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A
This podcast is brought to you by relioQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-T.com foreign.
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Welcome to the Baron Streetwise Podcast. I'm Jack Howe, and in honor of America's 250th birthday, it is 250 degrees outside where I live in New York. Hope it's comfier where you are. Just ahead, we'll talk about the state of the broad US Stock market and whether investors should be wary about AI wobbles. We also have stock picks coming, four of them from Rick Raskowsek. He's lead portfolio manager at Sandhill Investment Management. As I recall, it's a couple of healthcare ones, One that's sort of financy and one with big trucks. Sorry, big trucks. Let's get into.
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Foreign.
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Listening in is our audio producer, Emily. Hi, Emily.
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A
Hi, Jack.
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B
Happy 250th. I saw a, I guess you could say fun fact. It's about the rapid uptake in the obesity medicines and it said that the obesity rate in America has actually declined over the past five years. We've gone from 42% to 40%. And so that's good news on our 2-50th. And it got me curious. Where were we on our 200? And I looked it up and the rate was 15% back then.
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C
So.
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So we are still. And not you.
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A
Give me, give me a couple of hot dogs, Jack. I'm going to turn those numbers around for you. We're going to climb our way back up.
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B
No, no, definitely not you. But the rest of us, we're, we, you know, we're moving in the right direction, but we've got more to do.
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A
Okay.
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B
We want to start off with we have a listener question, right?
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A
We do indeed.
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B
Who do we have?
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A
We have William, who actually has a question in response to your sit down with Brad Conger.
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B
Okay, let's hear it.
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William says that he is in the conservative camp, like our recent guest Brad Conger, but he's been wrong about the direction of the market before. But he says there's nothing worse than being Wrong or what? Some analysts say early, he's struggling with the price action of some of these tech stocks. When William worked on Wall street, he says it was a surprise that your stock would even go up 2, 3, maybe 4% for large cap stocks. And forgive me because you put the tickers. William. So I'm going to have a bit of trouble here. But you use examples like Dell, hpe,
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B
That's Hewlett Packard Enterprises.
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A
Okay, now what about this one? He says heck in front of it, so it's got to be a big deal. VSXY.
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B
VSXY. I don't even know that. That must be an ETF.
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A
All right, well, it soared up to 47%.
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B
Oh, Victor, wait. It's like can't be Victoria's Secret.
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C
Get it?
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B
What are we even.
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A
Maybe it can.
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Vsxy. That's Victoria's Secret. Yeah.
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A
So he can't understand the price action. What is fueling these stocks. He doesn't think it's real money. He thinks it's the option market. Jack, what are your opinions?
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B
Thank you, William. I'm gonna set aside Victoria's Secret. You can insert a joke here about the catalogs back in the day. I think that stock is a separate case. That's a case of a low expectation stock with a lot of short selling and possibly a short squeeze. But yeah, some of the moves we've seen in the stock market, especially with anything AI connected, the two that you mentioned, Dell and Hewlett Packard Enterprises, those are what we think of as old tech. Dell was best known for those. Dude, you got to get a Dell commercials many years ago these days, dude, you got to get a whole enterprise scale AI platform, which is what Dell is busy selling. And Hewlett Packard Enterprises, that's not the printers that we all swear at because you run out of the ink and then it tells you you can't do a thing with it until you go and get only their brand of ink and you end up in a. Basically a hostage crisis with your printer. That's not that. It's a different company that was separated years ago. HPE is the one that sells servers and those were in huge demand in AI data centers. So some of these old tech stocks are running. But the same is true of many kinds of companies, especially semiconductors, including memory lately. And I think it is driven by retail investors and momentum traders and excitement. You mentioned you're conservative. I'm not quite sure if you mean politics or economics. If you mean politics, I always recommend that people try to keep their investing separate from their voting. But if it's economics, which I think it is, then I'm with you. It makes me a little nervous when I see these huge rapturous moves in stocks. Makes me think, of course, about 1999 and the dot com stock bubble. I'm going to share with you some recent views from bank of America. This is part of their mid year Target update and they're leaving their target the same actually on the S&P 500 7100, but at the time they published this report that represented actually a 5% decline in the