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Steven Cress, Seeking Alpha's VP of Quantitative Strategy, on this very volatile year (1:15). Strategies employed in quant; top 10 picks' track record (14:00). Why Barclays is a Strong Buy (31:15). Pick #2, Prudential out of Asia (34:00). FinVolution, pick #3 (36:55). Power Solutions, pick #4 (38:40). Picks 5&6: New Gold and Gold Fields (42:10). Picks #7-10 (45:20). This is an excerpt from Top Stocks For H2 2025.
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Transcript
Emma Johnston: I'm Emma Johnston. I'm a Quantitative Strategist here at Seeking Alpha. I'm joined by Steven Cress, our Head of Quantitative Strategy and the brains behind Seeking Alpha's Quant system.
This marks our third annual Top Stocks event, and we're proud of the outstanding track record we've built over the years.
Our top stocks for the second half of the year will feature some of our standout picks from earlier in the year, but along with some exciting new additions to the list.
Steve, I know many folks here will be familiar with you, but some aren’t. If you could give a bit about your background, that would be fantastic.
Steven Cress: Absolutely. So, I'm the Head of Quantitative Strategy at Seeking Alpha. I have been at the firm for 6 years. And about 6 years ago, Seeking Alpha actually bought my company, CressCap Investment Research, where our focus was on quantitative strategies. And we created a platform that was sort of a virtual analyst where you could put the name of any company in and get a directional recommendation. Then Seeking Alpha liked it so much, they bought the company.
It has been, to say the least, a very volatile year. January and February, that was the beginning of when tariffs started to hit the markets. The US equity market was trading fairly well, especially going into like February. It was hitting new highs.
So kind of a tale of two stories. You had the tariffs being announced, which hit Canada and Mexico, and the S&P 500 did dip quite significantly on that 25% tariff threat and the beginning of the trade wars.
And markets were sort of moving back and forth during that time, but it still seemed to eke out a new high going into the end of February. But that did quickly change as we got into April, where we had Liberation Day announced, which was the tariff bombshell.
Global markets crashed, and the US market had a major correction in a very, very brief period. In 11 days, the S&P 500 plunged. And at one point, the S&P 500 was about 15% off its 52-week high, and the NASDAQ (NDAQ) was about 20% off its 52-week high. And this really happened in a very brief period.
So quite unnerving to many individuals where we’re sort of feeling good about the Trump Bump that we got post the election. It seemed like the rug was just taken right out from underneath our feet.
We did see signs at Seeking Alpha. If you were reading the articles that I produced back in December and in January and February, that increasing drumbeat of tariffs, it did raise an eyebrow.
And I'm sure people are very familiar with tariffs now and the damage that they can do on markets. That was one of the reasons why we took more of a defensive nature and we launched what was called our barbell investment approach back in February to try to get some diversification to people's portfolios.
But what I really want to highlight is when you are in a market correction, as we experienced in early April, stocks with good fundamentals, they tend to get hit very, very hard. So what happens and what the markets had experienced was a flight to safety. So people started to sell stocks that had strong fundamentals, stocks that had good momentum, basically rotating into cash, rotating into gold.
And if they were focused on the stock markets, they were rotating into consumer staples stocks, into utility stocks, into REITs. And the focus wasn't so much, they didn't care what they owned, they just wanted to be able to take that capital and put it into safe haven areas. And that is not a good environment. People often react to fear in a very poor way, and that's by panicking and selling stocks.
So one of the things that we were really trying to pound the table on was to not sell stocks based out of fear. We were advocating a barbell approach where we're looking at companies that had good, solid dividend yields.
What I say is really good dividend growth rates, but stocks still with a Quant Strong Buy, or Buy recommendation, but also keeping an eye out at the Quant Strong Buys that were getting beaten up and adding those to the portfolio at the same time.
Because what happens is when fear fades, investors return to fundamentals. And we found many of the stocks that we were recommending, especially our top 10 early in the year, got off to great start, but by the time we started getting to mid and late February, many of those top 10 stocks got slaughtered.
So we went from a position where the top 10 stocks in January of 2025 were up over 20% to a period where they were below 20%. So on average, it was almost like a 40% swing that we saw in those stocks. But if you stuck by it, those stocks did come back.
As fear faded, people did return to fundamentals. And when they identify the stocks with good fundamentals, they invest in size. So a lot of those stocks had a major rally back. So I'm quite pleased, and we'll go through the performance where the top 10 stocks for 2025 are.
And that brings us closer to the May and June period that we've just gone through. The markets did tend to rally back in May. U.S. and China did agree to cut tariffs for 90 days, and there was sort of a 90-day pause just about with most of the countries where we had tariffs. I believe the thought process of the administration was, in 90 days, they wanted to have 90 trade agreements, which would bring us to mid-July.
So a number of the important agreements with the UK have taken place. And there are constant negotiations going on with China now. And I think the markets are reacting very positively to that. June, the volatility has persisted. The markets have gone back and forth a little bit, but for the most part, we're touching base on where we were for the February highs.
Of course, we have geopolitical concerns now with Israel and Iran that didn't exist earlier in the year. But for the most part, Israel has been at war for almost two years with Hamas and Hezbollah, which have been sponsored by Iran. So it's sort of bringing us to what could be a final stage.
