Trimming Google to take some profits, says Laffer Tengler Investments' Tengler

Key Concepts

• Portfolio Rebalancing: The practice of trimming outsized positions to manage risk and lock in gains.
• Vertical Integration: A business strategy where a company owns its entire supply chain or stack, providing a competitive advantage in AI and cloud services.
• Market Correction: A decline of 10% or more in a market index, often viewed as a buying opportunity for long-term investors.
• "Old Economy" Pivot: Traditional companies (e.g., Walmart) successfully integrating new technologies to maintain growth.
• SaaS (Software as a Service) Model: A software licensing and delivery model; the speaker expresses a preference for vertically integrated stacks over traditional SaaS models.

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1. Alphabet (Google) Investment Thesis

Nancy Tengler, CIO of Laffer Tengler Investments, maintains a bullish long-term outlook on Alphabet but is currently "trimming" the position.

• Rationale for Trimming: The stock has performed exceptionally well, becoming an "outsized holding" in their large-cap strategies. The goal is to sell to "eager buyers" to maintain portfolio balance rather than exiting the position due to a lack of confidence.
• Competitive Advantage: Tengler highlights Alphabet’s dominance in cloud and AI services, noting that their "full stack" vertical integration significantly outperforms competitors like Oracle (referred to as "Core").
• Historical Context: The firm strategically added Google to their value portfolio following the "Bard debacle," when the stock was undervalued and trading as a member of the Russell 1000 Value Index.

2. Market Outlook and Risk Management

Tengler anticipates a near-term market correction, citing the tendency of the market to "test" new Federal Reserve leadership.

• Strategy: Despite expecting a correction, she maintains that the market is still in a "bull cycle." The firm is currently implementing protective measures for clients while preparing to buy the dip on high-conviction leaders.
• Investment Philosophy: The firm focuses on a 3-to-5-year time horizon, contrasting this with hedge funds that often operate on 3-to-5-week horizons.

3. Sector Rotation and Stock Picks

The firm is shifting its focus toward software and companies with strong vertical integration.

• Software Focus: Tengler notes a shift back toward software, specifically adding to positions in Microsoft, ServiceNow, CrowdStrike, and Palantir.
• Exited Positions: The firm has exited positions in Workday, Salesforce (CRM), and Adobe, citing a lack of preference for their specific SaaS models compared to vertically integrated alternatives.
• Diversification: Beyond pure tech, the firm holds "old economy" companies that have successfully pivoted to new technologies, such as Walmart, as well as housing-related plays like D.R. Horton and Home Depot.
• NVIDIA: Tengler identifies NVIDIA as a core leader, stating she would aggressively add to the position if the price drops to levels seen during previous market dips (e.g., $108).

4. Notable Quotes

• "We look to be buying from eager sellers and selling to eager buyers. That's how we figured out it was the most productive way to make money over the long term." — Nancy Tengler, on portfolio management.
• "We don't like the SaaS model. We like the vertical integration stack model." — Nancy Tengler, explaining the firm's preference for specific software architectures.

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Synthesis and Conclusion

The core takeaway is that while Alphabet remains a dominant, high-quality asset, disciplined portfolio management requires trimming positions that have become too large to maintain proper risk exposure. Tengler’s strategy emphasizes buying industry leaders when they are "out of favor" and maintaining a long-term horizon (3–5 years). The firm is currently rotating capital into software companies that offer vertical integration, while simultaneously hedging against a potential near-term market correction to capitalize on future buying opportunities in established market leaders.