Every month, The Prudent Speculator produces a newsletter that includes a market summary, helpful charts and graphs, recent equity market news, economic outlook and specific stock investment strategies focused on value stock investing. This month, we again buy stocks for our four newsletter portfolios, while our Graphic Detail offers our quarterly Earnings Scorecard. In addition, our Editor’s Note offers perspective on the sizable rebound witnessed during May. Note that the entire list is available to our community of subscribers only.
Editor’s Note: Tariffs, Market Volatility and GDP Growth
Illustrating why one would not have wanted to “Sell in May and Go Away,” the equity market showers of April gave way to flowers last month, with the Dow Jones Industrial Average rebounding 1600 points (4.2% on a total return basis) and the average stock in the broad-based Russell 3000 returning 5.7%. Of course, the average stock was still down 6.4% over the first five months of 2025, so it isn’t like the flags were flying at full staff as June began.
While some would argue that stocks were due for a pullback following strong returns in 2023 and 2024, uncertainty related to tariff policy is widely viewed as the main culprit for the volatility this year. To be sure, levies are not something new, as they have always been part of the investment landscape over the last 100 years, going all the way back to the Smoot-Hawley Tariff Act of 1930, while Trump 45 initiated a Trade War with China in March 2018 and Trump 47 campaigned on them.
However, this time around, confusion has reigned, with the “Liberation Day” announcement on April 2 of 10% duties on all imports and country-specific reciprocal tariffs followed on April 9 by a 90-day pause on the additional levies from more than 75 countries AND an escalation of tariffs on Chinese goods to 125%. The White House softened auto tariffs on April 29 and announced on May 12 an agreement with Beijing to reduce levies on Chinese goods for an initial 90-day period to 30%, with the Middle Kingdom lowering its tax on U.S. goods to 10%. Next, President Trump threatened on May 23 to impose 50% duties on the European Union starting June 1, only to follow that up four days later with news that trade negotiations with the EU were happening and those tariffs would be postponed until July 1.
Needless to say, there is plenty of drama in The Art of the Deal, but such was the case in 2018, when the Dow Jones industrial Average was trading below 25000. Certainly, Corporate America has learned a thing or two in the last 7 years about how to navigate tariffs, while the COVID-19 pandemic led to significant experience in countering global supply chain upheaval. That does not mean that tariffs won’t impact corporate profits, but Q1 results (see our Graphic Detail) were solid and the outlook for bottom-line growth the balance of this year and next remains favorable, while potential positive impacts from Trump Administration growth initiatives and deregulation measures have not received much airplay.
The health of the economy remains a major wildcard, but so-called “soft” numbers on how folks say they are feeling continue to reside at historically low levels and “hard” data points on what people and businesses are doing have held up well, all things considered. Believe it or not, the latest estimate of Q2 real (inflation-adjusted) GDP growth from the Atlanta Fed stood at a very robust 4.6%.
And speaking of inflation, Fed Governor Christopher J. Waller said on June 1, “Given my belief that any tariff-induced inflation will not be persistent and that inflation expectations are anchored, I support looking through any tariff effects on near term-inflation…The strong labor market and progress on inflation through April gives me additional time to see how trade negotiations play out and the economy evolves. Assuming that the effective tariff rate settles close to my lower tariff scenario, that underlying inflation continues to make progress to our 2% goal, and that the labor market remains solid, I would be supporting ‘good news’ rate cuts later this year.”
It is hard to imagine volatility dampening in the near term, but a friendly Federal Reserve that is now expected to cut interest rates more than three times in the next 12 months and reasonable valuations (forward P/E ratio of 14 and dividend yield of 2.5% for TPS Portfolio) for the stocks in our broadly diversified portfolios keep us believing in the advice of the late Charlie Munger: “The first rule of compounding: Never interrupt it unnecessarily.”
