Josh Brown's best stocks in the market: Morgan Stanley, Baker Hughes and Ciena

Here's a summary of the provided YouTube transcript, maintaining the original language and technical precision:

Key Concepts

• Morgan Stanley: A financial services company benefiting from wealth management, asset management, trading, and investment banking activities.
• Sienna: A telecommunications infrastructure company, described as an "AI darling" and a provider of essential infrastructure for data centers.
• Baker Hughes: An oilfield services company, with potential upside tied to improvements in oil prices and rig counts.
• Cisco: A large-cap, more value-oriented stock in the networking and infrastructure space, compared to Sienna.
• AI Infrastructure Buildout: The expansion of data centers and the necessary hardware and software to support artificial intelligence.
• Telecom Infrastructure: The network and systems that enable communication, crucial for data center interconnectivity.
• Rig Count: A measure of the number of active oil and gas drilling rigs, often indicative of future production.
• Natural Gas (Nat Gas): A fuel source with potential demand driven by AI power needs.
• Risk Management: Strategies to mitigate potential losses in investments, including stop-losses and hedging.
• CDS (Credit Default Swaps): Financial derivatives used to hedge against the risk of default on debt.
• SoftBank: A multinational conglomerate holding company, mentioned in the context of hedging activity related to its corporate debt.

Best Stocks in the Market: Josh Brown's Picks

Josh Brown presents three stock ideas, highlighting their current market position and future potential.

1. Morgan Stanley (MS):

   • Key Points: Brown revisited Morgan Stanley, which was previously discussed on November 20th when it was experiencing a 9% drawdown from its record high and "tangling" with its rising 50-day moving average. He framed this as an opportunity to "buy on dips."
   • Rationale: If the year-end rally continues, Morgan Stanley is well-positioned to benefit from drivers such as wealth management, asset management, trading, and the "investment banking renaissance" (IPOs, M&A).
   • Outlook: Brown believes the stock price reflects these positive fundamentals and expects it to move higher.

2. Sienna:

   • Key Points: Sienna, a "throwback" stock from the internet 1.0 era, has become an "AI darling" in the current year. It is described as being in a breakout phase with a "well-defined downside."
   • Technical Details: The downside support level is identified around $172-$173, which is where a stop-loss should be set.
   • Fundamental Rationale: Sienna provides the crucial "telecom infrastructure" that connects GPUs and other hardware in data centers. Without this infrastructure, the hardware is "worthless."
   • Outlook: As long as Sienna remains above its support level, Brown advocates for being long the name.

3. Baker Hughes (BKR):

   • Key Points: This pick focuses on the oil sector, which is currently only 3% of the stock market and "nobody cares until they care."
   • Analogy: Gold's unexpected strong performance this year serves as a precedent for oil.
   • Current Situation: Baker Hughes has been reporting declining rig counts week after week. However, Brown argues that this trend will eventually bottom.
   • Potential Upside: The stock is already at record highs without any improvement in crude oil prices or rig counts. If and when these drivers improve, Baker Hughes is expected to see significant upside.
   • Ownership: The stock is described as "under-owned," especially Baker Hughes.
   • Outlook: Brown sees the fundamental picture improving going into Q1, making it one of the "best stocks in the market technically."

Discussion on Baker Hughes and Energy Sector

• Joe's Perspective: Joe confirms that Baker Hughes has been owned for "quite some time" and is up 19% year-to-date and 12% on a one-year basis, calling it a "remarkably strong stock." He agrees with Josh that energy ownership is at a "very low level" or "underweight."
• Refiners: Refiners like Valero, Phillips 66, and Marathon are also mentioned as performing well.
• Natural Gas (Nat Gas): Shannon brings up natural gas, noting that while there are concerns about oversupply, particularly in nat gas, it will be crucial for fueling the power needs of AI. This presents an opportunity for investors who are underweight in the sector. Nat gas has also seen a "pretty good move" itself, partly due to exports.

Sienna vs. Cisco: Different Approaches to the Same Theme

Jim compares Sienna to Cisco, suggesting they should be considered in the same breath due to similar fundamental drivers but appealing to different investor types.

• Sienna:

  • Investor Type: Appeals to more "growthy" investors, particularly in the mid-cap space (Sienna has a market cap of about $28 billion).
  • Performance: Described as the "high beta little brother of Cisco." Sienna posted 29.4% revenue growth last quarter, which Cisco could not match.
  • Risk: Higher risk, as it's more sensitive to the AI capex story. If AI capex is in doubt or data center plans are canceled, Sienna would be more significantly impacted.

• Cisco:

  • Investor Type: Appeals to large-cap, more value-oriented investors.
  • Theme: Benefits from the same AI infrastructure buildout as Sienna.

• Josh's View: He sees them as "two totally different ways of capitalizing on the same theme." The choice depends on the desired momentum and earnings multiple margin of safety.

Risk Management and the 90s Analogy

• Risk in the Food Chain: The discussion acknowledges significant risk in this part of the market. If the AI capex story falters, companies like Sienna and Cisco could decline.
• Josh's Approach: Brown emphasizes that he is not interested in stocks once they cease to be the "best stocks in the market." All his recommendations on CNBC Pro come with stop-losses for both traders and investors. He states, "Nobody's looking to get married to Sienna."
• Mike's 90s Experience: Mike shares a personal anecdote about owning Sienna in the late 90s as a retail stockbroker. While the stock went up thousands of percentage points, "the ending is never pretty." This highlights the importance of risk management.
• Modern Risk Management: Mike points out that investors today have better tools for risk management than in the 90s.

Hedging Activity and SoftBank

• Tools for Risk Management: Mike suggests looking at where SoftBank is trading and examining Credit Default Swaps (CDS) for Oracle and SoftBank.
• SoftBank's Debt: There is clear hedging activity against an $18 billion corporate debt offering by SoftBank in September, undertaken by those who took the "other side of that trade."
• SoftBank's Decline: SoftBank has been in decline, down approximately 40% since October 29th.

Synthesis/Conclusion

The discussion highlights three key stock ideas – Morgan Stanley, Sienna, and Baker Hughes – each with distinct rationales and risk profiles. Morgan Stanley is positioned to benefit from a broad financial market rally. Sienna is presented as a high-growth play on the AI infrastructure buildout, offering significant upside but also higher risk. Baker Hughes represents an opportunity in the under-owned energy sector, with potential catalysts in oil prices and rig counts. The conversation also emphasizes the importance of differentiating investment strategies (e.g., Sienna vs. Cisco) based on investor profiles and the critical role of risk management, particularly in volatile sectors like technology infrastructure, drawing parallels to past market cycles. The mention of SoftBank's debt and hedging activity underscores the complex financial instruments and risks present in the market.