S&P 500. In other words, as they write, we are index bears. Don't panic. I think they mean near term, long term. I'm certainly not an index bear and I'm also not a fan of making frequent changes to your portfolio to try to guess the direction of the market. But I just want to share some of these views in case they're helpful. B of A lists a lot of factors that have helped the stock market to date. Among them are asset lightness and good earnings quality. They mentioned buybacks, cost cutting efficiency. They mentioned equity, supply and demand dynamics. Those include a spike in take privates and a dearth of IPOs. But then they write today those levers are reversing. We've talked about a bunch of these. There's a big rebound in IPOs brewing. We just had SpaceX. There are deals coming from OpenAI and Anthropic, another company called Databricks, which I'm sure we'll mention down the road. And there are companies doing secondary stock offerings to fund their AI expansion plans. B of A also mentions declining earnings quality. What do they mean by that? I talked about this factor on this podcast back in April. The episode was called why Stocks are Pricier Than They Look. Basically there's a difference in the accounting treatment of the money companies make from the AI build out and the money they spend. The money a company spends, that's called a capital expenditure or capex. And you don't subtract it right away from earnings. You deduct it little by little over the projected useful life of whatever you're buying so it doesn't hurt your earnings in the near term. But the money companies receive from other companies doing all that capex, that adds right away to their earnings. So basically earnings are flattered but not simultaneously penalized for all this money changing hands. You can really see that at the individual company level. Amazon is projected this year to post a profit of $96 billion. It's. It's also projected to burn $12 billion in cash. It's common for those two measures to disagree by a little from year to year, but a gap like that is striking and you can see it from company to company. Google's projected profit $173 billion. Its projected free cash flow only $19 billion. Meta Platforms $84 billion in earnings, but no free cash flow. In fact, about $400 million in in cash burn at the index level. It means you can look at the S&P 500 right now and you can say, okay, it trades at 22 times projected 2026 earnings. That's kind of expensive. But it trades at 32 times projected free cash flow. That's extraordinarily expensive. And I think the truth is probably somewhere between those two numbers. It kind of depends on how durable this AI profit cycle is. B of A also mentions that some of these hyperscale tech companies have benefited from one time gains. Gains like that. At Amazon, Alphabet and Meta added an extra 8 percentage points to S&P 500 earnings growth. During the first quarter we had 27% earnings growth, which is incredible. Without those one time gains it would have been 19%, which is still very good. But again, the question here is durability. And then there's interest rate hikes. We have a new Fed chair. If you thought he was just going to be a yes man carrying out the current administration's desire for interest rate cuts, his early comments suggest otherwise. The probability of interest rate increases has been rising. It looks like we could be headed for a bear flattener. Please don't call PETA. The bear part refers to a rising rate cycle. Bond prices tend to fall. That increases their yields. If yields on bonds get high enough, they can provide competition for stocks. B of A doesn't see that as a humongous risk. Now, we were recently somewhere around 4.5% on the 10 year treasury yield. They say we'd have to get to 7% for that to be a big risk. But back to bear flattener. The flattener part refers to short term rates rising faster than long term rates. So you can plot a graph of treasury yields at various maturities and when you do that, it's called the yield curve. And. And sometimes it rises and sometimes it falls and sometimes it flattens. Flattening isn't great. I mean a bull flattener, that has historically been pretty good for returns. But a bear flattener, that's been the second worst phase for stocks historically in 12 month returns going back to 1976. So what does all this mean for us as investors? My recommendation is to hurry up and do nothing, assuming that you're a set it and forget it kind of investor and that you have an appropriate mix of stocks and bonds and you're not paying too much in fees and so forth. If you are a more tactical investor who likes to make changes from time to time, B of A has thoughts. They write that even though they are index bears at the moment, they are large cap value bulls in the capex boom. They write that investors are best off in cyclical manufacturing sectors that throw off cash, not secular growth companies that need to raise capital to compete. They also write that investors now pay near record premium for long term secular growth. But sales revisions in 2026 have shifted from software and hyperscalers to tech, hardware, energy and materials. They write. Secular growers have already delivered strong sales growth over the past year, leaving the group crowded and expensive. We see better risk reward in cyclicals where improving revisions and less lofty expectations leave room for positive surprise. In other words, if you're changing your mix, maybe less big tech, more hard hat and value stocks. But again, that's only for tactical investors. I'll add one last thought, William, and this is from me, not the B of A report. I think it's a good moment to make sure that you have an appropriate mix of developed more markets overseas at the moment. Those are structurally cheaper than the US market and less exposed to big tech. In other words, you're automatically getting more hard hat stocks and value and a bigger dividend yield, assuming you already have that stuff taken care of. Yes, I think it's normal to worry about some of the price increases you're seeing, but not to the point where you're bailing out of stocks. Thanks, William. Hope that helps. What's next? Emily?