Hopefully there will be negotiations between the governments and these geopolitical tensions will calm down and that would bode well for the market. But the market is even taking these tensions in strides.
As you can see, again, we're touching base where we were off of the February highs. So this really creates this push and pull theme. We have basically one step forward, one step backwards.
What are we seeing on the push side? Why is the market, despite all the problems that we've had with concerns over inflation, concerns over geopolitical events, concerns over interest rates. We've still had the market wanting to push forward.
And of course, a lot of that's led by the AI frenzy that we've seen. There's no question about it. Whether you're a millennial, a baby boomer, it doesn't matter. Everybody is using AI, whether you're a corporation or an individual. AI is a revolution that's taking place. And that hype is into many stocks in the market. And it creates a scenario that people want to be part of.
Inflation core CPI, surprised to the downside. Now this is a little bit, you know, looking in the rear view mirror, because we're looking at inflation numbers that are generated by historical data points. Not really forward looking at this point, but it still did surprise to the downside with coming at a 0.1 for May. Interest rates, we have a Fed meeting tomorrow.
It's widely expected that there will be no move, but there is a higher expectation that there could be a cut in September that could prove to be a stimulant for the economy. The recession risk that, people have been so worried about really over the last couple of years, as David Kelly had mentioned, it's really more of a sog than a potential recession. And GDP could grow above 2% annualized after Q1's decline.
So the recession risk not necessarily looking as severe as many people had thought over the last 2 years. Corporate earnings, the tariff impacts, so far have been minimal, but again, that's looking at the rear view mirror. We are going to have the next couple of quarters that will come up, and we'll see if the tariffs have a big impact.
Tariff negotiations do seem to be going well. Of course, when we had Liberation Day announced, it was a big correction, but many of the conversations with foreign countries since that point of time, even though they haven't resulted in treaties yet, just having the negotiations prove fruitful, and the markets are looking at that with a positive eye. And of course, we have the Trump tax cuts, that extension could provide further stimulus to the economy.
So those are our steps forward. What's pulling us back? Well, with as much hype as there is with AI, there's definitely a lot of volatility that's been created.
And one of the things that we highlight here, DeepSeek (DEEPSEEK), which came out I think that was in January, and that is a Chinese company that basically said they can operate at far greater efficiency with far less cost running data centers than the current AI companies that we have in the United States.
So that theme sort of took a bite out of AI, because a lot of what we're seeing with AI is energy driven and data center driven.
And a lot of infrastructure companies that have played off of that had performed really well over the course of 2024, got hit just as hard as a company like Nvidia (NVDA) did earlier this year because the infrastructure demands were perceived to be so great going forward.
If you had tremendous efficiencies taking place at reduced costs, that would take a bite out of that story. So that's a step back.
Interest rates, the Fed remains cautious amid mixed signals. Of course, we have President Trump trying to get the Fed to take rates down. Many countries around the world have actually been cutting interest rates.
So a lot of investors are hoping that the Federal Reserve would be following that path, but the Federal Reserve looks at their own data and they're not necessarily seeing the reason, and there are concerns that remain where interest rates could remain unchanged. So right now, of course, for the Fed meeting tomorrow, no one is looking for change. Interest rate traders are looking for a change, a cut in September, but nobody's really quite sure what the Fed will be doing.
In terms of recession risk, the US GDP contracted in the first quarter due to surge in imports and reduced government spending, growth flowed with this trade policy. And of course, that theme could continue over the next couple of quarters.
Corporate earnings, the tariff impact, hasn't been great so far, but in the third and fourth quarter and into the first half of next year, those tariffs could take a bite out of corporate earnings.
So a lot of uncertainty there. The tariffs, Liberation Day, that 90-day period where we sort of agreed to a reprieve with other countries, that expires on July 8th and 9th.
Even though we're in deep negotiations with China right now, so far there's only been really one trade agreement and that's been with the UK. So there's about 90 other countries out there that we have to have trade agreements with and that July 8th and 9th time period is just around the corner.
And the Trump tax cuts, the extension does raise concern over the deficit. Even within the Republican Party, there's a great deal of concern over it. So that's not necessarily a done deal.
I will say we do see on the CNN index of fear and greed, it is in a greed period now. This is completely opposite of where we were a year ago, where it was in the fear territory, but not even a year ago, if we really just went back to April, it was an extreme fear.
So investors are feeling a lot more comfortable with the markets right now. So, it's moved back into the greed. And as you look on the left hand side tracking the S&P 500 (SP500), you can see that we are very close to our 52 week highs. And that high did occur during February 19th.
As I mentioned, interest rate traders for the meeting that's coming up, 98% of them expect no change to interest rates, and that is for tomorrow. So I don't think we're going to really see the markets move tremendously. I think this is really discounted into the markets at this point.
So if it is interest rate related, of course, not looking at geopolitical events, nobody really knows what's going to happen there. But in terms of interest rates and inflation, most investors and traders not expecting any cut tomorrow.
