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Steve Cress shares Pro Quant Portfolio’s impressive returns (0:45) 3 Stocks from the brand-new Quant Growth & Income Portfolio (6:30) Q&A with Steve (13:30) Thoughts on SpaceX IPO (37:25)

Transcript

Rena Sherbill: Steve Cress, the investing legend, the quant myth, the man that is delivering such alpha for all of us. Welcome back to the show.

Steve Cress: Thank you very much for having me. It’s great to be here. Thank you for organizing it.

Rena Sherbill: It’s always great to have you. We have come upon an anniversary and you were on, I guess it was about a year ago, talking about this new product that we launched from the Pro Quant Portfolio. And you had referenced a few picks. One of our best received episodes, by the way.

People that are paying attention are astounded and by the outstanding performance. Talk to us about it.

Steve Cress: So a year ago, we had launched the Pro Quant Portfolio and the launch of that was really a result of a survey we did from an existing product, which is called Alpha Picks, which we launched about four years ago.

And when we surveyed our Alpha Picks customers, the audience was split pretty 50-50. Half of them wanted a higher frequency of growth ideas and Alpha Picks is a product where we come out with two ideas a month, our two favorite quant strong buys.

So the subscribers said they wanted more ideas more frequently. And the other half said they wanted ideas that were focused on dividend stocks. So as a result of that survey about a year ago, we launched the Pro Quant portfolio, which delivered on a higher frequency ideas. So we rebalance a fixed portfolio of 30 stocks every Monday.

And I’d say on average about two to three new stocks will come in, sometimes less, sometimes more, but on average about two to three. And it’s our favorite quant stocks that run through our ranking.

And we focus on stocks that are collectively strong on value, growth, profitability, momentum, and EPS revisions. And it came out with much success. And one year later, the product is currently up 56.9%.

Compared to the S&P 500 (SP500), which is up 18.65 % for the same period. So those are the one year numbers the last 52 weeks. So celebrating that anniversary, as it was welcome with many new customers, and I think they’ve been really pleased that they invested in it.

There’s not many portfolios of 30 stocks that you can claim are up almost 57 % in a one year period. So we’ve been really pleased with the performance.

Rena Sherbill: Yeah, really amazing. I mean, even relative to a great market year doing really fantastically.

Steve Cress: It is. I mean, for the 52 week period, I guess, in terms of performance, it feels great. There are an unbelievable amount of rotations to risk on risk off risk on risk off. So it didn’t necessarily feel good during it. I think we had three periods too, where the VIX like surged. We had two in late 2025 and once in March of this year.

But at the end of the day, the performance over the market’s been good and for the product, it’s been even better.

Rena Sherbill: Which brings us to a brand new product, which I believe was also born out of audience feedback, if I’m not mistaken, one of our audience’s favorite topics, income.

Steve Cress: Yes, yes. So a lot of our subscribers at Seeking Alpha, and just many investors in general, are very income oriented. They like to have stocks that pay dividends. We tend to really focus on capital appreciation.

So what we wanted to do is create a product where we marry both growth and income and take a little bit longer to get out than the pro-quant portfolio. But we were able to do it.

And it also leverages our proprietary dividend grades. So Seeking Alpha is one of the few firms that actually will review a stock’s dividend. And we review it on four different elements. It’s safety, it’s growth, it’s consistency, and it’s yield. And just like the quant system where we have academic letter grades that range from A plus to F on a sector relative basis, the dividend grades work the same way.

So when we look at dividend safety, if it has an A plus, it’s much safer than the rest of the sector. So we combine that with our quant model and focusing on stocks that pay dividends.

So the quant growth and income product is a portfolio of 30 stocks and that rebalances every two weeks. So every other Wednesday, we make the announcement at 1 p.m. noon Eastern Standard Time. And the focus for the product, as I mentioned, it’s both capital appreciation and income.

So every stock pays a dividend. We have a benchmark that we decided to use, which was an ETF called the Vanguard High Yield Index ETF (VYM). And that currently has a yield on it of about 2.2%. And the focus of that ETF isn’t necessarily capital appreciation, but in our back test, we substantially beat the performance of it.

And that is our objective in terms of total return to beat that benchmark.

So the return from 2015 through the beginning of this year for the product back tested was 500 % compared to 200 % for the Vanguard High Yield Index ETF.

