Buy Alphabet & Jefferies, avoid American Airlines & Lucid: Strategist

Alphabet and Jefferies are two stocks to buy and American Airlines and Lucid Group shares are stocks to avoid, according to Christian Ledoux, Director of Investments at CAPTRUST. He tells Yahoo Finance Live's Seana Smith and Akiko Fujita why.

Video transcript

AKIKO FUJITA: Welcome back to Yahoo Finance Live. Major indices red across the board right now, with the Dow seeing the biggest losses with 45 minutes left in the trading day. Down about 156 points. Well, CAPTRUST's Christian Ledoux is back with us to share some stock picks he says are worth eyeing as well some that he's trying to avoid.

So Christian, before the break, we were talking about the huge gains that we've seen in tech, AI being a big driver. Let's start with the pick that you like, Alphabet. Because they got to a bit of a rocky start when it comes to their AI play. What do you like there?

CHRISTIAN LEDOUX: Well, two parts, really. The first part being the main business being the advertising model is starting to show signs of recovery. We had about 12 months in the last 12 months of declines in ad growth. And it seems to have stabilized now and is looking promising in the next 12 months.

The other part of it is AI, like you mentioned. And Microsoft made quite a splash with their ChatGPT. And many were suggesting that Google was being left behind. But if you look at Google's most recent developer conference, not as exciting as the Apple conference today, but it was really great to see some of the AI programs that they had in works.

And really, they're going to be more the developer tools that are going to be assisting the engineers with AI. And that's where they're really going to make the money. And it's not going to be about the chat bots as much.

SEANA SMITH: Christian, when you take a look and to account so many of the thoughts out there just on the street, you mentioned how Google has stacked up to Microsoft in their AI initiatives. Do you think then maybe Google is closer to Microsoft with its AI play than many are giving it credit for today?

CHRISTIAN LEDOUX: Oh, I'd wager that Google is actually ahead in the technology. They've been doing this for decades. So I would imagine they actually have a technological lead. Now it's about packaging and getting products to market, when they didn't anticipate that they would have to get to market so quickly. Microsoft kind of forced their hand. And now that it's out there, I think Google is going to see a nice runway here.

AKIKO FUJITA: Let's talk about another name that you're liking right now, and that is Jefferies Group. Interesting to note here, this, you also tie to an AI play that you think this could generate a lot of capital markets activity, specifically benefiting somebody like Jefferies. Walk me through your case.

CHRISTIAN LEDOUX: Yeah. Well, first about Jeffrey. So Jeffrey's is sort of an unloved investment bank. They're living in the shadow of Goldman and Morgan Stanley and Bank of America. But they've come up from the ranks, and they're now the number five in the US and growing faster than all of their leading peers.

But what's really exciting is that when we have a new technology come out like AI is coming out now, what's going to happen real quickly is the venture capitalists are going to sense opportunity for investors in the public markets to want to buy into the trend. And that means they're going to bring a bunch of companies public. And it's going to be companies like Jefferies that benefit from that.

SEANA SMITH: On the flip side, Chris, you have a couple of stocks that you're saying that people should avoid right now. One of those names, American Airlines. And it comes at a time when people it seems like are willing to pay whatever they can to get out there and travel. The demand numbers have looked very, very strong. What's the risk that you see?

CHRISTIAN LEDOUX: Well, the strength of travel demand, we've all seen it. We've been to the airports, so we've seen everybody full. And that really actually is the beginning of the negative case on this. It's about as good as it's going to get. We've got about as much capacity utilization in the airline industry as we can handle. We've seen the shortages of staff. And companies like American have had to make deals with their unions to lock in higher costs for those elements of their business.

And then on top of that is the debt that came from the pandemic period. And that debt is a pretty big burden, especially for American. They have the biggest debt load in the industry. And there's some significant maturities coming in '25 and '26 that they're going to have to refinance at likely higher rates. And at the same time, they're probably going to see a downturn in their main business. So that's going to be a struggle for them.

AKIKO FUJITA: So the debt's certainly a concern for American. But is it about the debt more than the industry as a whole? Because to your point, you say it's only as good as it gets. But travel really has reached a peak. You see people shelling out a lot of money, you've seen international travel come back. Hopefully, business travel comes back. I mean, isn't there more upside? And would you be willing to put your money behind some of these other competitors of American?

CHRISTIAN LEDOUX: I would not. I believe that the industry is going to have a hard time adding capacity in an economic way. What I mean by that is, the ability to buy new airplanes, get new gates, get new routes, staff those routes at a time when ticket prices are already starting to soften a little bit. So I would anticipate that we are truly seeing about as good as it gets. And by this time next year, we're going to be seeing negative year-over-year growth rates in almost all the metrics.

SEANA SMITH: Chris, the other name that you have that you're telling people to avoid right now is Lucid. Certainly run into its own set of challenges here over the last several months. Selling off just recently last week. Why do you see more downside ahead for Lucid, given the fact that the EV market is certainly starting to heat up?

CHRISTIAN LEDOUX: Yeah. And it is hard to say negative things about a company that has such a fantastic product. If you've seen their car, it's quite exciting. But what's the problem is that these companies are really having a hard time manufacturing profitably. It took Tesla over a decade from the first production unit came off the line to break into free cash flow profitability.

And the fact that Lucid and it and its peers-- I would say Lucid is in the same situation as all the other EV pure plays-- they are burning cash at a very rapid rate. You saw a couple of weeks ago that they raised additional capital. But that capital at the current burn rate is only going to last for about nine months. They have a little bit more cash in that on their balance sheet, but that's really only going to take them in the 12 to 24-month range of operations.

So they're not likely going to get through the burn for the next few years that people are hoping that they do. And they're going to have to raise additional money in a best case scenario, which will dilute investors. Or they're going to be facing a bankruptcy, which some of their peers are already facing.

AKIKO FUJITA: All right. Christian Ledoux, it's good to talk to you today. Appreciate you sticking around.