However, a little bit different if we look out to September. In September, 76% of interest rate traders are expecting a cut. Some are, I think if we look at the chart here, we'll see almost 60% are looking for a 25 basis point cut, and 15% are looking for a 50 basis point cut. 25% of interest rate traders are expecting no change at all. So we'll have to see what the next couple months bring in terms of the economic data that is released.
As I mentioned, I am the Head of Quantitative Strategy. Quant is a data-driven process. We typically, we don't talk to CEOs of companies, we don't talk to politicians, we don't assess macro information. We are looking at data that comes out of companies, but we do also look at data that comes out of analysts. So for our Quant system at Seeking Alpha, it's historical looking, but it's forward looking as well.
We assess historical numbers, and we compare those data points for companies. For each stock that we look at, we're comparing them to the sector. But it's forward looking because we take consensus forecast from Wall Street analysts for companies. So our system blends together both historical data and forward-looking data. So in a data-driven process, we use math, we use algorithms, and we use basically these techniques to identify good stocks.
And at Seeking Alpha, we employ in our Quant system what I refer to as a GARP strategy. It's growth at a reasonable price, it's sort of GARP plus. So in addition to that, growth at a reasonable price, which is really a combination of looking at growth and value, we do also look at profitability. We look at positive EPS revisions on the part of analysts. And we do look at momentum. Momentum is a very important factor.
So collectively, when we try to identify a stock that is strong, we're looking for a company that has the investment characteristics of value, growth, profitability, momentum, and EPS revisions, but on a sector relative basis. So we look at these metrics and we compare each company on those metrics to the sector.
We create scores, and that's how we can identify the weak companies from the strong companies. And we are able to do this on a daily basis through some powerful computer processing that we have at Seeking Alpha. So it very much is what I refer to often as a quantamental approach.
We do use fundamental analysis. As I've mentioned many times, we're very similar to what an analyst does at Morgan Stanley or Goldman Sachs or Merrill Lynch. But it's taking their analysis and literally putting it on steroids when you add the power of computer processing to it.
So where an analyst might be able to issue a report every several weeks, on maybe 10 to 15 companies, we have the ability to look at 5,000 stocks and provide a fresh opinion on that stock every single day. And we have a very good track record.
So what I'm displaying here is a five-year track record of our Strong Buy recommendations. There's no cherry picking here. We take every single Strong Buy that we have, and we put it into a portfolio. If the stock were no longer a Strong Buy it would come out of the portfolio and we actually do the same for Wall Street analysts and we measure against the S&P 500 and we do it for the Seeking Alpha contributors as well.
And as you can see the Quant system over that five-year period is up 294% versus the S&P, which is up about 94%. And Wall Street analysts, those same Wall Street analysts that work at, where I used to work at Morgan Stanley, and analysts at Goldman Sachs and Merrill Lynch and many of the Wall Street firms, their strong buys over this 5 year period, are up about 58%. So our Quant system, handily beating Wall Street analyst, as well as the S&P 500.
EJ: And Steve, just to point out, this isn't really an investable portfolio, but it really highlights the efficacy of the Seeking Alpha Quant Strong Buys, no?
SC: Spot on. Yeah. So there's not an ETF, there's not a mutual fund where you can buy the Seeking Alpha Strong Buys. The whole point of showing this is to identify that the strategy that we employ, which is this GARP strategy, where we score companies and we look at these data metrics, the system works.
It is not an investable product. So there is no ETF, there is no mutual fund, there's no active account. But again, it's a very transparent system. So when you go on to the Seeking Alpha platform, you could literally go to each company, you can go to the stock pages, see the ratings and see where it was historically for every stock going back three years every single day. So it's a very transparent system.
EJ: Great. Thanks for clarifying.
SC: And we do have a good track record for our top 10 picks as well, going back a couple of years. So our top 10 stocks for 2023 were up 73% versus the S&P 500, which was up 26% for that year. And we also had a good track record in 2024. Actually, an incredible track record. Our top 10 stocks for 2024 were up on average 125% versus the S&P 500, which was up 25%. And the Mag 7, we beat handedly in 2024 as well, which were up 57%.
And of course, if you participated in the webinar that I did at the beginning of this year, the top 10 stocks are up 14.8%. I'm actually going to point out the date here. This isn't going back to January 1st. We actually, this is based off of the closing prices of January 8th, and we published the report and did the webinar on January 9th. So this performance is from January 9th through June 13th, comparing our top 10 picks to the S&P 500.
A couple days later, this is as of the 13th, the stocks have actually gone up quite a bit since then, which you will see on this page here using the same dates. You can see the stocks that were picked, and the total return is actually up 21% for that time period now, which would be January through June 17th. I'm happy to report that 8 out of the 10 stocks still remain a Strong Buy.
And if you look at the EPS revision grade, I'm really pleased that all 10 stocks have an EPS revision grade between B and A+. And just as a friendly reminder, that EPS revision grade, it's actually the quantity of analysts that are moving their estimates up or down compared to the sector.
So for all these companies, the analysts are definitely taking their estimates up at a far greater rate than they are for the entire sector. So really pleased with the performance that we've had on our top stocks for the first half of the year.