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It's time for Stock Pick Rick.
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Is he. Does he has he called himself that? He doesn't have like a vanity plate that says that, does he?
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A
It's not in his email bio, but it should be.
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B
He should. He should get Vanity place immediately. Let's take a quick break and we'll be back with Rick Raskalcik, AKA Stock Pick Rick from Sandhill Investment Management. Isn't home where we all want to be? Reba here for realtor.com the Pro's number one most trusted app. Finding a home is like dating. You're searching for the one with over
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500,000 new listings every month. You can find the one today.
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Download the realtor.com app cause you're nearly home. Make it real with realtor.com Pro's number one most trusted app based on August 2025 proprietary survey. Over 500000 new listings every month based on average new for sale and rental listings. July 2024 to June 2025. Welcome back, Emily. Can a cactus wilt? Because I'm looking at one on my windowsill and either it's supposed to have a droopy shape like that or the, or the cactus has wilted in the sun, which I'm pretty sure. I mean that that's when you know it's hot, right? Maybe I took too long answering William's question earlier and the cactus just gave up on me. I can promise you that in the episode next week I'm going to be much faster with my answers. We're going to get through four or possibly five listener questions and if you have one you'd like to send in, it could be on the podcast. You can tape it on your phone using the voice memo app. Send it to jack.howe. that's h o u g h@barrons.com
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now
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then, I always like hearing from money managers about stocks they find attractive. Right Now I spoke recently with Rick Rakowsik, he's lead portfolio manager at Sandhill Investment Management. Let's hear part of that conversation. Now I think I saw that the stock market was up, was it 25% over the past year? I better not, I better not guess. But it's, it's doing pretty darn well, right? I mean when you look at that, it's near all time highs and just enormous runaway gains in certain sectors especially you know, parts of tech. Has the opportunity set looked to you, can you still find good deals out there?
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Yeah, it's actually, it's such an interesting time in the market to your point, right. This year, year to date, we're up double digits. The S and P is, we're near all time highs. The valuations for the market as a whole, they're pretty elevated right. Relative to most other times in history. You've got a lot going on on the macro side, the consumers, you know, getting a little bit weaker. Consumer sentiment indicators are near lows. Here you get credit card spending metrics starting to slow. So as, as investors you really have to be careful out there and you can get burned by paying too much for something in this current market. But when we look at it and what we see despite the overall market looking somewhat elevated on a valuation side, like there's, there's A lot of opportunities. There's certain areas of the market that have, you know, been overlooked or where there's short term concerns that we believe are creating a lot of great buying opportunities even now.
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B
Are you able to talk to me about some of the, some of the stocks you like the most right now?
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C
Sure, yeah. So I have, I've, I have a four here that I think are pretty interesting at this point in time.
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B
Four is a great number, you know.
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C
So to start out to the point of where do we see opportunities in the marketplace? You know, one area of the market that hasn't gotten a lot of love recently is healthcare. We don't typically have some massive weight in healthcare, but this is again a sector that we see where, you know, that sector's down a couple of percent this year while the market's overall up double digits. You know, specifically med device companies, they're down even more than that. So the first one that we really like here at this point in time is Stryker. So a ticker symbol S Y K. So a little bit larger company. But they're a company that has a long history of really solid execution. Great market leadership. They sell, you know, replacement hips, knees, shoulders, when, when somebody's, you know, hip or knee wears out. Right. Stryker is there with that replacement part. But it's also the tools and the equipment that the surgeons need during that surgery. They also sell their robot that they call Mako that helps guide that surgeon on where to cut, where to place those implants, how to make those surgeries more consistent and successful over time. So it's a great market, has great long term growth trends. You've got the aging population and this company has just consistently out executed its competition, taking share over time from Zimmer or a J and J. So over the long term, you know, the company should be able to grow. And what they target is the high end of the med tech sort of universe, which is high single digits revenue growth.
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That stock, as I'm looking at it, it's down 17%, down 18% over the past year. So it's. So it's gotten cheaper. As you say, this is a part of the market that is not soaring right now. I'm going to take a guess at what investors are nervous about. You tell me if I'm wrong. I mean there might be, there's always stuff about people, you know, government trying to cut costs and you know, bring in health care costs. But I think part of it might be related to the obesity meds. Right. The idea that people who are Overweight are more likely to need replacement knees and hips. And if the whole country slims down, maybe we'll need fewer artificial joints. What have you. Is that, is that realistic? Is it, do you think, first of all, is that a concern that you've heard? Do you think I've got the concern right? And do you think the concern is founded?