And I’m also pleased to say we just purchased the stocks Wednesday for the portfolio and the average yield on it is 3.0%. That’s the average forward yield. The average yield trailing is 2.99%.

So it’s significantly higher than (VYM), which currently has a yield of 2.19%. And I’m also pleased to say that the portfolio is significantly outperforming it on its first day of trading.

It’s up 1.63 % now versus the Vanguard index which today (Thursday) is down 0.07%. So great first day. Higher yield, higher return. And that’s exactly what we want.

Rena Sherbill: It sure is. So you treated your subscribers, your followers on Seeking Alpha to a sneak peek of the top stocks in that new portfolio. And I’d love it if you shared with our listeners, with our audience, what those stocks that you shared were.

There were three of them. And then I’d love to get into some questions and answers for you.

Steve Cress: Yeah, absolutely. So of the 30 stocks, we’ll give away three and we’ll do that right here. And really the three that we’re giving away, it’s just on the basis of giving you an idea of what’s in the portfolio.

I went for a diversified approach because the portfolio has financials, it has REITs, it has consumer staple, it has utilities, it has industrials.

It is actually a very different portfolio compared to Alpha Picks and Pro Quant Portfolio which tend to be much more growth oriented and very few of the stocks in those portfolios have dividends where this does. So this is a really nice counter to it. I often refer to it as a barbell approach.

As an investor, you want to get stocks that have really good fundamentals where you’re focused on capital appreciation, but markets gyrate. And even though we take a bottom up approach and we’re not top down, that top down has an impact. So obviously there can be fear and anxiety in the markets.

It creates volatility spikes. Whenever you look at sentiment indicators, they bottom out in extreme fear. So it’s really nice to have a balanced portfolio where you have dividend stocks on one hand and growth stocks on the other. So three of the stocks in the growth, want an income portfolio product.

One is Exxon (XOM). So we have energy stocks in there as well. Exxon, as you may be familiar, it’s the largest energy company in the world. It’s a fully integrated oil and gas company.

And I just looked at the stat the other day. It’s pretty amazing. They have a total refining capacity of 4.1 million barrels of oil per day. That is a huge, huge number. And it’s a big company. The market cap is 619 billion. And in terms of the factor grades, it’s a little bit expensive.

The stock has pulled back in the recent week or so, but it did have a big run up when the crisis with Iran started, as many energy stocks did.

So the valuation grade on this is a D now, but it was D six months ago. So it’s been expensive. It’s one of the go-to stocks in the energy sector. In terms of its growth, it’s in line with the sector.

Its profitability is an A plus versus the sector. So it is by far one of the most profitable companies if you’re looking at a number of different metrics, whether it’s a return on equity or return on capital or margins, they have just about the best in the business.

And in terms of revisions, I know I’ve been taking up their EPS revisions over the last 90 days. So they have a lot of confidence. And one of the questions that we get with Exxon or other energy stocks is do we expect a major pullback if the situation with Iran is resolved? And from my experience, you’ll have a bit of a pullback, but it takes a really long time for these companies to lower their prices. So the margins stay high for longer.

And I think that will benefit Exxon. In terms of the dividend safety, it’s got a B minus grade. So anything, any grade historically we found between B minus and A plus, they have a further to the dividend cut 98 % of the time. So that’s exactly what we’re looking for.

And that’s the point of the dividend grades. Comparatively for companies historically that had a dividend grade of an F, they ended up cutting their dividend 60 % of the time. So it’s in that sweet spot for safety.

And in terms of dividend consistency, they’ve been paying a dividend almost since their existence. So they have an A plus. They’ve been paying it much, much longer than many other companies. So that is a sample of one stock.

Another one is a REIT called EPR Properties (EPR), significantly smaller. It’s got a market cap of 4.36 billion. So this is sort of just entering the large cap territory. could even be considered really a mid cap stock.

However, this has a really sweet yield at 6.52 % and it’s a premier player and has experience oriented properties sort of like properties that own movie theaters or places like Topgolf, many things that involve entertainment, family, organized and what we’ve found historically too is that these companies although they may not be entirely recession proof families still want to do things. People want to have fun and they can go to venues like that.

So the properties that they own underneath those venues have done very well historically. And the company is stellar in terms of its valuation framework and growth compared to the sector.

It’s got an A minus valuation, which on a relative basis means it’s cheaper than most of the sector and its growth is A minus as well, which means a growth is stronger compared to the versus the rest of the sector. And I’ll also add it’s got an A minus downgrade for growth.

