By Debbie Carlson
As the S&P 500 index closes in on its third year of double-digit gains, some investors consider stocks too rich. But Ann Miletti, head of equity investment and chief diversity officer at Allspring Global Investments, which oversees $629 billion, says those who are willing to look beyond megacap technology stocks can find compelling opportunities.
"If you look at the multiples people are paying for a broad index such as the S&P 500 versus the equal-weight indexes, it tells you there is a better risk/reward ratio for some of the companies that people haven't paid as much attention to," she says.
The economic backdrop bodes well for equities next year, she says, with the Federal Reserve likely to continue easing monetary policy, while the passage of new tax legislation earlier this year will benefit corporations.
Miletti, based in Milwaukee, has worked in the investment industry for nearly 35 years, and covered the dot-com bust as an equity analyst. She began her career in 1991, working in the overnight call center at Strong Capital Management.
Miletti recently spoke with Barron's about stocks that excite her team at Allspring, how she views artificial-intelligence spending, and an important lesson she learned in her career. An edited version of the conversation follows.
Barron's : How many interest-rate cuts are you expecting in 2026?
Ann Miletti: Our fixed-income and equity teams agree that there are likely to be more rate cuts in 2026 -- maybe two or three. Federal Reserve Chair Jerome Powell won't be the chair after his term expires in May. The person who is a bigger believer that rates have to go lower is going to get nominated by President Donald Trump.
Any change in interest rates will still be a committee decision, but the Fed's leanings will be harder to read over time because there may be more dissents on the policy-setting committee. This Fed is a little more focused on labor than inflation. There is a tendency to lean into cuts, as long as there isn't an uptick in the rate of inflation.
Rate cuts would be positive for stocks. What else informs your bullish outlook for the market and economy in 2026?
The One Big Beautiful Bill Act tax cuts will start getting distributed during tax refund season, likely in February, and they likely will be spent. Our investment teams are excited about the consumer discretionary sector versus consumer staples because of that. It isn't money that will stick around for a long time, but the benefits of the bill to corporations are even bigger, and that is why I am optimistic about the markets.
The accelerated depreciation rule is a stimulus for companies. Company balance sheets are pretty good. If rates are lower, all of this can provide even more fuel than people think. The hope is that all of the investments that companies have made lately will create productivity gains that will also offset inflation concerns. There is a good chance that we haven't seen much of the productivity gains from all the spending yet, but we are going to start to see them, likely starting in 2026.
Which consumer discretionary stocks does your team favor?
Home Depot gives investors a way to play the consumer but is a derivative play on housing, as well. With some of the stimulus that's coming from the new tax bill and the tax rebates, plus changes in bank regulations to help with housing affordability, we think this could help kick-start the housing cycle and help Home Depot. It is a well-managed company and has maintained a competitive edge. It continues to enter and expand the professional contractor market, which is much more consistent than just the consumer-driven spending.
Home Depot is trading for 24 times a recently reset consensus earnings estimate. With its tailwinds, we expect above-trend growth in free cash flow, and for the stock to be rerated higher.
You were an equity analyst during the dot-com era. Does the AI boom look like the dot-com bubble?
The surge in spending, directionally, is the same as what we saw with the internet cycle. You saw it within infrastructure, but also in early development companies that built themselves off the internet, but not to the extent that we have seen with AI spending. A half-trillion dollars has already been spent. Not all of it will be spent wisely.
What will rhyme is that AI innovation will change industries, and they will look different. AI is going to have a bigger impact on the economy.
Some of the companies involved in AI are funding growth through free cash flow, and some are funding it through debt. But then there is the circular finance [companies funding one another to grow], and you aren't sure where the funding is coming from. That is what rhymes with some of the things we saw in other bubbles. That makes me a little uncomfortable. But it isn't going to stop the innovation.
AI is now expanding beyond the infrastructure players that dominate the market. The next phase is more expansion, implementation, and realization of AI.
Where else has your team found value?
