May 2025: Month-End Portfolio Update

I remain highly confident in this portfolio, and my conviction has only strengthened following the latest round of earnings. I will continue to capitalize on market volatility.

Dear Premium Subscribers,

Welcome back to the Quality Equities Premium Newsletter.

Each month, I publish updated valuations for every holding in my portfolio. I use 5-year discounted EPS and FCF per share growth models. These models are grounded in projected EPS or FCF growth and an estimated future earnings or FCF yield. As with any valuation model, the goal is to be directionally right, recognizing that precise accuracy is impossible when working with forecasts.

What’s Happening in the Market?

The US stock market closed out May 2025 with strong gains, driven by robust earnings and continued optimism around artificial intelligence, particularly in the tech sector. The S&P 500 rose 6.2%, the Nasdaq jumped 9.6%, and the Dow gained 3.9% for the month.

However, sentiment has turned more cautious as June begins. US stock futures are down slightly, pressured by renewed trade tensions after President Trump announced a doubling of tariffs on steel and aluminum to 50%, effective Wednesday. Investors are now closely watching key economic reports this week (including the May jobs report, JOLTS data, and the Fed’s Beige Book) for signs of strength or weakness in the economy.

Portfolio Updates

Given markets have continued to be choppy (though less volatile than April or earlier parts of this year), I continued to purchase shares of my highest conviction long-term holdings, including AMZN 0.00%↑ Amazon, NVDA 0.00%↑ NVIDIA, GOOGL 0.00%↑ GOOG 0.00%↑ Alphabet, ASML 0.00%↑ASML, SPGI 0.00%↑ S&P Global, and META 0.00%↑ Meta Platforms.

Throughout late April and into May, I fully exited my long-standing position in PYPL 0.00%↑ PayPal after holding the stock for approximately five years. I redeployed a portion of the proceeds to initiate a new, small position in FICO 0.00%↑ FICO, capitalizing on the sharp pullback in its share price following recent headlines in which FHFA Director Bill Pulte publicly criticized the company. FICO shares have since rebounded slightly, and I plan to continue to build the position over a long period of time at prices I find attractive.

Concentrated Quality Growth Portfolio. Source: FinChat.

The portfolio is trading within a range of reasonableness, though at a slightly higher valuation compared to last month. Forward PE is 29x and forward FCF yield is 3.3%.

Look through fundamental metrics remain strong. For example, ROIC 10-year average is 29.2%, FCF/net income is 98.3%, FCF/OCF is 75%, gross margin is 70%, operating margin is 38%, interest coverage is 123x.

I remain highly confident in this portfolio, and my conviction has only strengthened following the latest round of earnings. I will continue to capitalize on market volatility by adding to my highest-conviction positions.

Valuation Update