3 growth & income stocks to buy + Steve answers your questions

0:10Steve Cress:Steve Cress, the investing legend, the quant myth, the man that is delivering such alpha for all of us. Welcome back to the show. Thank you very much for having me. It's great to be here. Thank you for organizing it. It's always great to have you. We have come upon an anniversary and you were on, I guess it was about a year ago, talking about this new product that we launched from the ProQuant Portfolio. And you had referenced a few picks, one of our best received episodes, by the way. People that are paying attention are astounded by the outstanding performance. Talk to us about it. Yeah. So a year ago, we had launched the ProQuant Portfolio and the launch of that was really a result of a survey we did from an existing product, which is called AlphaPix, which we launched about four years ago.

0:59And when we surveyed our AlphaPix customers, the audience was split pretty 50-50. Half of them wanted a higher frequency of growth ideas. And AlphaPix is a product where we come out with two ideas a month, our two favorite quant strong buys. So the subscribers said they wanted more ideas more frequently. And the other half said they wanted ideas that were focused on dividend stocks. So as a result of that survey, about a year ago, we launched the ProQuant portfolio, which delivered on higher frequency ideas. So we rebalance a fixed portfolio of 30 stocks every Monday. And I'd say on average, about two to three new stocks will come in, sometimes less, sometimes more, but on average, about two to three.

1:46And it's our favorite quant stocks that run through our ranking. and we focus on stocks that are collectively strong on value, growth, profitability, momentum, and EPS revisions. It came out with much success. And one year later, the product is currently up 56.9 % compared to the S &P 500, which is up 18.65 % for the same period. So those are the one-year numbers, the last 52 weeks. So celebrating that anniversary as it was welcomed with many new customers. And I think they've been really pleased that they invested in it. There's not many portfolios of 30 stocks that you can claim are up almost 57 percent in a one year period.

2:29So we've been really pleased with the performance.

2:30Steve Cress:Yeah, really amazing. I mean, in a great market year, just really even relative to a great market year, doing really fantastically. Yeah, I mean, for the 52 week period, I guess, in terms of performance, it feels great. There were an unbelievable amount of rotations to risk on, risk off, risk on, risk off. So it didn't necessarily feel good during it. I think we had three periods, too, where the VIX surged. We had two in late 2025 and once in March of this year. But at the end of the day, the performance or the market's been good. And for the product, it's been even better. Which brings us to a brand new product, which I believe was also born out of audience feedback.

3:13Steve Cress:if I'm not mistaken, one of our audience's favorite topics, income. Yes, yes. So a lot of our subscribers at Seeking Alpha and just many investors in general are very income oriented. They like to have stocks that pay dividends. We tend to really focus on capital appreciation. So what we wanted to do is create a product where we marry both growth and income. And it took a little bit longer than you get out than the pro quant portfolio, but we were able to do it. And it also leverages our proprietary dividend grades. So Seeking Alpha is one of the few firms that actually will review a stock's dividend.

3:54And we review it on four different elements, its safety, its growth, its consistency, and its yield. And just like the quant system where we have academic letter grades that range from A plus to F on a sector relative basis, the dividend grades work the same way. So when we look at dividend And safety, if it has an A +, you know, it's much safer than the rest of the sector. So we combine that with our quant model and focusing on stocks that pay dividends. And so the quant growth and income product is a portfolio of 30 stocks. And that rebalances every two weeks. So every other Wednesday, we make the announcement at 1 p.m.

4:35noon Eastern Standard Time. and the focus for the product, as I mentioned, it's both capital appreciation and income. So every stock pays a dividend. We have a benchmark that we decided to use, which was an ETF called the Vanguard High Yield Index ETF. And that currently has a yield on it of about 2.2%. And the focus of that ETF isn't necessarily capital appreciation, but in our back test, we substantially beat the performance of it. And that is our objective in terms of total return to beat that benchmark. So the return from 2015 through the beginning of this year for the product backtested was 500 % compared to 200 % for the Vanguard high yield index ETF.

5:24And I'm also pleased to say we just purchased the stocks yesterday, Wednesday for the portfolio. And the average yield on it is 3.0%. That's the average Ford yield. The average yield trailing is 2.99%. So it's significantly higher than BYM, which currently has a yield of 2.19%. And I'm also pleased to say that the portfolio is significantly outperforming it on its first day of trading. It's up 1.45 % versus the actually 1.63 % now versus the Vanguard index, which today is down 0.07%. So great first day. Higher yield, higher return. And that's exactly what we want.