Materials and industrials are less sexy than technology, and less loved. One larger-cap name that our managers like is Boeing. The company raised its free-cash-flow guidance for 2026. Its production rates have improved across its commercial-airplane programs. Its supply-chain issues have been resolved, and new orders and backlogs should keep free cash flow elevated.
Management has also done a good job of rolling off legacy contracts, in the defense business, specifically, and replacing them with higher-margin ones. As you look at Boeing's business mix, it is getting some stronger tailwinds. We expect Boeing to generate free cash flow of $14.50 a share in 2029, based on an increasing production rate across the commercial-airplane programs. How about another less-sexy name?
Waste Management continues to strengthen its leadership position in what is still a highly fragmented segment of the waste industry. It also has a lot of landfills, one of the big benefits for the larger companies in the waste space. Landfill pricing is accelerating, and its landfill space is going to provide pricing and margin benefits, as well.
Waste Management acquired Stericycle [a medical waste-disposal company] over a year ago, which slowed the company's typical high-single to low-double digit earnings growth. That debt was paid down, and the margin and revenue synergies are starting to hit. We expect earnings to grow at a 9% annualized rate over five years.
You like small- and mid-cap stocks. What is the attraction?
The fundamentals look pretty powerful. Earnings growth looks better for small-caps and mid-caps, and macro factors such as a lower-rate environment and less regulation should encourage mergers and acquisitions.
In the industrial sector our team likes Powell Industries. It designs and develops custom-engineered electrical equipment systems that support critical infrastructure across the energy sector. Powell has a diverse customer base of oil and gas producers, utility producers, and refiners.
One fear with AI is whether the grid can support all the power needed. Powell is one of those infrastructure providers on the back side that can capitalize on high-value projects across natural gas, utilities, and data centers. It isn't dependent on AI growth, but likely will benefit from it. Gross margins look to be expanding. Powell has a strong balance sheet with no debt and $476 million in cash. The company has exceeded consensus earnings estimates for the past 15 quarters, and we expect it to produce more positive earnings surprises.
What other sectors look appealing?
Healthcare is interesting to us. Our special-value team likes Charles River Labs, which provides biotech and pharmaceutical testing for drug discovery and safety assessment. There has been a lot of regulatory uncertainty, and the funding backdrop has been tough. That has weighed on Charles River, but our investment team thinks we are now past the peak of regulatory uncertainty, and that customers are starting to build a backlog after reprioritizing their pipelines.
Our team thinks Charles River is likely to be the long-term winner when it comes to using AI in clinical research. The complexity of the research is going to increase, and it is more likely that more pharma and biotech work is going to be outsourced. The total market availability could grow for Charles River. The stock is trading around 19 times consensus earnings. We see the multiple rising to the low- to mid-20s.
Where do you find value among tech stocks?
We're looking away from the megacaps. One name we like, Teradyne, designs and makes automated test equipment for semiconductors. It hasn't been in the sweet spot of the semiconductor cycle for AI chips. It is more focused in handsets, autos, and industrial applications, and some industries have seen a cyclical slowdown. Also, in the past couple of quarters, Teradyne has made more investments to participate in the market to create higher GPUs, the more powerful graphics cards [such as those made by Nvidia]. The benefits are starting to show up in the company's forward guidance. We anticipate faster-than-expected revenue and earnings growth.
Motorola is another old-school name that is trying to redevelop itself as Motorola Solutions. Shares weakened following the release of recent quarterly results, but our team thinks there is an underappreciated catalyst related to the company's acquisition of [wireless communications company] Silvus Technologies, that should drive earnings and cash flow higher in the coming years.
Motorola Solutions is also making a strategic push to integrate advanced human-centered AI public-safety workflows, using AI to help first responders handle calls faster, smarter, and more efficiently. The company has had a couple of hiccups in 2025, but the management team is making the right strategic decision, and the risk/reward is pretty favorable. We see earnings per share growing significantly faster than Wall Street estimates, at 13% versus the 9% consensus.
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December 18, 2025 11:59 ET (16:59 GMT)
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