Six months ago, it was a C. So the company over the last six months has really demonstrated that their properties continue to do well and that they’re growing faster.

Analysts have also taken up their estimates of the company. The EPS revision grade is an A plus right now, and six months ago it was a B plus. So analysts increasingly confident that the company will be able not only to deliver, but so much so that they’re taking their estimates up.

So that’s the second company and the third company is a financial. It is called the Hanover Insurance Group ticker symbol (THG). This company has a market cap of 6.48 billion. There’s a quant strong buy and it has a dividend yield of 2.05%. Hanover Insurance Group provides insurance for property and casualty.

And in terms of the segment, it rates very, very high. The reason why it’s pretty intuitive when you look at the factor grades, valuation framework, very attractive versus a group with an A minus and the growth is a B plus versus the financial sector.

Additionally, very profitable B plus grade there. And in terms of analyst revisions, just about as good as you can get, it’s an A minus, only a couple of grades higher than that.

So that means compared to the sector, analysts are taking their earnings estimates up at a faster pace than it is for the rest of the sector. In terms of the dividend safety grade, it has an A, and the dividend growth grade is an A as well.

So those are the three stocks, and I’d highly recommend that you either take a look at the article, but I would even recommend more that you take a look at the product. If you are interested in having income, but growth as well, this would be a great product to look at.

Rena Sherbill: And we’ll leave the link to both the article and the product in show notes and in the article if you’re reading along in the transcript. So I’m going to get into some questions first from the article that was just published that you just worked off of those three stocks.

The question is from ChooseCats. Wouldn’t it make more sense to structure it closer to Alpha Picks than the PQP if the aim is to buy companies that grow their dividend over time? The high churn rate of PQP is going to work against that.

And before you answer, somebody kind of answered and I’m curious what you think. BY627 said the high turn in PQP is likely due to the stock selection criteria, which would be different here I would imagine, hopefully much fewer small caps than the PQP, which would help keep the turnover lower. Besides for fixed income folks who I presume this is geared towards, having a fixed 30 positions means you don’t need to contribute more capital every two weeks to stay consistent like with Alpha Picks. This could be interesting, but I admit I do have heartburn thinking of all the turnover from PQP and all the unattainable entry prices and 50 % sell-offs.

Steve Cress: Well, you know, it’s definitely a balance. You have to ask yourself, at the end of the year, do you want a product that is going to provide a fairly stable income level? And I think the income level on average will be fairly stable here. But I guess, if you give up on the turnover, you’re going to give up.

So at the end of the day, really what’s more important, is it the turnover or is it the performance? And people will say this about taxes as well. They don’t like turnover because they get taxed. Well, if you own PQP, you’d be up 56 % for the last year. If you owned Alpha Picks over the last 52 weeks, the return there is a hundred percent.

Do you want to have a return that’s closer to the S &P over the last year, or do you want a return that’s closer to 57 % or 102 %? You could double your capital, and it’s well worth the amount of taxes that you would pay on it to double your capital. So that’s sort of the trade-off. Do you want the higher returns, which these have shown historically that they provide?

Or do you just not want to turn over your portfolio as much out of fear of taxes?

Rena Sherbill: Yeah, we just started this tax series and one of the first questions that made me want to start that series was I was asking Raul Shah, the analyst, or he was saying in one of our episodes that many people think, I don’t want a higher salary because I’m going to get taxed more. And he’s like, that’s not how to think about it. That’s not how to think about it.

Steve Cress: Right. Yes. It’s like the equivalent. Sometimes it’s hard for me to answer that because that is a great analogy. It’s like, so you want to give up money. And I there’s a guarantee. There’s no guarantees that, you know, the product will perform, but it’s got a really good history of doing.

Rena Sherbill: It’s prosperity mindset, right? Next question. What is the target dividend that you hope to achieve with this portfolio? the strategy include reinvesting the dividends?

Steve Cress: The strategy does include and reinvesting the dividend. target is, we don’t know where interest rates will be at any given year. So our target is basically to stay within sort of 25 to 50 basis points of the Vanguard High Yield Index. So we’re going to have sort of that floating range based on the benchmark. So, we’re like almost at a 20 year high in terms of interest rates.

Nobody ever knows what’s going to happen. You don’t know if there’s going to be tariffs. You don’t know if there’s going be a war. You don’t know if going to be a hyperinflation. You don’t know if inflation is going be bottoming out. You don’t know if we’re going to be in a recession.