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Yeah, I think there's two sides to that. I think that is maybe a bit of a concern and that's what's been pressuring healthcare in general a little bit here. I think the other side of the coin, specifically with someone like a striker is let's say everybody slims down, they're out there more, they're exercising more. There's a lot more injuries that actually happen from that too. So pickleball.
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Pickleball.
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Pickleball injuries, exactly.
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So you might actually get an acceleration in growth a little bit there. What we have certainly seen is this year they were actually targeted by a cyber attack from Iran which has impacted sales a little bit this year, specifically in the first half of the year. So their systems were down for a little bit of time. So their orders took a bit of a pause. Their manufacturing and a couple of product lines was, was impacted for a short period. But that, those are the exact opportunities that we look for. Right. We don't think this is going to have any impact on their business financially or competitively over the long term. And they should be able to get back to their, their long term growth rate.
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Okay, and that stock, I've got it about 20, 21 times this year's earnings. Maybe a touch cheaper than the market. And you know, as I recall, it has tended to trade at a premium to the market, so maybe an opportunity for, for a discount there to where it normally trades. What else do you have? That, that's one. What else do you like?
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C
One other one in the, in the med tech space. And we can, you know, move on out of health care. But one other one that we really love is intuitive surgical. Right now this is a much more sophisticated product in which they sell, they've got this, this robot called Da Vinci more for soft tissue applications. They relatively recently released their latest DV5 robot which is seeing really solid placements and it's certainly keeping it ahead of any new competitors that are out there, like a Johnson and Johnson or a Medtronic that are trying to make their way into the space. But this market is so under penetrated. Only 5% or so of surgeries are robot assisted. Right. We've gone from traditional surgeries to minimally invasive to now this, this growth in robotically assisted surgery. And we see a long Runway there because it just continues to decrease time in hospital and ultimately lowers patient costs.
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You're the second money manager in, I want to say, a couple of weeks who's told me that Intuitive Surgical is one of his favorite stocks. And after the last conversation I looked up, they have a new, they've got a new machine out, right? A new platform. I'm told it's like the first one in years. A lot more processing power, a lot better imaging, a lot more. Of course there's AI and stuff like that that's going to be helpful to surgeons. What do you think that the new products mean for the growth going forward? I mean, what have you heard about the uptake in those? Is everything going well and what do you think the trajectory looks like over the next several years for this company?
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C
Yeah, I think the world's their oyster at this point. They've got so many opportunities. One of the newest areas with this new DV5 robot is what they call this force feedback where the surgeon can actually feel, as you know, that incision is being made, how much pressure they're really putting on on the body that they're working on and that, that helps them reduce, you know, little injuries here by cutting too far or going too hard at it. And they've seen a lot of uptake and a lot of interest that, that's, that's this new innovative technology that's not been out there before. And to your point on AI, if you are looking for a much sort of longer term play on AI, one of Intuitive's widest moats is their data. They've got 20 million plus procedures now and they've taken all of this data on those movements of the robot and each of those surgeries and that's going to help lead to AI assisting in these surgeries over time. Now it's probably going to be a very long time into the future, but you can see a day where these, these robots are performing those surgeries on their own.
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B
Maybe the next generation will come to your house if it's not a very fancy surgery. Probably not. I'm not a doctor, Rick. Okay, so that takes care of Medtech. What else do you like?
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C
Yeah, on the sort of opposite end of the technology spectrum is very interesting investment opportunity in a company called Federal Signal Ticker is fss. This is a name that doesn't get a lot of attention, but the stock has done quite well over its history. You know, outperforming the market over the last five years, 10 years, 15 years.
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B
I'm so close to remembering what this company does. It's been a minute since I've, since I've looked at this company. Help me out.
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C
Yeah, they manufacture specialty vehicles. So they have this portfolio of market leading brands and very niche categories that serve municipal utility industrial customers. So think street sweepers or vacuum trucks or maintenance vehicles, road marking vehicles. So area that's very insulated from the threats of artificial intelligence. Right. Sewers need to be cleaned no matter how many AI agents are out there.