6:19Steve Cress:Yeah, it sure is. you treated your subscribers, your followers on Seeking Alpha to a sneak peek of the top stocks in that new portfolio. And I'd love it if you shared with our listeners, with our audience, what those stocks that you shared were. There were three of them. And then I'd love to get into some questions and answers for you. Yeah, absolutely. So of the 30 stocks, we'll give away three, and we'll do that right here. And really the three that we're giving away. It's just on the basis of giving you an idea of what's in the portfolio. And I went for a diversified approach because the portfolio has financials, it has REITs, it has consumer staple, it has utilities, it has industrials.

7:04It is actually a very different portfolio compared to AlphaPix and ProQuant portfolio, which tend to be much more growth oriented. And very few of the stocks in this portfolio that's have dividends where this does. So this is a really nice counter to it. I often refer to it as a barbell approach. As an investor, you want to get stocks that have really good fundamentals where you're focused on capital appreciation, but markets gyrate. And even though we take a bottom-up approach and we're not top-down, that top-down has an impact. So obviously, there can be fear and anxiety in the markets. It creates volatility spikes.

7:42or if you look at sentiment indicators, they bottom out in extreme fear. So it's really nice to have a balanced portfolio where you have dividend stocks on one hand and growth stocks on the other. So three of the stocks in the growth quant and income portfolio product, one is Exxon. So we have energy stocks in there as well. Exxon, as you may be familiar, it's the largest energy company in the world. It's a fully integrated oil and gas company. And I just looked at the stat the other day. It's pretty amazing. They have a total refining capacity of 4.1 million barrels of oil per day. That is a huge, huge number.

8:18And it's a big company. The market cap is$619 billion. And in terms of the factor grades, it's a little bit expensive. The stock has pulled back in the recent week or so, but it did have a big run-up when the crisis with Iran started, as many energy stocks did. So the valuation grade on this is a D now. but it was D six months ago. So it's been expensive. It's one of the go-to stocks in the energy sector. In terms of its growth, it's in line with the sector. Its profitability is an A plus versus the sector. So it is by far one of the most profitable companies. If you're looking at a number of different metrics, whether it's a return on equity or return on capital or margins, they have just about the best in the business.

9:06And in terms of revisions, and analysts have been taking up their EPS revisions over the last 90 days. So they have a lot of confidence. And one of the questions that we get with Exxon or other energy stocks is, do we expect a major pullback if the situation with Iran is resolved? And from my experience, you'll have a bit of a pullback, but it takes a really long time for these companies to lower their prices. So the margins stay high for longer. And I think that will benefit Exxon. In terms of the dividend safety, it's got a B minus grade. So any grade historically we found between B minus and A plus, they have averted a dividend cut 98 % of the time.

9:50So that's exactly what we're looking for. And that's the point of the dividend grades. Comparatively, for companies historically that had a dividend grade of an F, they ended up cutting their dividends 60 % of the time. So it's in that sweet spot for safety. and in terms of dividend consistency, they've been paying a dividend almost since their existence. So they have an A plus. They've been paying it much, much longer than many other companies. So that is a sample of one stock. Another one is a REIT called EPR Properties, significantly smaller. It's got a market cap of 4.36 billion. So this is sort of just entering the large cap territory.

10:26Could even be considered really a mid-cap stock. But however, this has a really sweet yield. at 6.52%. And FPR Properties, it's a premier player in sort of like experience-oriented properties, sort of like properties that own movie theaters or places like Topgolf, many things that involve entertainment, family organized. And what we've found historically, too, is that these companies, although they may not be entirely recession-proof, families still want to do things, people want to have fun, and they continue to go to venues like that. So the properties that they own underneath those venues have done very well historically.

11:10And the company is stellar in terms of its valuation framework and growth compared to the sector. It's got an A - valuation, which on a relative basis means it's cheaper than most of the sector. And its growth is A - as well, which means that growth is stronger compared to the rest of the sector. And I'll also add, it's got an A - now grade for growth. Six months ago, it was a C. So the company over the last six months has really demonstrated that their properties continue to do well and that they're growing faster. Analysts have also taken up their estimates on the company. The EPS revision grade is an A-plus right now, and six months ago it was a B-plus.

11:51So analysts are increasingly confident that the company will be able not only to deliver, but so much so that they're taking their estimates up. So that's the second company. And the third company is a financial. It is called the Hanover Insurance Group, ticker symbol THG. This company has a market cap of$6.48 billion. It is a quant strong buy, and it has a dividend yield of 2.05%. Hanover Insurance Group provides insurance for property and casualty. And in terms of the segment, it ranks very, very high. And the reason why, it's pretty intuitive when you look at the factor grades. Valuation framework, very attractive versus a group with an A-, and the growth is a B-plus versus the financial sector.