So interest rates will always be volatile to a certain extent. So we can’t say that we’re going to target a specific rate, but we will target a range within the benchmark. And that’ll be 25 to 50 basis points. But right now, I’m really pleased that our average yield is much higher than the benchmark. So that’s fantastic.

Rena Sherbill: Ted 2.0 asked about whether or not you have a yearly average targeted capital appreciation percentage and also about the monthly average targeted dividend yield.

Steve Cress: Yeah, so sort of in the same vein of the last question, you never know what markets are really going to do. So we can’t target a specific capital appreciation level.

But again, our goal is to outperform the benchmark. you know, going back 10 years, I think in our back test, eight out of the 10 years we outperformed the benchmark. The only two it did not perform it was during the pandemic. But the follow up years were really good.

And as I mentioned, the performance has absolutely crushed the benchmark over that 10 year period. So we’re very pleased with the returns and our objective is to outperform the benchmark.

Rena Sherbill: I’m going to ask two more questions on this new product, and then we’re going to get into some from our previous episode.

I was wondering whether this new product stands beside the Alpha Picks and PQP systems, or if it functions as a standalone application, reducing the risk in the aforementioned products. Managing all three products may be too labor intensive, so what would you suggest to keep things manageable?

Steve Cress: I would honestly recommend probably two of the three. You want to have income on one side and you want to have capital appreciation on the other.

I really don’t want to take away from the quantum growth and income portfolio because that is focused on both capital appreciation and income. But typically you find with companies that pay dividends, they don’t grow as fast as companies that have good fundamentals that put their earnings back into the company.

So whenever you pay a dividend, you’re taking that earnings out of the company. It’s not being reinvested. So it’s great for investors to collect that dividend. It’s not always great for the company if they’re really in a grow, grow phase.

If it’s more of a mature company or they have a consistent income stream, it’s really nice to have that payout in the form of a dividend. So our products such as Alpha Picks and ProQuant Portfolio, they are highly focused on capital appreciation.

Some of the Alpha Picks stocks do pay dividends, but that is not the focus of the product. It really is capital appreciation. So I’d say, the choice is if you want a higher frequency of ideas, ProQuant portfolio would be better. Our back test did show that ProQuant portfolio over time had a better return than the Alpha Picks back test. More recently, the performance has been better with Alpha Picks, but that’s because Alpha Picks is more of mature portfolio.

It’s been around for four years on the pro-quant portfolio just started. So Alpha Picks has the benefits of having some positions that predate a year, especially stocks that were AI stocks that have had a tremendous run up.

Over the long-term, I would expect the pro-quant portfolio to have a higher return than Alpha Picks. So if you have both portfolios, that’s a portfolio of 60 stocks.

And that’s great diversification. It may seem like a lot of names to manage every two weeks, you have the rebalance on the quant growth and income. It’s weekly on the pro quant portfolio. If that’s too much for you, then it might be better to have Alpha Picks where there’s less turnover.

It would be a lot of stocks, but we put everything on a silver platter there. We’re telling you what to buy and what to sell.

So really at the end of the day, if you spend, an hour on this or a half hour, you know, every week or every two weeks, it’s really quite easy to manage. And it could build generational wealth. So it certainly might be worth a half hour every two weeks.

Rena Sherbill: Last question about this product, the Quant Growth and Income Portfolio. Somebody’s asking, why bother with all this overhead and extra risks and costs related to the QG&I portfolio if you can simply invest in well-established and professionally managed ETFs with deep history and established reputation?

Why bother with QG&I when you can invest in something like (SCHD)?

Steve Cress: Right. So as I mentioned with the Vanguard, index, high yield index, which they mentioned. So you’re doing it because you want performance.

And, so as I said, going back to 2015, just want to give you the exact numbers that we have here, had you invested in the stocks from QG&I, and done the rebalance and it is work, but it shows that the work pays off. The return was 502% compared to the index, which was 203%. So the return is 2.47 times greater. You that individual that you spoke before who made the reference to, not taking a higher salary because of taxes, I guess the argument you would make here is, if you do own an ETF, there’s very little work.

There’s a very minimal fee that’s associated with it. If you owned the quant growth and income portfolio, that does take a little bit more work, but you have almost two and half times the return historically from the back test.

