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Welcome to Stocks in Translation Broadcasting from the New York Stock Exchange. I'm your host, Alexandra Connell in for Jared Blicky, and with me today is my partner in crime Sydney Freed. Kindly like, subscribe, and comment on stocks and translation on Spotify, Apple Music, Amazon, or YouTube. And today we're welcoming in Adam Johnson, Bullseye American Ingenuity Fund portfolio manager, and Adam, let's start on.Topic du jour trade policy. We have a lot of back and forth headlines. There seems to be this de-escalation, particularly with China. We'll see. So I first want to get your broad take on that and some of the volatility that we've seen over the pastmonth.

Well, curious choice of words trade policy. There are probably a lot of people who are not sure there is a policy because the policy keeps flip flopping, but I do think that what we're finding is thatWe're stumbling towards some sort of resolution and we don't know exactly what it will look like, but each day you getA little bit of progress. There's a sort of Paula Abdul aspect to it, two steps forward, one step back, but we are making progress, and I think the ultimate goal is to level the playing field. I'm not sure that's really been conveyed as effectively as it could have been, but just consider this over the past 10 years, the US has charged a tariff of about 2.7% on imports coming into our country, but whenWe send our stuff overseas, our exports, they on average face a 6.7% tariff. So 2.7% here, 6.7% abroad. So non-US countries are charging US exporters 2.5 times what we're charging them. And so I think ultimately the goal is to level that. Maybe it's to get everything down to zero, probably not, but at least if we are all tariffed at the same.Level, I think the market would breathe a sigh of relief, and I think businesses certainly would breathe a sigh of relief because they would know what the deal is

now with these new duties, that's effectively raising our tariff rate to around 27% compared to the 6% that you were just saying on our exports. So what is a fair tariff rate in your view, because clearly 27%, that's not sustainable,

right? No, and I don't think anybody thinks that.Sustainable, I would imagine even the White House recognizes that's not sustainable, but it's a bargaining chip, right? We have the art of the deal in real time. I mean, arguably we are all cast members of the latest season of The Apprentice, except that this particular season lasts 4 years. And so we're, we're now in the chapter of the Art of the Deal and um, you know, if you want to settle at 10, you start at 20 and you know, you.You work your way down and so I don't think 27% is meant to be an end game. I don't think anybody thinks so. And Treasury Secretary Scott Besson has effectively said as much that we're negotiating and, and the number changes from week to week. I don't know, are we negotiating with 10, with 20, with 30? No, we're back down to 18, but countries are coming to the table and they are presenting.Deals for lack of a better word, and I think we'll get there eventually and on the up days the market is effectively tellingyou

that. Yes, I was going to say, what do you think of all this volatility we're up, we're down due to all of this stuff. Yeah, but so what do you do in this.

Markets are anxious. They're jumping at every little bit that they

get. I know. Well, as someone who first of all is an optimist, but second of all, just made the statement that I think we will ultimately get a resolution and it won't be nearly as bad as we think.I'm buying, and it's hard to do. Buying in the hole is very hard to do, butIt has served me well and I actually put together a chart for my clients going back to 1980 and it's just amazing, 1987 and then the recessions, there are a couple of them in the 190s, uh, 2000, the dot-com crash, 2008, the Great Financial on and on, all these crises that in the moment are very upsetting and they're little blips and the.Stock market goes up and to the right, and I think you have to take that view over the long haul. If you need money for let's say tuition next year, well then you probably shouldn't be in the market. But if you're talking about building wealth over time and certainly planning for retirement and you don't need money for 1020, 30, 40 years, you just put it in as you get closer to retirement, you take that money out of stocks and you start putting it into bonds and other safer places, but you always want to have.In the stock market because that's how you

grow. Well, let's talk about bonds because there have been a lot of headlines recently the sell America trade, whether or not bonds, the US dollar, if that's still the place for stability, is that? Yes, OK,

yeah, in a word, um, I don't mix my words. No, um, yeah, the notion that somehow America has lost its exceptional place, right? That's a phrase we keep hearing, American.and all is lost. I think that's people who don't agree with the current policy saying all is lost, but no, not all is lost. America is still the largest economy. It's the most profitable economy. It's where everyone wants to be. That's in theory, why in theory, why all these countries are coming to us and trying to negotiate trade terms with us, so.I run the American Ingenuity Fund. All I do is invest in America because I think this is the best place to invest. I like our innovation. I like our ability to grow. I like the fact that we have generally free markets. We have a reliable accounting system, a reliable legal system. There is recourse.There is stability generally speaking, uh, so for all those reasons, this is where I deploy capital both for myself and for my clients. And

what are you buying? You said you're a buyer of if you want to call it a dip. I know we're up a little bit. We're up and down. What are you buying stocks, exactly.

