New year … 65 new stocks 250107

It’s a new year and time for some new stocks.    

I’m still concerned about the distorted concentration of the Cap weighted S&P 500.  In my opinion, the Cap weighted S&P 500 is and has been highly overvalued because of the dominance of the Mag 7 and a few other “big name” stocks.  Not all the Mag 7 are so magnificent.  For example, Apple and Tesla don’t have growth expectations to justify their lofty valuations; both are also subject to a high degree of China geopolitical risk.  Popular consumer names like Walmart, JPMorgan, Costco, Home Depot, P&G and Coke, all have extremely high multiples but with earnings expectations below their historic trends.  I wouldn’t be surprised if those stocks fell by more than 30%.

While record breaking performance of the Cap weighted S&P 500 dominated the headlines, the remainder of the total market has been turbulent, at best in “correction” and at worst in a full blown “bear market”.  Currently,  46% of the S&P 500 is priced below their one year moving average; 42% of the NASDAQ; 37% of the DOW; 46% of Mid Caps and 53% of RUSSELL2000 Small Caps.

Poor performance of the broader market over the past two years has been primarily due to lackluster profits.  It’s estimated that in 2024, about 75% of S&P 500 earnings came from the Mag 7.  The remaining 493 companies showed improvement, but only growing at an anemic ~2.5%.  Smaller companies are faring much worse, 37% of the RUSSELL2000 are not profitable.

But things are improving.   I’m more optimistic about the next 12 months than I’ve been in the past three years.  I think the USA economy has firmly shifted into a new secular era of industrial expansion.  This was essentially the thesis of the book that I wrote in 2016, but the Pandemic delayed and distorted its course.  Post World War II, the USA grew its service sector to the detriment of its manufacturing base.  That’s reversing.  The USA will never again be “the factory to the world,” but it will develop and maintain a strategic manufacturing ecosystem.  That can usher in an era of balanced and sustainable growth.  The future is bright.  We’re living through a convergence of megatrends (digitization, automation, energy, demographics, geopolitics) that all favor USA economic growth.

Trump Trade enthusiasm has faded, the broader market has dipped below pre-election levels.  I think this is an opportunity to buy the dip.  I expect broader market profitably to improve significantly in 2025.  Manufacturing is emerging from a two-year recession.  Companies have worked off post-pandemic inventory builds, adapted to higher interest rates, and are improving productivity to mitigate labor costs.  For 2025, I’ve constructed a diversified portfolio, that I believe has the potential for long term annualized company earnings growth of at least 10%.  (Based on consensus analysis estimates.) 

To that end, on Monday I added 65 new positions to my portfolio.  That brings the total number to around 130.  If owning that many stocks isn’t in your wheelhouse, you might consider taking concentrated positions in these ETFs:

Here’s a list of the new stocks I purchased:

Happy New Year and as always, invest with caution.

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