12:39Additionally, very profitable, B-plus grade there. And in terms of analyst revisions, just about as good as you can get. It's an A-, only a couple grades higher than that. So that means compared to the sector, and also taking their earnings estimates up at a faster pace than it is for the rest of the sector. In terms of the dividend safety grade, it has an A and the dividend growth grade is an A as well. So those are the three stocks and I'd highly recommend that you either take a look at Article but I would even recommend more that you take a look at the product. If you are interested in having income but growth as well, this would be a great product to look at.

13:21Steve Cress:And we will leave the link to both the article and the product in show notes and in the article if you're reading along in the transcript. So I'm going to get into some questions first from the article that was just published that you just worked off of, those three stocks. The question is from Choose Cats. Wouldn't it make more sense to structure it closer to Alphapix than the PQP if the aim is to buy companies that grow their dividend over time? The high churn rate of PQP is going to work against that. And before you answer, somebody kind of answered, and I'm curious what you think. BY627 said the high churn in PQP is likely due to the stock selection criteria, which would be different here, I would imagine.

14:02Steve Cress:Hopefully, much fewer small caps than the PQP, which would help keep the turnover lower. Besides, for fixed income folks, who I presume this is geared towards, having a fixed 30 positions means you don't need to contribute more capital every two weeks to stay consistent, like with Alphapix. This could be interesting, but I admit I do have heartburn thinking of all the turnover from PQP and all the unattainable entry prices and 50 % sell-offs. Well, it's definitely a balance. You have to ask yourself, at the end of a year, do you want a product that is going to provide a fairly stable income level.

14:47And I think the income level on average will be fairly stable here. But I guess, you know, if you give up on the turnover, you're going to give up on performance. So at the end of the day, really what's more important? Is it the turnover or is it the performance? And people will say this about taxes as well. They don't like turnover because they get taxed. Well, you know, if you own PQP, you'd be up 56 % for the last year. If you owned AlphaPix over the last 52 weeks, the return there is 100%. So do you want to have a return that's closer to the S &P over the last year? Or do you want a return that's closer to 57 % or 102 %?

15:37it. You could double your capital, you know, and it's well worth the amount of taxes that you would pay on it to double your capital. So that's sort of the tradeoff. You know, do you want the higher returns, which these have shown historically that they provide? Or do you just not want to turn over your portfolio as much out of fear of taxes?

15:58Steve Cress:Yeah, we just started this tax series, actually. And one of the first questions that made me want to start that series was I was asking Raul Shah, the analyst, or he was saying in one of our episodes that many people think, oh, I don't want a higher salary because I'm going to get taxed more. And he's like, that's not how to think about it. Right. That's not how to think about it. Yes. It's like sometimes it's hard for me to answer that because that is a great analogy. It's like, so you want to give up money? It's prosperity mindset, right? And I thought there's a guarantee. There's no guarantees that the product will perform, but it's got a really good history of doing it.

16:33Okay.

16:33Steve Cress:Appreciate that. Next question. What is the target dividend that you hope to achieve with this portfolio? Does the strategy include reinvesting the dividends? The strategy does include and reinvesting the dividend. Our target is, you know, we don't know where interest rates will be at any given year. So our target is basically to stay within sort of 25 to 50 basis points of the Vanguard high yield index. So we're going to have sort of that floating range based on the benchmark. So, you know, we're like almost at a 20 year high in terms of interest rates. You know, nobody ever knows what's going to happen.

17:09You don't know if there's going to be tariffs. You don't know if there's going to be a war. You don't know if there's going to be hyperinflation. You don't know if inflation is going to be bottoming out. You don't know if we're going to be in a recession. So interest rates will always be volatile to a certain extent. So we can't say that we're going to target a specific rate, but we will target a range within the benchmark. And that'll be 25 to 50 basis points. But right now, I'm really pleased that our average yield is much higher than the benchmark. So that's fantastic.

17:40Steve Cress:TED 2.0 asked about whether or not you have a yearly average targeted capital appreciation percentage and also about the monthly average targeted dividend yield. Yeah. So it's sort of in the same vein of the last question. You never know what markets are really going to do. So we can't target a specific capital appreciation level. But again, our goal is to outperform the benchmark. Going back 10 years, I think in our back test, eight out of the 10 years we outperformed the benchmark. The only two it did not perform it was during the pandemic, but the follow-up years were really good. And as I mentioned, the performance has absolutely crushed the benchmark over that 10-year period.

18:24So we're very pleased with the returns and our objective is to outperform the benchmark.

18:29Steve Cress:All right. I'm going to ask two more questions on this new product and then we're going to get into some from our previous episode. I was wondering whether this new product stands beside the AlphaPIC and PQP systems or if it functions as a standalone application, reducing the risk in the aforementioned products. Managing all three products may be too labor intensive. So what would you suggest to keep things manageable? I would honestly recommend probably two of the three. You want to have income on one side and you want to have capital appreciation on the other. And I really don't want to take away from the quantum growth and income portfolio because that is focused on both capital appreciation and income.