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B
So the kind of trucks that little kids get excited about seeing go by on the street in the suburbs. Do they do garbage trucks for, for our four year olds listening, do they do garbage trucks too?
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C
They do do garbage trucks, yes.
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B
Okay, that's good. And so what do you like about the, what's attractive about the financials of this business? Cause I don't think about fast growth when I think about those types of things. What's attractive about the financials of this business?
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C
Yeah, it's not fast growth but it's very solid and long term growth. So in what they're in right now, there's still a nice multi year tailwind here with IJA Infrastructure Investment and Jobs act federal funding coming into this space. Many municipalities have very aging fleets of some of these vehicles and so they're becoming increasingly expensive to maintain and so that's propelling them to start to buy some more of these vehicles and leading to some really nice organic growth here in the short to medium term. And you know what we see as a company that could continue to grow over the long term, 6% organically and they could probably double that with M and A. So there's lots of small niche businesses that they can buy up, they can layer into their business here and they can really distribute those brands throughout the rest of the country. And so we think there's a long Runway of double digit top line growth and mid teens earnings growth for this business going forward.
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B
Okay, so that's three down. What's the fourth one?
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C
Yeah, the last one is in the software space. It's a company called Guidewire. The ticker is G W R E. Now this company provides sort of modern core systems for PNC insurers. So property and casualty. So think of the system that houses all of the customer policies, the system that helps bill the clients. Right, that the system that manages all the claims. So that's, that's what Guidewire is sort of the guts of a Large insurance operation. So what's interesting about this business is so many of these insurers still sit on old legacy back end software systems. Right. Because of how vital this data is and they can't have any downtime and it's very, that'll be very costly to the insurer. So they're very careful before they make a decision to switch to a modern new software as a service system. Now it's kept competition out of the space. There's very few other players that actually even play in the space at all. Right. Reference ability being able to show you can successfully manage this big data migration is super critical to the sale. And Guidewire has been there along the way over the last several decades and they've become sort of this 800 pound gorilla in the space and they've worked very hard to maintain that.
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B
So the big concern in software lately has been AI that, you know, AI is so good at coding that a guy like me can, can come along and say, hey Chatbot, make me a piece of software that'll run all the back office for all the big insurance companies. I want to make a trillion dollars by Thursday. And then, then the Chatbot will just do it for me. You're saying that's not going to happen in this space? Well, what's going to, what's going to keep this company safe from the AI expansion of coding capabilities, taking over some of their business?
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C
Yeah, we, so we don't see AI as a threat in, in this case, we see it as an accelerant to their business. So Guidewire prices its offerings based on what they call DWP or direct written premiums. So not seats, which would be the bear case on maybe other software names that there's going to be seat compression that's out there. You're not going to need as many licenses if there's AI agents all over the place. But here, more insurance over time for their customers equals more revenue for Guidewire, so they're not susceptible to that seat based concern. Further, the company is rolling out their own AI based offerings to help their customers price their policies or to increase efficiencies of the employees. So we've seen a year ago the stock was trading at 90 times earnings and that multiple is now compressed down to less than 30 times. And we still think they're going to be able to grow over the next few years on the bottom line, 25 to 30% a year. And so we see a ton of value in this name.
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B
Rick, thanks so much for taking the time to speak with me. I appreciate hearing about these ideas. Take care.
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C
Thank you Jack. Appreciate it.
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B
Thank you Rick and William. And thanks to all of you for listening. Subscribe to the podcast and if you listen on Apple or Spotify, you can leave a review. Emily, you're not lighting fireworks during the fourth of July weekend, are you?
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A
I'm gonna leave the pyrotechnics to the professionals and keep myself safely in the sparklers region.
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B
I remember in the movie Joe Dirt that he rattled off a lot of names of, I think mostly fictitious fireworks. Among the ones he tells the salesman he wants, half are a little dirty, but the rest include spleen splitters, who's Hoosier or Don'ts, and Nipsey Daisers wither without the scooter stick. I gotta look that one up to make sure I'm not saying something inappropriate.
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A
Seems like you're treading a fine line here.
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B
Yeah, I'm gonna leave it alone. See you next week. If your organization isn't managing its data with Everpure, then it's likely scattered all over the place.
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C
Come on.
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B
Three days have I ridden to bring thee. Warning. The records thy great AI machine requires are strewn across five kingdoms. Yeah, the Everpure data management platform unifies data, so you can always find it.
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C
No messenger needed. No more running around.
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B
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