Know when to hold 'em and when to fold 'em

0:10Steven Cress:Steve Cress, Seeking Alpha's head of quant. Always great to have you on Investing Experts. Welcome back to the show. Thank you so much for having me. I always appreciate you preparing this for us. Always appreciate you coming on. As I mentioned last time you were on, you are going to be on. You have been on monthly. So if anybody has any questions or anything they'd like to highlight, please hit us up in the comments and drop us a question. So that is what we are going to be doing today is I'm going to be asking some questions that commenters have left on our previous episodes and seeing where we get to.

0:47Steven Cress:So just for context, last time Steve was on, And he was giving us three strong buys from AI as it pertains to the quant system. And I was going to read something that one of the commenters said about the quant system. And I was wondering if you would agree with how they describe things. There is a difference. This is a quote from Justice Pipes. There is a difference between quant-driven portfolio construction and how discretionary analysts and investors interpret ratings. The quant team is not treating hold the way you or I would. They are treating ratings as part of a rules-based system, and that's why the 180-day window feels rigid to us.

1:36Steven Cress:Maybe they found from backtesting their model that holding a hold maximizes returns. Maybe this is a way for the model to block out noise, affecting short-term price volatility. It avoids being whipsawed. The 180-day rule also lowers turnover, is easier to track, and potentially reduces taxes if you hold for the year. I should also point out that this trading rule is not always optimal in every market environment. I thought maybe as a way to ground us in terms of the quant approach, how you would respond or reiterate or highlight things in that quote. Yeah, I think that's a largely very astute observation.

2:17Often people, when the stock goes to hold, they want to sell it. I'm like, no, hold means hold. It doesn't mean sell. When you want to sell stock, that's when the quant system will say sell or strong sell. So we clearly put that out there. One of the benefits of the 180-day rule is it does allow the stock, some tolerance in terms of volatility. Often a stock could become overvalued and our value grade could go from a D to D minus, which automatically triggers the stock moving from a buy or strong buy to a hold when it does hit a D minus. But you could be a few days to a quarter away from analysts taking the rest of its up.

3:01And before you know it, the stock is back at a buy or strong buy. So we also like the diversification in our AlphaPix portfolio. And that really comes true with the holds that allows that diversification for a long period of time. So we can go through cycles where certain stocks and sectors are the flavor of the month. And there's a clustering effect. And the holds help prevent that. So the holds will add diversification for older names. The 180-day rule is really good for holding older positions, and that helps maintain diversification in the portfolio. So really the point that I want to make, I think, in terms of making money and keeping a safe portfolio over the long term, you want to minimize your risk.

3:53You want to maximize your returns, and that is accomplished through diversification. And our 180-day hold period really helps to make that true. So I'm a big believer in it. But I also do believe after 180 days, a stock is still a hold. It's probably time to make room for something else.

4:13Steven Cress:So in terms of the last episode that you were on, one of the stocks was Micron. And speaking to the cyclical nature of things, one of the questions we had was the fact that Micron looks good, but what about the cyclical nature of it? Somebody responded to that comment and said the cycle is on an upward trend for the short, medium term. But how would you respond to a cyclical stock? And what would you say? Is quant agnostic about those things or how is that filtered through your strategy? Yeah, I'd say to a certain extent, quant is focused on the data. And if a company is hitting a poor cycle or a good cycle, sometimes a company within a sector or industry, they're still going to do well.

5:05So if the data is there and the growth is there, the valuation framework is there, and the profitability is there, and it measures up to the sector and it's superior, it's still going to be a strong buy. So now not all the strong buys are created equally, you know, when a sector does hit the sweet spot, you know, many of those stocks in the sector will tend to outperform. So you can have a sector that's not part of that cycle. But even when the sector is not part of that cycle, it can still be a strong buy because the fundamentals for that company are particularly strong. Now, Micron today happens to be up 11.46%.

5:42So I think Micron, without question, and if you look at the stock over the last year, it's up 700%. If you look at the stock of the last month, it's up 70%. This stock is still in the sweet spot in its cycle. And the beauty of Micron is it's really one of the few companies in the semiconductor sector that still has incredible valuation of framework. It is so cheap compared to the sector. the sector median for IT on a PE basis, Ford basis is about 32 times. The stock only has a PE of 9.9 times. So it is dirt cheap versus the sector. Yet when you look at the company's growth rate, and I've been pounding this table for a while on Micron, the Ford EPS growth rate is 327%.

6:35I still can't even believe that you can have a stock with a PE multiple of close to 10 times and its forward growth rate is 400%. That's unheard of. So this stock is still screaming by. So it's no wonder that it's up 11.4 % today. And the fact that it's appreciating so much over the last year and year to date, but at a multiple of 10 times and that kind of growth rate, this stock still has a lot of legs.