And you can say that’s a back test that’s history, but our products have clearly shown by example, if you look at Alpha Picks, that product has been out four years and sits since inception. It’s up 439 % compared to the S &P 500 up a hundred percent for the same period.

So more than four times the return on the S &P. So that’s an actual return from trades that is not a back test. So you have to ask yourself, you could work less and have less of a return, or you could work a little bit more and have a tremendous return compared to the ETFs.

And that’s what we’re aiming for. ETFs alone, anywhere, like the S&P 500 ETF (SPY) owns 500 stocks.

This is a portfolio of only 30 stocks. So do you want to own stocks that would be ranked by our quads system, a strong sell, a sell or a hold, or do you want to own stocks that would be ranked a strong buy or buy?

There’s a total of 618 stocks in the Vanguard high yield index ETF. Now that does provide a lot of diversification, but that also really weighs down any potential return that you can have. You want to have a concentrated portfolio that has some diversification to it. That’s why 30 stocks is good.

Or if you have two products such as PQP or Alpha Picks Plus, the quantum growth and income, that gives you about 60 stocks. So it’s a lot less stocks than an ETF, but you don’t want to own everything because not everything’s going to perform well.

The whole point of our quant system is to rank stocks to separate the strong companies from the weak companies. And that’s exactly what we do. We take the historical data from their earnings, their revenue, their, and, many, many hundreds of financial factors.

And we also take forward growth estimates from professional Wall Street analysts where we look at the revenue growth or earnings growth or EBITDA growth. So our product is both backward looking and forward looking from a quant perspective.

But we’re comparing all those metrics for a company, whether it’s within income or cashflow or balance sheet or financial metrics, every single day, we compare the company’s metrics to its sector and we put a fresh recommendation out there. Is it a strong buy? Is it a buy?

Where the ETFs tend to be very stagnant and they hold a lot of stocks. So if I were to run all 612 stocks through our portfolio tool, we would find many of those stocks would be strong sells or sells.

Rena Sherbill: Much appreciated. Okay, so we had you on last month. That episode was titled, to Hold’em, When to Fold’em, and we asked people to leave us some, to leave you questions.

One of the first ones, I’m an alpha subscriber since April. One thing that’s unclear to me is about the buy hold recommendations. Should everyone who joins start with the whole portfolio, including the homes?

I would also point out your strategy of redistributing profits on sell to the entire portfolio is not practical in a real portfolio when there are commissions and fees.

Steve Cress: Okay, so we don’t know what every individual’s risk tolerance is or how much capital they have. So it’s really hard to say on a specific basis what’s right for you as an individual. A lot of people also, they have brokerage firms where there’s almost no commission at all. So I don’t know what kind of brokerage firm that you’re trading through. So there’s a lot of unknowns out there.

But I will say, if you do wanna try to copy the performance that we have, the best approach when we do sell a stock for Alpha Picks is to reinvest across the board. That includes the holds, the buys, and the strong buys.

And really the reason is, my belief is that that diversification helps to minimize risk and it maximizes returns over a long period of time. So we’re not talking about 600 stocks. We’re talking about with Alpha Picks, it could be a portfolio of anywhere from like 35 to 40 stocks at any given time. But that diversification really does help to minimize your risk and over the long term, you do get rewarded for that.

So that’s why our strategy is to reinvest in all the stocks. And now as an individual, you might wanna just pick one or two stocks or a handful of strong buys, but you wouldn’t be mimicking the performance that we have.

Rena Sherbill: I’m going to read a thread that I’m curious your thoughts on. Ghost Blowfish writes, my issue with the hold rating is it can sit on a stock forever while that stock pumps. I bought Broadcom (AVGO) right after liberation day about a year ago. It was a hold at that time and has been ever since yet I bought it $204 and now it’s 425. I’m totally happy with that return but it makes me skeptical of the hold ratings.

And then somebody responds, sadly, it’s a computer system. No system can perfectly predict the stock price movement, AKA instruct you to buy low and sell high at the exact price points. Somebody responds to that. Analysts see significant upside for Broadcom potentially around 20%, which supports the current hold rating I’m long and continuing to hold.

Steve Cress: A hold is a hold. if you own the stock, it’s not a recommendation to sell it. And if it’s a stock that has been part of Alpha Picks, which was a strong buyer by, it’s as dropped to a hold, we advise people to stay in it. Our system holds a stock in there for 180 days. when we think about buys and strong buys, we have those ratings because we believe the securities are mispriced.