And also something I want to highlight, in any given sector that we're looking at, there could be several hundred stocks. So even if a sector is deemed to be a poor sector to invest in, highlighting the top stocks in that sector could prove to be very fruitful.
So three of the stocks were consumer discretionary stocks, and those stocks on average were up 32%, despite the sector, as you can see being down 4.29%, the consumer discretionary sector. So if you look at the far right side, you'll see the year-to-date performance with the industrial sector up 9.4%, communication services up 7.9%, and utilities up 6.9%. Those are the top performers, The worst performers being healthcare and consumer discretionary.
But despite that, we did have three recommendations in consumer discretionary, and they were all up significantly. And 7 out of the 10 stocks all beat their sector’s performance as well.
So something I want to highlight, a lot of people ask me, do they have to wait to the beginning of the year or the half year point to select these stocks or to hear my presentation on my top 10 stocks for 2025, or the second, yeah, for the top 10 stocks for the second half, you actually don't.
And we've created a new product and there are really two ways you can do this. You can go to the screeners at any time and look at top Quant stocks on the screener and see what's there, and you can do that on a daily basis. But I am pleased to announce that we have created a new product, which enables you to pick high conviction stocks every week.
And the new product is called the PRO Quant Portfolio. Now, the other product I have, Alpha Picks, it's a standalone product that people can purchase. The PRO Quant Portfolio is only available on our Pro platform.
So at Seeking Alpha, we have the Pro platform. We have the Premium platform, which most people subscribe to, and then we have independent products through our investing groups or Alpha Picks. So the PRO Quant Portfolio is actually going to be exclusive to the Pro Platform. So it's an actively managed data-driven model portfolio.
I have within this portfolio there are 30 stocks. It is powered by our proprietary Quant system, and it is designed for active investors. So what we have found through the feedback of our customers where with a product like Alpha Picks, and we provide two ideas a month, which investors do like. Some investors want a higher frequency of ideas.
So our PRO product was designed to rebalance on a weekly basis. And on any given week, there could be 2 to 3 new ideas that come out. Where Alpha Picks is just sort of a flow, once every 2 weeks we provide ideas, there's no limit to it.
This is a fixed portfolio, as I mentioned, of 30 stocks. And I am proud to say that all the stocks that we are mentioning for the top half of 2025 do come from the PRO Quant Portfolio. So I've selected 10 stocks from the PRO Quant Portfolio that are our top stocks for the second half of the year. And really what I like about this is it's a very natural process.
So when you take a look at the screener, you'll find it's not going to reconcile exactly because there are some parameters and criteria that we do have for the stocks to make the PRO portfolio, but is a lot more forgiving than our Alpha Picks product.
Where Alpha Picks has got a number of restrictions, it primarily just has U.S. Securities. It primarily has companies with market caps over $500 million. The PRO Quant portfolio is a lot more forgiving, so stocks come out all market caps, and it comes from all geographic regions.
They're ADRs, so if you're looking at stocks that could be from Japan or the UK or Netherlands or China, they're easy to buy. They're ADRs that trade on exchanges. New York Stock Exchange or over the counter here in the United States, so quite easy to buy, but a lot more diversification with this portfolio and a much higher frequency of ideas.
Here I'm going to show you why PQP, we draw from nearly 5,000 listed stocks and ADRs, as I mentioned, across all markets, all market caps in all regions. And you could see the back test. So this back test goes from January of 2015 to May of 2025. And you can see it's an enormous return up 1,632% versus the S&P.
And this S&P 500 is the (RSP), which is equal weighted. And the reason why we're using an equal weighted S&P 500 is that this is a fixed portfolio of equal weighted stocks. So it's keeping a benchmark that's apples to apples with our process.
And you can see it's an absolutely tremendous back test with this return. So I'm really quite pleased that we're going to be selecting stocks today that come from our PRO Quant Portfolio.
And I do want to highlight, you'll see the equal weighted S&P up 162%, pretty much looks like a flat line compared to the PQP portfolio. There is volatility with the PQP portfolio. So you will have to prepare for periods, there will be months where there are corrections.
And especially if you're in an environment where there are geopolitical events taking place or a lot of uncertainty over the economy that will force a pullback in the market. The same way we saw with our top 10 stocks in the beginning of this year, a lot of the stocks can come down sharply when they have good fundamentals. People sell them, but they often come back into them.
So what you'll notice here, for every pullback, you see typically a very sharp recovery. And that's exactly the experience that you'll find. But if you basically have the discipline to stay with the process, the returns are enormous.
So I want to break down the returns into sort of a bar chart. If you were to look at a one-year return for PQP on our back test, it's 18% versus the S&P 500 equal weighted at 10.2. If you look at the three-year return, it's a 34% return versus the S&P at 23%. And if we go longer out, it's even a better picture. And it has been a volatile couple of years, really.
When you're looking at the pandemic and what we've experienced this year with the tariffs, tariffs don't come along that frequently. You've only had about 4 instances going back to the 1930s where any president has been brave enough to introduce tariffs. So it's not something that you see every day and pandemics are not something that you see every day. So it's been a tough couple of years, but I am pleased to report that, with Seeking Alpha Quant, with Alpha Picks, and with PQP, they have all outperformed during that period.