“If I were being born today, I would just keep negotiating in the womb until they said you can be in the United States.” — Warren Buffett
Graphic Detail: Earnings Scorecard – Q1 Season
Economic data in the period was not great and real (inflation-adjusted) U.S. GDP declined by 0.2% in Q1, but Corporate America again enjoyed solid revenue and net income tallies, even as tariff uncertainty caused management teams to temper or pull guidance. Impressively, the number of S&P 500 companies that exceeded bottom-line forecasts was 77.5%, better than the usual “beat” rate, and 52.2% eclipsed top-line projections. Of The Prudent Speculator’s 94 stocks presented below, 82% topped EPS expectations, and the average one-day price reaction was a gain of 0.7%, while the average two-month gain from 03.31.2025 through 05.30.2025 was 1.6%.
Standard & Poor’s projects (as of 05.30.2025) bottom-up operating EPS for the S&P 500 to reach $256.19 in 2025 and $295.77 in 2026. That is up from $213.53 and $233.36 in 2023 and 2024, respectively. Analysts historically have been overly rosy in their outlooks and estimates always are subject to change. Indeed, the forecast for the current year is presently $11 lower compared to three months ago and tariffs remain a major wildcard. Of course, we think anything close to the EPS estimates for this year and next should support markedly higher stock prices.
Recommended Stock List
In this space, we list all of the stocks we own across our multi-cap-value managed account strategies and in our four newsletter portfolios. See the last page for pertinent information on our flagship TPS strategy, which has been in existence since the launch of The Prudent Speculator in March 1977.
Readers are likely aware that TPS has long been monitored by The Hulbert Financial Digest (“Hulbert”). As industry watchdog Mark Hulbert states, “Hulbert was founded in 1980 with the goal of tracking investment advisory newsletters. Ever since it has been the premiere source of objective and independent performance ratings for the industry.” For info on the newsletters tracked by Hulbert, visit: http://hulbertratings.com/since-inception/.
Keeping in mind that all stocks are rated as “Buys” until such time as we issue an official Sales Alert, we believe that all of the companies in the tables on these pages trade for significant discounts to our determination of long-term fair value and/or offer favorable risk/reward profiles. Note that, while we always seek substantial capital gains, we require lower appreciation potential for stocks that we deem to have more stable earnings streams, more diversified businesses and stronger balance sheets. The natural corollary is that riskier companies must offer far greater upside to warrant a recommendation. Further, as total return is how performance is ultimately judged, we explicitly factor dividend payments into our analytical work.
While we always like to state that we like all of our children equally, meaning that we would be fine in purchasing any of the 100+ stocks, we remind subscribers that we very much advocate broad portfolio diversification with TPS Portfolio holding more than eighty of these companies. Of course, we respect that some folks may prefer a more concentrated portfolio, however our minimum comfort level in terms of number of overall holdings in a broadly diversified portfolio is at least thirty!
TPS rankings and performance are derived from hypothetical transactions “entered” by Hulbert based on recommendations provided within TPS, and according to Hulbert’s own procedures, irrespective of specific prices shown within TPS, where applicable. Such performance does not reflect the actual experience of any TPS subscriber. Hulbert applies a hypothetical commission to all “transactions” based on an average rate that is charged by the largest discount brokers in the U.S., and which rate is solely determined by Hulbert. Hulbert’s performance calculations do not incorporate the effects of taxes, fees, or other expenses. TPS pays an annual fee to be monitored and ranked by Hulbert. With respect to “since inception” performance, Hulbert has compared TPS to 19 other newsletters across 62 strategies (as of the date of this publication). Past performance is not an indication of future results. For additional information about Hulbert’s methodology, visit: http://hulbertratings.com/methodology/.
Portfolio Builder
Each month in this column, we highlight 10 stocks with which readers might populate their portfolios: Elevance Health (ELV), Eaton Corp PLC (ETN), Nutrien LTD (NTR)
Kovitz Investment Group Partners, LLC (“Kovitz”) is an investment adviser registered with the Securities and Exchange Commission. This report should only be considered as a tool in any investment decision and should not be used by itself to make investment decisions. Opinions expressed are only our current opinions or our opinions on the posting date. Any graphs, data, or information in this publication are considered reliably sourced, but no representation is made that it is accurate or complete and should not be relied upon as such. This information is subject to change without notice at any time, based on market and other conditions. Past performance is not indicative of future results, which may vary.