And there was significant upside versus the sector. If it’s a hold, we anticipate that that performance will be in line with the sector. So as we’re looking at a stock like Broadcom, we can also look at a stock at (MU), which we had a strong buy on.

And I believe he said he aimed it for a year and his return was basically a double, I think he had in the stock from what you said. Micron was up 894 % over the course of the year.

We have many examples like that as well that are in the portfolio. So as I look at Alpha Picks.

Let’s see. We have Powell (POWL) that’s that’s up 1,500 %. Sterling (STRL) is up 1,500%. That one’s a strong buy that did drop to hold it’s back at strong buy. Argon is a hold. That’s up 487%. There’s just a number of examples that are really up significantly where that have been hold recommendations as well.

So again, hold means hold. It doesn’t mean sell. The reason why we let it go after 180 days is at that point, we really want to make room for some of the other strong buys.

And we also keep it in Alpha Picks for a long time because many times stocks do go from a hold back to a strong buy or buy based on how the valuation framework changes versus the sector or adults taking up their earnings estimates. I will say if you don’t like that, and a lot of people don’t like that, holding a stock for that long that has a hold.

Steve Cress: And that’s, I believe one of the reasons why so many people wanted a portfolio more like PQP, where the holding period is far, far less. You’re looking at something that we don’t give away exactly what the hold period is, but you’re looking at something in terms of weeks instead of months. And that’s why a lot of people prefer pro-quant portfolio. It’s a higher frequency of ideas and it’s not keeping onto the hold stocks as long.

Rena Sherbill: And hold does not sell and hold does not strong buy often because of one or two or three factors. I mean, there’s reasons that even though it’s popping, there’s reasons why it doesn’t become a strong buy.

Steve Cress: And you do, you can tell by looking at the factors. It’s a very transparent system. So if you go to premium or pro, you look at the ratings tab, it would show you the ratings on stock every single day. And we keep it there. We archive it. So people will know when a stock move from a strong buy down to hold, and they’ll see those five core ratings as well. And any change in those ratings. So it’s a very, very transparent system.

Rena Sherbill: There’s the first part of this question and a second part. The first part, we’ve talked about a bunch. believe, I don’t know if you have something new to say or to reiterate. OK, it is, of course, interesting to read about great stocks to buy. And we all like that. However, I would like to see more discussion about when the day would be to sell and not ride the stock back down. That is a huge question for the AI surge.

Also, the idea of PEG is great, but oftentimes you see vastly different numbers from different sources. Sometimes there is no PEG for a stock and also the earnings part of the PEG is a five-year number, so it may take a while for the stock to grow into that.

Steve Cress: Okay so peg is a ratio that I do like. I’ve mentioned that before, but it’s not the only ratio. There are many metrics that we look at under valuation. We have a PE on both a four and a trillion basis. We have EBIT, EBIT price to sales price, the book, cashflow. There’s a number of different metrics that we have.

And, for exactly for that reason, one metric could be good, but that doesn’t provide an overall valuation framework. So that’s why we have a lot of metrics that we look at. In terms of wrridingting stocks back down, if a company is maintaining its fundamentals and the stocks that we recommend for both pro-quant portfolio and Alpha Picks typically have very strong fundamentals, they will not be insulated from what happens with the larger economy or the macro environment.

So if you have a period where a war starts or investors think that a certain sector is overvalued and there’s a massive sell-off, these stocks will not be impervious to that. They will come down. But we have shown many, many times where you do benefit significantly by buying on those dips because fear and sentiment can drive a market, but it’s usually pretty temporarily.

Investors typically return to companies with good fundamentals. And when they do return, they return in size. So these stocks usually whip back very, very fast and to a large extent. So by example, we conducted a study and this isn’t just for our stocks either. We took a look at the last five market corrections since 2010.

And we used a 15 % mark for a pullback in the S &P as the purchase point. And what we found were those five pullbacks on average. If you bought the S &P 500 when it had pulled back 15%, and it pulled back more in times, but that 15 % was sort of the line in the sand where we purchased.

If you bought when it was down 15 % and you held it for two years, you were up. And if you bought our top 10 quant strong buys when the market was down 15% and you held those for two years, you were up 117%. Okay. The number for the S&P, if you held that for two years, it was up 50%.

And our top 10 quant strong buys were up 117 % on average. So it really, it does hurt when you go into market pullbacks. Cause you’re looking at your portfolio disintegrate in front of you. But really one of the points with quant is to eliminate the emotional part of investing and use those data points as an indicator.