Over the last 5 years, the portfolio of 30 stocks was up 440% versus the S&P equal weighted at 90%. And the 10-year return at 1,400% versus the S&P at 155%. So this is the power of being able to look at a portfolio and rebalance it on a weekly basis, as opposed to just going with stocks that are the top 10 in the beginning of the year or halfway through.
Let me tell you a little bit about the process when we buy. It has to be a Strong Buy. The stocks, as I mentioned, are global. It's not just U.S. listed securities. They are U.S. listed securities and ADRs, all market capitalization levels. We do have an aspect to it that if a company does delay in the reporting, it will come out of the portfolio right away.
We have experienced this in the past, and there's now a feature that we have input into our algorithm that actually will let us take a stock out automatically if there's a delay in their reporting process. The stocks are fairly liquid, but unlike Alpha Picks, where it has to be at least $10 million on average per day, or a market cap above $500 million we don't have that requirement in this portfolio. Also, in Alpha Picks, stocks cannot be below $10. And in this portfolio, they can be under $10.
When do we sell? Whenever a rating falls to a Sell or a Strong Sell, it's immediately liquidated from the portfolio. If a rating drops to Buy or Hold, there will be a consecutive number of days. And after that, it will come out of the portfolio. So much more stringent in terms of stocks coming out of the portfolio than we have with the Alpha Picks system. Also, there are certain M&A thresholds that if they're breached it will come out. And again that automatically selling if there is a delay in the SEC filings.
So Alpha Picks, a bit of a different product, if you are not into a product where it's rebalanced on a weekly basis, Alpha Picks is definitely designed for long-term investors that like to Buy and Hold. And here, we just simply highlight our top two recommendations every month.
Of course, great returns here. Alpha Picks is about 3 years old. This is the active return that we're seeing. This is not a back test. Alpha Picks up 166% versus the S&P up 59% over the last 3 years.
And as I mentioned, a number of the characteristics with Alpha Picks are a little bit different, where it's only the 2 to 4 ideas, market cap has to be above 500 million, and the stocks are predominantly US listed securities. The only ADRs would be ADRs that were primarily listed in the United States. So little bit of a difference between both portfolios, and you can see which one is right for you.
So without further ado, we're going to get to the point that everybody has been waiting for. We're going to get right into our top stocks for the second half of the year.
So this is going to be a little bit different. It actually ends up our Quant system is showing a lot of international stocks at the top of the model.
So our number one pick right now is Barclays, ticker symbol (NYSE:BCS), trades on the New York Stock Exchange. It is a tremendous bank. It's a diversified bank. It's global. Its market cap is $62 billion. We have a Strong Buy. It is domiciled out of the UK, but within the financials sector, it currently ranks 12 out of 691 financial institutions.
And within diversified banks, it ranks number 3 out of 66. Also has a really nice yield of 2.47%. I'm going to highlight right now actually 4 of the stocks that we're mentioning today do have yields that are higher than the S&P 500.
And that does sort of help fulfill that barbell strategy that we've been talking about most of the year, where we're looking for stocks that have really good fundamentals, some of which have been beaten up, and also looking for stocks that are solid fundamentals, but also have a dividend yield as well.
Q1 experienced 11% income growth driven by higher than expected deposit volumes. This company has a 28% forward EPS growth rate. That is a tremendous growth rate for a financial institution, especially one of this size. Its growth rate is 183% premium to the sector. They have a lot of money in terms of cash from operations at $8.91 billion.
And if we were to take a look at this in regards to the valuation combined with the growth, we bring in one of my favorite ratios. It's the PEG ratio. It trades at 0.41x on a forward PEG ratio, putting it at a 68% discount to the group.
And as you can see, if you look to the right side here, the valuation, despite the stock doing really well over the last year, the valuation grade is a B-, so still very attractive. Six months ago it was an A-, so not quite as attractive as where it was 6 months ago.
But again, it's looking at it on a sector relative basis. B- is still definitely attractive, but the growth rate, I will say, coming in at an A grade is actually higher than it was 6 months ago. So a full letter grade higher moving from a B to an A where it is right now. Profitability remains very strong at A+.
Okay, let's go to our number 2 pick, Prudential, ticker symbol (NYSE:PUK). Please do not confuse this with the Prudential in the United States. This Prudential is actually based out of Hong Kong. It's dual listed in the United Kingdom and out of Hong Kong. This is a very old insurance company. It dates back to 1848, but again, completely different than the Prudential that we have in the United States.
This is one of the larger financial institutions out of Asia, and they provide life and health insurance. And in our Quant model, it ranks 1 out of 19 within this industry. Financials overall, again, ranking number 9 out of 681 financial institutions.
The current forward dividend yield on it is 1.89%. So again, that dividend yield being higher than the S&P 500. Management has expressed really strong confidence for 2025, expecting over 10% growth in new business. And they’ve also announced a 2 billion share buyback program. So not only does it have a good dividend yield, but they're buying back a lot of shares. So of course, when a company does both of that, typically they're doing very, very well.