So I view my portfolio in sort of thematic terms and um right now my largest allocation is to what I call compute in other words, computers, computing power, mostly tech though not exclusively, but the ability to um to compute more uh effectively. AI is obviously part of that. Data centers are part of that. um, Sterling Infrastructure is a company that builds data centers.GE Ernova is a company that powers data centers just to go down a rabbit hole because it's such a cool story. GE is a spinoff from GE Vernovas, spinoff from the old GE, and what they did is they take the technology of a jet engine, but instead of mounting it on a wing and running jet fuel through it, they mounted on steel brackets and run natural gas through it. It spins, right, creating thrust that in turn spins a turbine that generates electricity, so you can power data centers on site with.Gas, um, and the that gas can be piped in or in some cases down south they actually have that gas under the property they just drill and they're they're literally powering themselves with their own that gas to create electric. I mean that's cool stuff and that gets at compute right because we're powering data centers. So compute is a very broad theme. Yes, it's Nvidia, yes, it's uh super micro which uh and Celesteo which uh both assemble, uh, AI.Platforms so that you're in the AI business and every company now has to be an AI company um uh there's so many different um ways to play all this but uh semiconductors uh like NXP um uh Marvel Technologies which is a semiconductor that focuses specifically on storage, right? I mean you think about just compute and there are a lot of different aspects to compute, so that's why it's the largest allocation in my portfolio, about 25%.25% of the portfolio is in compute. Um, about another 25% is in the kind of mag 7 plus, um, and I say ticked all the mag 7 socks, right? Apple, Amazon, you know, household names, Google, etc. Add to that salesforce.com number one for customer relationship management. Add to that, uh, Palo Alto Networks number one for cybersecurity. I love best in breed and that rounds out, uh, sort of core.Ingenuity. So yeah, between compute and core ingenuity, that's, that's half the portfolio and there are about 40 names all told in the portfolio.

How does your calculus behind investing change when we're in a volatile time period like we are versus, you know, when everything's stable, like, are these all names you loved before and you're still saying by or like how does that shift, especially for people who may be new to investing? Sure,

yeah, I've wrestled with this myself because I was up a lot and then.The market cracked, not only cracked, it crashed. I mean, the, the Nasdaq from the high in January to the low, well, we hope it was the low, um, in, uh, mid-April, uh, that decline was, uh, 28%, 28%. Small caps were down 32%. That's a lot. And you know, I transact in these names, so.I won't give you the gory details, but I was up a lot and I was down a lot, and I'm on the way back. That's what makes the market though, right? Yeah, and so it's sort of the post op, you know, you come out of the come out of the operating room. How do we do, doctor? and you sort of say, well, is there anything we could have done differently or better? And admittedly, the only thing I could have done, and I don't really do this is to hold cash.I still like all of my names just as much. The fact that we had um volatility associated with um trade tariffs and with sort of a tiff if you will, between the White House and the Fed, um, will Jerome Powell keep his job or lose his job? Sounds like, yes, at this point, yeah, yeah, and, and yeah, no one wants to see mom and dad fight, right? So fortunately I think Messier Trump

and Powell some of that instability that we weretalking about

and none of the, none of the names, none of the stock.The companies that I'm buying are are directly really impacted. OK, fine. Nvidia, yeah, they sell to China. 12% of those sales to China. OK, fine. But for the most part, American ingenuity is not going to be um directly impacted. My, my 40.Names in the portfolio aren't directly impacted for the most part by Fed policy or by trade talks. Yes, interest rates affect the market as a whole and, and, um, trade disruption affects the market as well, but not my names, right? So they have the cash and, and, and I'm not being paid to hold cash. I'm being paid.To make money for people and the beauty of what I do is that I'm a portfolio manager. I'm not a wealth manager, so I'm not trying to allocate between stocks and bonds, gold, cash, real estate. No, that's not my job. My job is to pick stocks that go up, and I always tell people I don't want all of your money. I just want the amount of money you're willing to allocate to growth.And that should be a slice of your portfolio if you're young, probably 75% or 80% of your portfolio. If you're middle aged, probably 30 to 40, maybe 50% if you're getting close to retirement, you probably back it down to 20% because they are volatile and you want that other 80% to be in something stable like bonds or cash, uh, because you're gonna need it in your retirement.

Well, let's talk about the volatility that we've seen with some of those growth names because you mentioned the mag 7. They were the leaders in this bull market and they've also been the biggest laggards so far this year and they'll be the leaders again, right? So, so how do you really assess that and make sure that you're still allocated an appropriate amount, hedging your risk? Is it really just exposing yourself to bonds and cash, or do you double down?

