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 offer two brand-new recommendations, while our Graphic Detail examines Q4 Earnings Season and our Editor’s Note offers perspective on the latest market volatility. Note that the entire list is available to our community of subscribers only.
Editor’s Note: Market Volatility, Q4 Earnings and Tariffs
Given that the major equity market averages were in the green over the first two months of the year, following double-digit percentage returns in 2023 and 2024, we can’t say it was a big surprise to see a sizable pullback as March began. No doubt, the catalyst for the retreat was the U.S. imposition of 25% tariffs on goods from Mexico and Canada, as well as an additional 10% duty on goods from China, adding to the 10% levy put in place in early February.
Canada quickly retaliated with its own 25% staged tariffs on $100 billion of imported U.S. goods, while China said it is imposing tariffs on U.S. chicken, wheat, corn and cotton products, in addition to other agricultural products. Mexico also said it would retaliate.
Time will tell if this is simply another chapter in President Trump’s Art of the Deal, as free trade is not practiced by most U.S. trading partners, but it is hard to argue with investing legend Warren Buffett’s views: “Tariffs are actually, we’ve had a lot of experience with them. They’re an act of war, to some degree. Over time, they are a tax on goods. I mean, the Tooth Fairy doesn’t pay ‘em!”
The Wall Street Journal also reminded, “A tariff is a tax, and taxes impose costs that reduce economic activity. They also add uncertainty about where and how businesses should invest, as CEOs try to figure out where the tariffs will strike, on which goods, and for how long.”
While the measure is volatile and could reverse as new statistics come in, a slowdown in economic activity appears to be in the cards, The Atlanta Fed’s latest formulaic estimate of real (inflation-adjusted) U.S. GDP for Q1 just plunged from growth of 2.3% to a contraction of 2.8% as numbers on housing, consumer confidence, unemployment and auto sales all came in below expectations.
Meanwhile, Bloomberg’s Recession Probability Forecast just edged up to 25%, after residing at a very-low 20% for much of January and February. Of course, the current projection is right at the average for the measure dating all the way back to 2009, while the odds of a contraction stood at more than 50% for much of 2022 and 2023, yet two quarters of negative GDP growth did not occur.
Needless to say, the future is uncertain, so we must be braced for the equity-market roller-coaster ride to have more thrills and chills, though we note that stock prices in general are substantially higher today than they were when President Trump initiated a Trade War on March 2, 2018.
Certainly, earnings expectations will be tempered should the latest tariff skirmish be long-lived, but Corporate America generally is in good financial shape and management teams have experience with navigating prior levies. In addition, we think valuations for the majority of stocks are reasonable (TPS Portfolio boasts a forward P/E ratio below 15 and a dividend yield of 2.5%), especially with the yield on the 10-Year U.S. Treasury now residing at 4.25%, down from 4.55% two weeks prior.
Obviously, this time (and every time) is different, but market history should help keep some of the fears that may be troubling long-term-oriented investors in check. After all, stocks historically have proved to be a great hedge against inflation, while they have gained ground, on average, even when interest rates have risen (or fallen) or when the Federal Reserve is tightening (or easing) monetary policy. True, the data show modest average declines during recessions, but the timing of the official start and end of contractions is impossible to predict and returns in the ensuing 12 months have been spectacular.
Also, the level of pessimism on the latest AAII Sentiment Survey has historically represented a major contrarian buy signal, while we respect recent comments from the Oracle of Omaha: “Shareholders can rest assured that we will forever deploy a substantial majority of their money in equities. Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.”
“Uncertainty is the friend of the buyer of long-term values.” — Warren Buffett
Earnings Scorecard
Q4 Season
Economic data in the period was favorable and real (inflation-adjusted) U.S. GDP grew a healthy 2.3% in Q4, while Corporate America again enjoyed solid revenue and net income tallies, even as management teams engaged in their usual tempering of guidance. Impressively, the number of S&P 500 companies that exceeded bottom-line forecasts was 74.3%, in line with the usual “beat” rate, and 54.5% eclipsed top-line projections. Of The Prudent Speculator’s 93 stocks presented below, 76% topped EPS expectations, but the average one-day price reaction was a loss of 0.6%, even as the average two-month gain from 12.31.2024 through 2.28.2025 was 4.4%.
Standard & Poor’s projects (as of 2.28.2025) bottom-up operating EPS for the S&P 500 to reach $267.35 in 2025 and $306.74 in 2026. That is up from $213.53 and $233.82 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 $6 lower compared to three months ago and tariffs generally are not yet factored in. Still, anything close to the EPS estimates for this year and next, we think, 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: American Eagle (AEO), EOG Resources (EOG), Hormel (HRL)
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.