Prudential holds a top 3 position in 7 out of 9 Asian markets in terms of their business. The EPS growth rate, the long-term EPS growth rate, the 3 to 5 year CAGR, and I really want to highlight the difference. If you look at a long term EPS growth rate as opposed to just the forward growth rate, the 3 to 5 year CAGR long term growth rate is a really important metric in the Quant world.
It tends to be highly predictive. So the fact that it has a 17% EPS forward growth rate for that 3 to 5 year CAGR, it's at a 72% premium to the sector. That's a strong positive in terms of the growth for the company. The ROE is 13% and on a PEG basis, it is trading at a 43% discount to the sector.
And you'll see, for a good portion of the last year, if you look at the right side, we actually had a Sell on this stock. It really was not looking that attractive. But the Quant system a couple months ago flipped to a Hold and then back in April it actually went to a Strong Buy and you see there was a little hiccup initially, probably a reversion to the mean when it first went to Strong Buy, but has picked up a steady pace.
And the company looks good on a profitability basis, and it looks good on a growth basis. Analyst revisions, if you take a look on the far right side, you'll see 6 months ago, the analyst revision grade was an F, and now the analyst revision grade is an A. And it’s part of the reason why the stock probably flipped from a Sell and a Hold to a Strong Buy recommendation, is that the analyst have changed their view tremendously on the company.
Taking us to our number 3 stock, FinVolution, ticker symbol, (NYSE:FINV). This company is based out of China, quite a bit smaller. It's not a small cap company, but almost there at $2.2 billion It would be on the higher end of a small cap. Quant rating Strong Buy.
This is in the financials sector as well. Ranking 7 out of 691 stocks and within consumer finance, it ranks 3 out of 38. This is a fintech company specializing in online consumer finance, primarily operating in China, Indonesia, and the Philippines. The company has tremendous operating cashflow growth at 255% versus the sector at just 12.62%. So that is huge. The stock over the last year has returned 91% versus the sector with just a 19% return.
So I'm really pleased to see it. And again our factor grades are sector relative. When you look at the momentum it's crushing the rest of the sector and obviously that has to do a lot with the growth rate of the company and the profitability of the company compared to the sector. So it's coming through in the stock price performance.
The stock is dirt cheap. It's got a P/E on a forward basis of only 5.5x. So compared to the financials sector, it's at a 51% discount. But the S&P 500 has a forward P/E that's well over 20x. So it's at a huge, huge discount to the S&P, but a discount to the sector as well. In the last 90 days, 5 analysts have taken their estimates up for the stock and 0 have taken it down. So analysts continue to remain very positive on this company.
Going to our number 4 stock, we have Power Solutions International, and this has been a very powerful performer. Ticker symbol (NASDAQ:PSIX). This is a small cap company with a market cap of $1.23 billion. It is a Quant Strong Buy. This company is based in the United States. It is ranked number one in the industrials sector out of 614 stocks and within its space and its industry, heavy electrical equipment, it is ranked number 1 out of 12.
Definitely a big benefactor out of the surging demand that we've seen from data centers, energy infrastructure, and industrial customers, much of which is AI related. This stock has been a big benefactor.
It has a 24% forward EBITDA growth rate, 19% trailing EBITDA margin, which is very high, 29% premium to the sector in terms of its margins. The one-year return, and don't get scared, but the one-year return on this stock, it is up 835% compared to the sector at 5%. So completely crushing the sector in regards to its performance.
So on that note, I'm going to take you immediately to the right side. So you could look at the factor grades. You will see that the valuation is not quite the same that it was 6 months ago. 6 months ago was an A- so an incredible valuation framework 6 months ago.
However, at C+, that puts it in line with the sector. So it's still a fair valuation. And I actually want to take us to the platform for this because when you look at the growth grade, the overall growth grade is a C+, but I want to show you on some of the conventional metrics.
I want you to see the underlying growth grades. So again, overall, the growth grade is a C+. Okay. However, when you look at a lot of the metrics, they are deep in the green here. The revenue growth trailing 17% revenue growth rate compared to the sector at 3.4%.
The forward growth rate is 7.4%. So it's come off a little bit from where it was, but still very strong compared to the sector. If we drop down to our EBIT, our forward EBIT growth rate is 26% versus the sector at 7.7%. Year-over-year, the EPS growth rate was a 172% compared to the Sector at 4.75%. And if we look at the forward EPS growth rate, it's 40% versus the Sector at 9.58%. So it's at a 324% premium.
Sometimes it's really important to look at the underlying metrics. What's dragging this down? We have a couple of metrics, levered free cash flow year-over-year and the operating cash flow growth year-over-year. Both of those are year-over-year historical numbers, and that has dragging down that overall grade to C+.
But on most of the growth metrics, I really like this stock. So that's why I wanted to take us to the platform so you can actually see what it looks like. And in terms of the Valuation, it has gotten expensive, but it still looks pretty good.
On our conventional P/E ratios, we're in a green there, looking at B- for the forward P/E growth rate. The PEG is an A, so really attractive. The overall C+ being dragged down by the EV to EBITDA, EV to EBIT, and the Price to Sales metrics. But a couple of our conventional metrics, especially the PEG, looking very, very strong for Power Solutions.
