companies actually monetizing AI will be in a better standing among competitors.

"The dividing line is going to be, 'what is your business model?' There's been an enormous amount of investment from all of those companies in this type of technology. But who's actually closing the loop and generating revenue from AI?" he explains. He points to Microsoft (MSFT) as one of those names as it generates revenue from its subscription service that allows users to access ChatGPT through the Microsoft Office suite.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Melanie Riehl

Video Transcript

Let's end the show where we began stocks selling off this morning, but just off of session lows about 2.5 hours into the trading day here with more on how investors should manage their portfolios amid the sell off.

Let's bring in Brian Mulberry, who is the Zacks investment management client portfolio manager.

Good to see you Brian and thanks so much for hopping home with us.

You know, just as we are kind of ending out the closing portion of the the morning portion of the session here, a lot of investors going into lunch time just trying to figure out.

Ok, where do they need to continue to pay attention to some of these declines and perhaps where are their opportunities being presented?

How are you evaluating this?

Yeah, we've been a big believer that the market's been a little bit overdue for a pullback like this.

Obviously, it's not fun to go through something like this.

And I think in today's market, you see this type of action that probably would have happened over the course of a week or two, get consolidated into just one day.

And so we've been really focusing on high quality balance sheets.

We like those names that have multiple ways of generating revenue, low, low levels of debt.

So good cash flow metrics and and decent or better than the market earnings growth is possible to achieve with a higher quality balance sheet.

So you're not being dragged down by the higher cost of capital.

We're in a still higher for longer interest rate cycle.

I know the market is trying to rationalize that and we're seeing earnings get repriced along those names.

So there are pe places out there where you can go in a little bit more defense of sectors like perhaps a consumer staples and you would want to own things that have those types of metrics.

Walmart, for example, you want to own that probably more than you want to own target.

You wanna own Coca Cola more than you want to own.

Pepsi.

Again, being concentrated on quality is how you're gonna survive this particular sell down in the market.

We do know that it will eventually moderate.

We're seeing we're off the session lows at this point in time.

And so there could be an opportunity to find better valuations now than there was a week or so ago.

I I was running through some of the large and, and mega cap, I should say stocks that have moved to or through some of their moving averages at core levels.

One of those I is one of the names that's on your radar and JP Morgan which is below this 50 day moving average here.

Uh take us into your thesis and your thinking there.

Yeah, JP Ward is a great example.

They just went through a big stress test on the federal level, passed with flying colors, had a really strong earnings season and said things are actually getting better on the investment banking side.

This actual revaluation could show us even more activity, which means more revenue for JP Morgan.

This is definitely one of those buying opportunities for a really high quality company at this moment in time.

So if you were needing to reposition assets and, and you know, I want to certainly point out the fact that we're gonna end this debt still positive for the year on most of these indexes.

And that means a lot of these names could have an opportunity to get a better position of bigger uh exposure to higher quality names than just buying momentum.

The way this market has been trading over the last couple of quarters, Brian, is this the type of sell off where we would see a divergence in tech names and, and reason cases perhaps.

And I and I say that because you've got some of these names that haven't seen a massive shift, at least in the fundamentals.

And, and I'm thinking of a company that we've been talking about as well.

And Invidia, it doesn't seem like there's been a massive shift in the fundamentals.

But then you have names like Amazon that have crossed already below their 200 day moving average.

You have a company in Microsoft that I believe might be teetering with it here during today's session.

We'll see where things close out.

So I I is there going to be this divergence between some of those core technology names that have really led the charge here over this last 12 months?

Yeah, I think so.

And the dividing line is gonna be, where are you actually monetizing A I?

Because all of those names have been carried by this A I momentum, this wave of energy that has existed for these stocks.

And so the dividing line is gonna be, what is your business model?

There's been an enormous amount of investment from all of those companies in this type of technology but who's actually closing the loop and generating revenue from A I?

And we can point to Microsoft at least engaging in a subscription service that allows you to access chat GP T through your Microsoft suite of products.

And that's, you know, $30 a month subscription.

We can now say, OK, how many subscriptions have you sold?

How close are you to getting your investment back and being profitable?

The rest of the A I investment that's been made out there still isn't being monitored.

Ties and the dividing line is gonna be who's actually going to start turning a profit and when, and that's what I think investors are starting to ask as we start to get to this point of, you know, uh repricing earnings, what's gonna be a drag on your balance sheet versus what's gonna add revenue?

That's gonna be a really important question going forward.

Brian Mulberry, who is the Z A investment management client portfolio manager?

Brian, great to speak with you as always.

Thanks for the time.

Thank you.