So this is a great like historical indicator. And I’m sure as you’re well aware, if you’ve been in the markets for a while, markets come down and markets come back and it happens. But the name of the game doesn’t change by low and sell high. So if you can remove that emotion and say, okay, I have companies here that have really strong revenue growth, really strong earnings growth, and the valuations are more attractive than they were before correction, you should be using it as an opportunity to buy those stocks.

It really pays off, and that is really what helps to create generational wealth as well.

Rena Sherbill: All right, here’s the last question from Christopher. Steve, do you agree that the market is pricing optical networking at AI speed, but the actual rollout still behaves more like a traditional infrastructure cycle? The technology is improving quickly, but the industry still needs time on packaging, reliability, integration at scale, deployment, economics.

We’ve seen similar setups before, solar EV charging, fiber build-outs, early 5G. The direction was right, the rollout was slow, valuations reset hard. Phonotics will no doubt become the standard, but the rollout will 100 % take longer and be messier. Hyperscalar deals do not equal actual orders. Management are all doing napkin forecasts. When that happens, how much of today’s valuation still holds up?

Steve Cress: Well, I will say part of what we do is we’re really taking sort of a bottom up approach. And we wouldn’t even know that these were AI stocks. If there wasn’t like a sector or industry label on it, we’d be looking for stocks that have really strong growth, really good profitability, really good valuation frameworks.

So what I find with our type of strategy is we are looking for companies that have earnings and a good valuation framework. So I think if you went back to sort of last October, November, there was a major pullback in the market and it was being driven by particularly technology stocks and their investment towards AI.

And it presented sort of a huge opportunity because the companies that we have in the portfolios, they continue to beat top and bottom line expectations.

I think part of the fear that you’re referring to is sort of in the overall environment. And this could have been applied during the TMT bubble as well, back in like 97, 98, 2000. A lot of those companies actually did not have earnings. And the revenues weren’t even really there.

And it’s kind of interesting because we have this SpaceX (SPCX) IPO that’s coming out on the 12th. And there’s like a handful of companies in the aerospace and defense sector which do more earnings than one quarter than SpaceX has done in its entire longevity.

So you really have to say, what kind of companies do I want to own? Do I want to own pie in the sky? Or do I want to own companies that have proven revenues and proven earnings?

And there are many companies in AI, especially even industrial stocks, such as PAL and Sterling, but we also have Credo (CRDO), you have Micron. These are companies that have real earnings and real revenue.

So I think that’s likely to continue. There will also be companies that don’t have real revenue where, you know, adults could also bake in a forecast going forward where there’s huge growth, but there’s been no historical earnings. As an investor, you just have to do your research.

And that’s really what’s great about our Seeking Alpha platform is we provide this research, we provide all the financials there, and we provide products such as Alpha Picks and PQP that does the homework for you.

So that period that we had in October, November, definitely, the portfolio has suffered a little bit, but man, the stocks came firing back. And more importantly, when they released their earnings results, they were beating expectations, both top line and bottom line.

So these companies have solid positions and solid earnings. So I think that’s it. I hope that answered that question.

Rena Sherbill: Not as a quant man, but just as somebody that’s been around the markets for a long time, do you have any interest in SpaceX? Like, is that something you’re gonna dabble in at all?

If you had to say two lines or two thoughts about that IPO, what would you say? As somebody who’s been around.

Steve Cress: I think it’s an amazing company. Elon Musk is an amazing individual. His companies, no question about it, are revolutionary. What they’ve done in aerospace and defense is absolutely revolutionary as well. And with the Starlink satellites, that is a product that will be in demand.

But at the end of the day, when I look at a company, I look at those five core investment characteristics. I look at growth, I look at value, I look at profitability.

I look at analyst revisions and I look at the stock’s momentum and if a stock doesn’t tick those boxes for me, most likely not going to be in it. I probably would have missed Amazon (AMZN) early in its days and Facebook (META) early in its days when the companies had no earnings. I probably would have missed that.

But in the same token, Alpha Picks is up over the last 52 weeks, 100 % pro-quant portfolio is up 55 % or something. So still getting good returns and probably sleep better at night. With SpaceX, I think they’re going to have like 18 billion in revenues, which for large companies is actually pretty small in terms of revenues.