Going to take us back to our slide deck, and that's going to bring us to stock number five, New Gold, ticker symbol, (NYSE:NGD). This is out of Canada. It currently ranks 11 out of 272 within the Materials sector. And within the gold industry, it ranks 8 out of 43. They're focused on exploring for gold, silver, and copper deposits in Ontario and British Columbia. Growth is driven by higher priced metals. There's full new ownership, I should say, of New Afton, very strong copper sales as well, and very solid operational gains.
They have an operating cash flow growth rate of 56%, which is a 713% Premium to the sector. The ROE for the company is 14.6%. And on a price to cash flow basis, it's 5.62x, which puts it at a 33% discount to the Sector.
So what I like here is you'll see the trailing numbers are in the red for the growth grade, but the forward growth numbers are in the green. And, again, this is using Wall Street analyst consensus. So I like the fact that the valuation metrics going forward are very inexpensive versus the sector on the forward P/E basis.
And if we go to growth, you can see it has wonderful growth metrics. So this is an A+ for growth, whether we're looking at trailing year-over-year or forward growth rates for revenue or for EBITDA or for earnings per share, the EPS growth rate for this company is a 123% compared to this sector at 8.8%. So this recommendation has nothing to do with a macro view.
This is strongly based on the tremendous growth and the great valuation framework that we find for this company.
Taking us to our next stock. Another gold company, Gold Fields Limited, ticker symbol, (NYSE:GFI). This is based out of South Africa. It ranks number 5 in the Materials sector and within the Industry, it ranks 2 out of 43. This has a diversified portfolio of mining assets across Australia, South Africa, Ghana, Peru, and Canada. Higher gold prices (XAUUSD:CUR) and their operational strategy have helped drive this company's growth and it's estimated by analysts that it will going forward as well.
So you could see the valuation framework looks great compared to the Sector at A-. The growth looks tremendous versus the sector at A, and analyst revisions are an A as well.
And interesting enough, some analysts did revise their numbers down a couple of months ago, but in the last 90 days, most of those analysts have taken it back up. Hence the A grade that we see now, on behalf of analysts taking their numbers up compared to that three months ago period.
So company has a 37% EPS forward long-term growth rate for the three to five-year CAGR, which is a 220% premium to the sector. And its leverage free cash flow margin is 17%. In the last 90 days, 4 analysts have taken their estimates up, and no analysts have taken their estimates down for the stock.
Coming to stock number seven, Credo Technology (NASDAQ:CRDO), which I think many of our subscribers at Seeking Alpha are familiar with. This is the name that we've liked in the beginning of the year. And also within Alpha Picks.
The company has a market cap of 3.4 billion. It is currently a Strong Buy. This company is based out of the United States. It's registered in the Cayman Islands, but there's actually a fair amount of S&P 500 companies that register in the Cayman Islands because it's cheaper. But it is a US based company. They are in the IT sector where they rank 7 out of 543 stocks. And within the semiconductor industry, it ranks number 2 out of 68.
The annual revenues for this company were up a 180% year-over-year driven by strong demand from hyperscalers. The company has experienced a 175% forward EBITDA growth rate. So that's taking analyst consensus for the forward EBITDA growth, and that's a 177% versus the sector at a mere 9%. The one-year return for the company has been a 174% versus the sector which did not even crack 1%. So, obviously, for Credo Technology, significantly outperforming the Sector.
So I'm going to take us to the far right side where we could look at those Factor Grades. And you could see the Factor Grades for valuation, it's in line with the sector. It's one grade lower than where it was six months ago, but we would definitely consider that a fair value.
But the growth grade for this company is just tremendous. As you can see in the IT sector, it has an A+ for growth. So just think about that. That's Credo Technology's growth grade compared to all the other companies in the IT sector. So it's that much stronger that it has an A+.
And if we look at the last factor there, the Revisions Grade, currently an A-. Analysts continue to be positive on the company. On a PEG basis, it's at 0.45x. We combine the valuation framework with growth it is at a 75% discount to the sector.
So very cheap versus the sector on that metric. Analysts continue to love this company. In the last 90 days, 10 analysts have taken their estimates up, and zero have taken their estimates down.
Coming to stock number eight, CommScope Holdings, ticker symbol, (NASDAQ:COMM). This as well as is a company based out of the United States. This is a small cap stock as well. It's got a market cap of 1.23 billion. It's within the IT sector. Currently ranks number 24 out of 542, but within its sector, its industry, which is Communications Equipment, it currently ranks number 4 out of 41.
This company designs, manufacturers, and deploys hardware and software for communications companies, data center companies, and entertainment network companies. It has a tremendous forward EPS growth rate at 23%.
The CAGR the long-term three to five-year CAGR growth rate is 42%. That's a 200% premium to the sector. Solid cash from operations at 263 million. And on a P/E basis, this stock is only 4.6x. This is at an 84% discount to the IT sector. I feel like it's virtually impossible to find any IT company that has a P/E that is this low at 4.6x.
For obvious reasons, we do like it. Oddly enough, though, Wall Street has a Sell on this stock. Our Quant system has a Strong Buy. And really the Quant system identifies that growth and the Valuation framework and analyst revisions and I guess, by and large, Wall Street has not been seeing it.