I don't hold any bonds, so I hold approximately 40 stocks in the portfolio. I am almost always fully invested, and I allocate anywhere from 2 to 4% of capital at cost to the various names. So Mag Mag 7 names a Google and Amazon that me up, they'll get 4% of capital, but the little tiny names that maybe you've never heard of, they get 2%.And then the ones in the middle get 3, and for me that's the way I manage risk that's one of the ways I manage risk. Uh, I always set a downside alert. So if a stock goes down 30-40%, I sort of say, you know, this isn't, this isn't working out, uh, down 30 or 40% from where I bought it, um, should I cut it?Or should maybe, maybe even add a little bit more, um, and fortunately I don't have too many names that go down that much. Uh, you know, 40%'s a lot. Market volatility granted 30, 35%, you get to 40%. Um, I did have a couple that went down 40% at the low, and, um, I held them and I'm glad I did, but what I also do is I set an upside target.As an old mentor said to me, you're only rational once and it's before you buy the stock. So set a target and when it gets there, sell a third or a half, just sell something, right? And then you can redeploy the capital to something else, um, which, you know, keeps the portfolio vibrant. Um, so back to the original question, would I have done anything differently? The only thing I could have done is to hold more cash because I want to take a macro view on markets and I don't really do that so.No, the short answer is I would not hold cash. I have.What I have done is is call clients throughout the.Um, the sort of volatility and I have said if you want to put more money to work, I think this is a good time and I think we will look back six months from now and um feel that this was an opportune time to buy stocks and on some of those crazy up days, uh, you know, these names move 20-25% in a day. It shocking. It's shocking. We're an incredibly volatile market right now. I think it's driven by algos. It's not smart people.Saying what do you want to do today? No, it's Algo's trading headlines and um they uh they will, as they say on Wall Street, they will rip your faceoff,

rip your ears off. That's a great place to end because we want to pick up on that point when we get back, but we have to take a quick break. Keep it right here. We'll be right back with more stocks in translation.All right, Adam, we were just talking about a lot of the volatility going on in the market, when to buy, when to sell. How do you know that it's time to let go to just say goodbye to a stock? I know we, we hate to do it, but sometimes we get to that point. Well,

when a stock hits my target, I always sell a portion.Typically about a third and then I'll reevaluate the company. I'll run my cash flow analysis, uh, look at the multiple, try to put a forward multiple on that future cash flow. And if the target that I arrive at is higher than where it's trading, I raise my target on the balance that I still own. um, and if I can't really come up with a target that's appreciably higher, I will sell the whole position. So I manage the portfolio one stock at a time. Not everybody does that, but it's what works for me.Um, I don't try to make a call about the market. In other words, if my target were, say, $6000 for the S&P 500 and the S&P got to 6000, I wouldn't suddenly say, oh well, sell 20% of the portfolio, right, because I'm, I'm, I'm buying individual companies. I'm not buying the market. I'm buying individual companies, and that's why I think you have to have a target on each company and and manage it that way.

How doyou calculate the math for that? What goes into your target?Is that is toocomplicated?

No, I mean, it's pretty straightforward. So let's take Nvidia, a stock everybody knows. I think they'll do $5 in earnings this year and if we want to put a multiple on that, they're growing at.70 75%, so arguably a 40 multiple is quite reasonable, right? The S&P trades at a 20 multiple at 20 multiple, and you're getting 12% growth. So I think in video with 75% deserves double the multiple, call it 40 as a and when I say multiple, that's a PE multiple or.Price to earnings multiple. Well, so if they're gonna do $5 in earnings this year and I put a 40 multiple on it, that's 5 times 40, which is $200. There's your target. Stocks trading in the low 100, so in theory it's a double from here. Now you may disagree with me on the multiples say, oh my God, 40, how could you possibly, but 40, that's way too high. OK, should it be 30? Well, you know, 30 gets you to 150. I mean right now it's trading at the same.It's trading at a 20 multiple, right? It's trading at $100 with $5

and was sort of that next psychological level for investors if we fell below.

Well, it, yeah, well, it got as high as what, $147. So you say, wait a minute, so Nvidia right now is trading at 20 times earnings.And it's got 75% growth. The S&P is trading at 20 times earnings, and it only has 13% growth. Why should Nvidia be trading at the same multiple as the S&P 5? It's too cheap to buy Nvidia. That's the analysis. And based on the fact that, yeah, I think 40 is reasonable, my target 40 times 5, the earnings this year is 200. And if I think.By the way, that the earnings are gonna be $6 for 2026, and I apply that same 40 multiple. Well, now I get to $240 right? So I know you're probably saying, oh well, if you go out to 2052, they'll earn, uh, $20. So you'll say, well, you just keep raising your, your, your, your target. Yeah, that's right. That's the way growth investing works. You keep raising your target if you can justify.Raising your target, and you can if the company is growing its earnings.