19:07But typically you find with companies that pay dividends, they don't grow as fast as companies that have good fundamentals that put their earnings back into the company. So whenever you pay a dividend, you're taking that earnings out of the company. It's not being reinvested. So it's great for investors to collect that dividend. It's not always great for the company if they're really in a grow, grow phase. If it's more of a mature company or they have a consistent income stream, it's really nice to have that payout in the form of a dividend. So our products such as AlphaPix and ProQuant Portfolio, they are highly focused on capital appreciation.

19:44Some of the AlphaPix stocks do pay dividends, but that is not the focus of the product. It really is capital appreciation. So I'd say the choice is if you want a higher frequency of ideas, ProQuant Portfolio would be better. Our back test did It showed that ProQuant portfolio over time had a better return than the AlphaPix backtest. More recently, the performance has been better with AlphaPix, but that's because AlphaPix is more of a mature portfolio. It's been around for four years and the ProQuant portfolio just started. So AlphaPix has the benefits of having some positions that predate a year, especially stocks that were AI stocks that have had a tremendous run up.

20:24Over the long term, I would expect the ProQuant portfolio to have a higher return. than alpha picks. So if you have both portfolios, that's a portfolio of 60 stocks. And that's great diversification. It may seem like a lot of names to manage. Every two weeks, you have the rebalance on the quant growth and income. It's weekly on the pro quant portfolio. If that's too much for you, then it might be better to have alpha picks where there's less turnover. So it would be a lot of stocks. But, you know, we put everything on a silver platter there. We're telling you what to buy and what to sell. So really at the end of the day, you know, if you spend an hour on this or a half hour, you know, every week or every two weeks, it's really quite easy to manage.

21:12It could build generational wealth. So it certainly might be a half hour every two weeks.

21:18Steve Cress:Last question about this product, the Quant Growth and Income Portfolio. Somebody's asking, why bother with all this overhead and extra risks and costs related to the QG &I portfolio if you can simply invest in well-established and professionally managed ETFs with deep history and established reputation? Why bother with QG &I when you can invest in something like SCHD? Right. So as I mentioned, that's similar to the Vanguard index, high yield index, which they mentioned. So you're doing it because you want performance. So as I said, going back to 2015, just want to give you the exact numbers that we have here.

21:56So going back to 2015, had you invested in the stocks from QG &I and done the rebalance, and it is work, but it shows that the work pays off. The return was 502 % compared to the index, which was 203%. So the return is 2.47 times greater. You know, like that individual that you spoke before who made the reference to not taking a higher salary because of taxes. I guess the argument you would make here is if you do own an ETF, there's very little work. There's a very minimal fee that's associated with it. If you owned the quant growth and income portfolio, that does take a little bit more work, but you have almost two and a half times the return historically from the back test.

22:40And you could say that's a back test, that's history, but our products have clearly shown, by example, if you look at AlphaPix, that product has been out four years and since its inception, it's up 439 % compared to the S &P 500 up 100 % for the same period. So more than four times the return on the S &P. So that's an actual return from trades that is not a back test. So you have to ask yourself, you know, you could work less and have less of a return or you could work a little bit more and, you know, have a tremendous return compared to the ETFs. And that's what we're aiming for. ETFs alone, anywhere, like the S &P 500 ETF owns 500 stocks.

23:25This is a portfolio of only 30 stocks. So, you know, do you want to own stocks that would be ranked by our quad system, a strong sell, a sell, or a hole? Or do you want to own stocks that would be ranked a strong buy or buy? There's a total of 618 stocks in the Vanguard High Yield Index ETF. Now, that does provide a a lot of diversification, but that also really weighs down any potential return that you could have. You wanna have a concentrated portfolio that has some diversification to it. That's why 30 stocks is good. Or if you have two products such as PQP or AlphaPix plus the quant growth and income, that gives you about 60 stocks.

24:04So it's a lot less stocks than an ETF, but you don't wanna own everything because not everything's gonna perform well. The whole point of the quant system is to rank stocks to separate the strong companies from the weak companies. And that's exactly what we do. We take the historical data from their earnings, their revenue, their many, many hundreds of financial factors. And we also take forward growth estimates from professional Wall Street analysts where we look at the revenue growth or earnings growth or EBITDA growth. So our product is both backward-looking and forward-looking from a quant perspective, but we're comparing all those metrics for a company, whether it's within income or cashflow or balance sheet or financial metrics, every single day.

24:45we compare the company's metrics to its sector, and we put a fresh recommendation out there. Is it a strong buy? Is it a buy? Where the ETFs tend to be very stagnant, and they hold a lot of stocks. So if I were to run all 612 stocks through our portfolio tool, we would find many of those stocks would be strong sales or sales.