But the stock has done fairly well this year, so we'll take it.
Going to our 9th pick, BK Technologies Corporation, ticker symbol, (NYSE:BKTI). This is a very, very small cap company with a market cap of only $159 million. So as I mentioned, we are sort of going out of the scope of what we've done historically.
Where in the past, during these presentations, we've looked at companies that are predominantly in the US, not necessarily just large cap stocks, but with our PRO Quant Portfolio, it really does dive deep into small cap stocks as well as large cap stocks. So this identifies how small those companies can go with a market cap of $159 million.
So you should expect that it will be more volatile than many of the other names. But comparing it to the entire IT sector, currently ranks 17 out of 542. But within its Industry of Communications Equipment, it ranks number 1 out of 41. And what I like about this company is that they provide wireless, back in the day, we would have called these maybe walkie talkies, but they have wireless LMR and broadband equipment for the military and first responders.
So it's a very unique offering that they have. And, obviously, the stock trading fairly well. The Valuation looks great, you could see the Valuation grade is B. Growth for the company comes in at C+. But, again, a lot of the underlying metrics you'll see are actually quite strong.
Analysts have been taking their estimates up for this company. The one-year return on this stock is 220% compared to the sector. Again, did not even break 1% performance for the sector over an one-year return. So analysts really liking this company. Investors really liking this company compared to the sector.
The P/E is at 18x. So that's a P/E that is lower than the IT sector. And you could say maybe it's deserved because it's a small cap stock, but it's a 39% discount to the sector.
And the growth is tremendous. The ROE of this company is 36%. That is a huge ROE compared to the rest of the IT sector and the rest of the S&P 500 for that matter.
And finally coming to stock number 10, Emma, Brinker International (NYSE:EAT). This is probably another stock that people are familiar with from our Top 10 earlier in the year as well as the Alpha Picks system.
This company is significantly larger with a market cap of $8 billion. It is a Quant Strong Buy. Based right here in the United States within the Consumer Discretionary sector. It ranks number 4 out of 475 stocks. Within the Restaurant industry, it's 1 out of 43. The company has had tremendous growth.
One of their popular brands, you may know it as Chili's. This is a restaurant that people love. In Q3 of 2025, revenue rose 28% driven by same-store sales growth of 18.9%, I'm sorry, 18.9% restaurant margins. EPS surged 144%. An, when they reported, full year guidance was actually raised. So that's not something that you're seeing with many CEOs and CFOs.
There's a lot of uncertainty in 2025 because of tariffs. So it was actually quite nice to see that full year guidance was taken up for the company. There is 51% EPS diluted forward growth. That's an 800% premium versus the sector. And the ROE on this company, it's almost an aberration coming in at 314% versus the Sector at a mere 12%.
The stock has risen a 169% over the last year, and that is significantly higher than the rest of the sector. So I'm going to take us to the far right. So you could see with Brinker, the valuation grade now, despite the stock being up a 169%, the Valuation is actually more attractive now with a C grade than it was six months ago with a D+ grade.
The growth, you could see why I like this stock so much. Growth now A+ versus a B+ overall versus six months. And when you look at the underlying metrics, you could see why. The forward revenue growth is 10%. If you take a look at the EPS growth rate going forward, it's a 51% growth rate versus the sector at 5.7%.
If you take a look at the EPS on a GAAP basis, A+ grade with 62% growth compared to the Sector at 6.2%. And if you look at the long-term three to five-year CAGR growth rate, it comes in at almost 40% compared to the Sector at 10%. So some incredible growth grades for Brinker.
And on a Valuation framework, you could see it's pretty much in line with C- grades. A little bit rich to the sector, the P/E being 20x compared to the sector at 16x. So it is a 24% Premium, but the growth side really makes up for it.
Because when you look at the PEG ratio, which is a combination of that value and growth together, you could see it comes in on a forward basis at 0.52 versus the sector at 1.67. So on a valuation basis from a P/E standpoint, it's at an almost 70% discount to the sector. So hence the reasons why we like Brinker so much.
And that is our Top 10 ideas. We have three companies that are within the IT sector. We have three companies within the Financials sector, two companies within the Materials sector, and one Industrial stock.
And as I mentioned before, four of these stocks actually have dividends. You could see the trailing dividend and certainly the forward dividend yield in all cases is higher than the dividend yield on the S&P 500.
So, although, we're not necessarily saying our strategy going forward is to use that barbell approach, I do find it encouraging that some of our strongest stocks that we're highlighting do have dividends, and it does help provide a little bit of that barbell strategy going forward because there is a lot of uncertainty with the environment with what's going to happen with inflation, what's going to happen with interest rates, what's going to happen with geopolitical events. So it certainly is a good period to be looking at stocks that do provide a little bit of a dividend yield. But, again, looking at stocks that have really strong fundamentals as well.
The portfolio is very, very healthy. We have a portfolio tool that you can load up your stocks into. If we load up these 10 stocks, you would see that the health score is 4.92, the best being, 5. You can see all the stocks are Strong Buys. And, our portfolio looks very strong on average across the board for these recommendations.
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Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