You've mentioned a bunch of stock picks. You say buy Nvidia. What are other ways to play the AI trade right

now? Well, we talk about valuation. There are so many AI stocks trading right now in the teens. Celestica took her CLS, um, is, is one. Super microcomputer SMCI is another. I mean these stocks are trading at 14 and 15 multiple 14.The S&P, again, the S&P is at 20%. These are trading at 14 and 15%. They're AI names and they're growing 30%, 40, 50%. That's crazy. But they got absolutely crushed on the tariff trade because they have sales to China and the assumption the market said, oh, well, they won't be able to sell anything to China. No, that's not right. But the market, you know, pendulums always swing too far and so the market effectively said no, they're they're gonna lose all.The sales to China, we got to lop it off and, um, and that's why they've gotten so cheap. And, and that's why guys like me run the numbers and say this is an opportunity and so I buy on behalf of myclients.

And we're right in the thick of earning seasons. We'll be getting a lot of those numbers. You say though that one concern you have is that guidance has been all over the place due to trade, due to tariffs. How are you factoring that when you calculate?

Rivers and actually it's not that guidance has been all over the place. It's that it's been

nowhere, right? And we've seen different strategies, right? There's been some companies that have said, look, we're going to issue two different types of guidance. Another company says, oh, we have a soft projection here. So it's really hard to follow.

Yeah, I mean, think about it. If we were all CEOs, let's say we we're all CEOs and.Thank you. Yeah, and, and let's do our, our monthly CEO get-together and we'll go have drinks and talk about the business and help each other figure out how to navigate this stuff. I'm pretty sure the consensus among us would be, uh, yeah, I've suspended my guidance because why would I go out on a why would I tell investors what I think our earnings are gonna be when I don't really know what our cap X, our capital expenditures is gonna be because I don't even know what our sales are gonna be because, uh, and I don't even.What our raw materials costs are going to be because the tariffs just throw everything into question. So the first thing you do as a CEO is say we're suspending guidance and we'll think that we will be able to manage through this and we have a task force that we've created here within the company to manage the process. We have our own tariff war room and we think we'll be able to navigate.Uh, these treacherous waters, but, um, but we don't know exactly when the ship will pull into port, so we have suspended our guidance and uh we will keep you apprised. um, we're all in this together, right? That would be the um responsible thing for a CEO or CFO to do and they're doing it and so um that for me as an investor is a little hard because I'd like to be able to.Run my own cash flow models and yeah, but I also think that we've gotten way too accustomed to hand holding. I mean, think of every time the Fed has a meeting and then they they

used to not

talk to us. They give us they give us way too much guidance. Companies give us way too much guidance. Imagine if you as a parent ran your household the way the CEOs run their companies. They'd say, well,Uh, uh, sweetheart, the past 12 weeks have been very challenging. I'd like to talk to you about, uh, why you had some C's, um, uh, and what can we do to improve them for the next 12 weeks or quarter, right? And how do you think that next quarter will compare to, uh, the quarter a year ago back when you were in 3rd grade, because now you're in 4th grade and you're smarter. So let's, uh, let's let's set some, some key improvement metrics. I mean, really, uh.Yeah, it'd be a disaster. So you can't run your family like a business, and I don't think businesses should be running themselves with this hyper attention to guidance. I mean, every 12 weeks, that's how long a quarter lasts. You got to come out and and talk about how you've reinvented this or reinvented that. It just, it's way too much in the same way that the Fed comes out with their, uh, projections every 67 weeks and says, well, here's what we think GDP is doing. He's inflation on it. It's too much.You know, there used to be a time when you ran the 40 yard dash and if you won you got a blue ribbon and then somewhere along the way everyone who ran the dash got a blue ribbon just because they finished and I sort of feel like that kind of hand holding is not serving us

well. OK, and real quickly, we only have about 30 seconds. That's a perfect segue into a segment I like to call lost in translation. What are the markets misunderstanding or getting wrong right now?

The markets are way too negative and they need.To just just step back, relax, and realize that it's never as bad as we think, whether it's the tariffs, um, whether it's political outcomes, uh, whether it's the housing crisis, we got through that, uh, I mean on and on and on, we get through this stuff and we just need to remember that we're Americans, uh, we're resilient. All

right,love that. Adam Johnson, thanks so much for joining the show.

Thanks forhaving me.

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