And they have negative earnings. So they’re not even earning money at this point. So probably will come. But this is not the point. If I have to compare it to my portfolio and the criteria and parameters I look for, it probably wouldn’t cut it.

Rena Sherbill: The analyst that we had on today’s episode in closing this conversation was talking about how something that he’s learned over the years is you save more money by missing out on the big plays than you do on the slow incremental profits and alpha that you’re making along the way. In other words, he’d rather miss the Amazon than be true to his strategy.

Steve Cress: I have a good strategy. It’s got a great track record. So it ain’t broke. So why fix it?

Rena Sherbill: In fact, here comes another product if you’re interested in growth and income. So we’re going to keep churning along as long as the success is there.

Cheers to that success. Steve, appreciate you coming on today. Thanks for answering our questions and talk to you next month.

Listen below or on the go via Apple Podcasts and Spotify

SpaceX begins trading on the Nasdaq on Friday. Is valuation too much? (0:17) May CPI expected to show renewed pressures as rate hike odds rise. (1:30) Oracle earnings spotlight AI cloud growth. (2:13)

SpaceX (SPCX) is set to begin trading on the Nasdaq Friday after pricing what could be the largest IPO in history by valuation.

Reuters reported that the company has already received about $150B in orders, more than double the roughly $75B it is seeking to raise.

SpaceX is offering about 555.6M shares at $135 each, valuing the company at roughly $1.8T.

While demand has been strong, not everyone agrees with the valuation.

Aswath Damodaran, the NYU professor known as the “dean of valuation,” estimates SpaceX’s equity value at closer to $1.3T.

Damodaran told The Wall Street Journal’s Take On the Week podcast that a key point of disagreement is the company’s assumptions about the size of its AI business, including xAI and Grok.

He argued that SpaceX’s projections for the AI market stretch the bounds of plausibility.

Meanwhile, Apple (AAPL) kicks off its Worldwide Developers Conference on Monday, where investors will be looking for updates on Apple Intelligence, Siri and the company’s broader AI strategy.

Wedbush analyst Dan Ives said the eventual monetization of Siri and AI could add another $75 to $100 to Apple’s share price and is “not being factored into the current multiple.”

Wedbush has an Outperform rating and a $400 price target on the stock.

Looking to the economy, attention turns back to inflation after Friday’s stronger-than-expected jobs report raised concerns about wage pressures.

The May CPI report arrives Wednesday.

Economists expect headline CPI to rise 0.3% in May, with the annual rate at 4.2%.

Core CPI is expected to increase 0.5%, lifting the annual rate to 2.9%, still 90 basis points above the Fed’s target.

Wells Fargo said one area likely to reflect the impact of the Iran conflict is airline fares, citing higher jet fuel costs and the bankruptcy of Spirit Airlines. However, the firm does not expect to see a broad reacceleration in services inflation.

Following the payrolls report, traders are now pricing in a quarter-point rate hike before year-end.

On the earnings front, Oracle (ORCL) will be the highlight when it reports on Wednesday.

Stone Fox Capital, which has a Strong Buy rating on the stock, expects strong results and another guidance increase.

“The AI cloud stock appears to have plenty of upside based on just hitting already aggressive growth rates while the potential exists for more upside,” the firm said.

Not everyone is convinced. Louis Gerard recently upgraded Oracle to Hold from Sell, but said the company still faces questions around converting its backlog into revenue and a balance sheet that continues to deteriorate.

Also on the earnings calendar:

Chewy (CHWY) joins Oracle on Wednesday.

Adobe (ADBE) and Lennar (LEN) report Thursday.

In the news this weekend, Marvell Technology (MRVL) and Flex (FLEX) are expected to join the S&P 500 (SP500) later this month, replacing Pool Corporation (POOL) and The Campbell’s Company (CPB).

Marvell surged earlier this week after Nvidia (NVDA) CEO Jensen Huang said it could become the next semiconductor company to reach a $1T market value.

Flex, which provides electronic manufacturing services, has more than doubled this year.

Meanwhile, Pool and Campbell’s are both down about 20% year to date.

And for income investors:

Alphabet (GOOG) (GOOGL) goes ex-dividend on Monday and pays out on June 15.

Occidental Petroleum (OXY) and Travelers go ex-dividend on Wednesday. Occidental pays out on July 15, while Travelers pays out on June 30.

Taiwan Semiconductor (TSM) goes ex-dividend on Thursday with a July 9 payout date.