7:01Steven Cress:So in addition to Micron, on the last episode, you also were discussing Lumentum and Credo. and there was a commenter that said, I have a good volume of Credo and some Micron and want to have exposure to Lumentum. Isn't Lumentum already a runaway horse? Somebody responded to that. Not really. The peg is reasonable under 800. This is from last month, by the way, this comment thread. And then somebody else answered, you want exposure to Lumentum because it's pumping and you have FOMO. Either wait for a proper correction or just accept you missed the boat. There's always other opportunities out there.

7:37Steven Cress:thoughts? Well, the stock is up 25 % in the last month. So you clearly would have missed out on a 25 % move. The stock is still a strong buy. The growth grade is an A plus. The valuation grade is a D. So the stock is expensive. But first, let's just taking a look at the growth. The forward EPS growth rate for the company is 153%. Again, that's 153 % versus the sector at 15%, hence the A-plus growth rate. So we could just pinpoint that EPS diluted growth rate. Now, when we look at the valuation, we will see on many metrics, it has an F, which means it's very, very expensive versus the sector. I will say, though, the subscriber who pointed out the PEG is spot on.

8:30The PEG is actually a B plus. And what I love about PEG is that it combines together the company's growth rate and the PE. And I'm a big believer in PEG because, you know, many, many times you could have a company that's overvalued and will have an F grade and could have a multiple that's extremely high. But when you combine it with a growth, it makes a lot more sense. So you're getting a sense, a more well-rounded view of combining that growth and value together. And that's what PEG does. So on a PEG basis, this is still attractive. I would say the time where our system will go to a hold from a strong buy is when the valuation hits D minus.

9:13So that's something that defaults automatically. It's at that point that we're like, okay, maybe it is time to take a step back. and there are a number of stocks that we do miss because that peg is still very high you can have that overall value grade at a d minus with the peg still being a b or even an a but the system will default to a hold when that value grade is a d minus so far it's a d so we're still at a strong buy and uh yeah whoever was looking at it a month ago they were right to stick with it and recommend it. The stock even today is up 3.6%.

9:48Steven Cress:We had a commenter say, these are my favorite kind of comments because it was just a statement without any context. But since you're discussing the PEG ratio, and we've discussed it so many times before, a commenter said that PE is not a valid criteria to use. What would you say to that? I'd say that's why I like PEG so much. And when we look at value, we're looking at more than just PE. So when you click on value, you will see all the different metrics we use. So we have both trailing and forward PE, but we also have PEG, we have EBITDA sales, we have EBITDA, we have EBITDA EBIT, we have price to sales, we have price to book, we have price to cash flow, and we even have dividend yield.

10:33So when it comes to the valuation framework. I do not like looking at just PE. It's a good metric, but it can't be the only metric that you look at for value. So that's why we have a really good sampling. And when we look at that overall value grade and all the underlying metrics that make a value, I will tell you we do not equal weight the underlying metrics. Some metrics are more predictable than others, and they have a higher weight. Thus PEG has a higher weight than many of the other valuation metrics. And that's why sometimes you can have a situation like Lumentum where you're looking at, you know, both the trailing and forward PEs are all Fs.

11:17EV to sales and EV to EBDA are all Fs. Price to book is an F. So when people say, how can everything be an F, but the value rate is a D and you only have one grade that looks good, which is PEG at a B plus, It's really heavily overweighted because it is a good predictor in terms of future price action.

11:36Steven Cress:A couple episodes ago, you were talking about three REITs for inflationary times. Somebody was wondering, are there Canadian equivalents of companies mentioned here? By the way, very happy with ATI, one of your top quant picks for the year. We have a number of Canadian companies. It's usually the ADR. Well, almost always the ADR. And sometimes for Canadian companies are primarily listed in the United States. So it will only be an ADR. For AlphaPix, it has to be a primary listing in the United States. For REITs, I believe there are REITs that we have that are US listed that are also in Canada as well.

12:20So to that extent, you know, a REIT can be represented in our system. AlphaPix though which we often refer to does not own REITs so that's something to keep in mind and I have nothing against REITs we have a new product that we'll be launching in June which is called Quant Growth Income and that is focused on stocks that pay dividends and that does include REITs in it

12:47Steven Cress:appreciate that that comment was left by SpicySpark ChooseCats left a comment AMD made it into your top 10 Credo made your top 10 AI. If you could only own one, would you take AMD or Credo at these levels? Do you want to maybe bring up the grades for AMD and Credo and maybe talk about your favorite thing about owning each? Yeah. So one of the wonderful things about our platform is you can actually quite easily compare stocks. When you go into our stock page, there's actually an area that says peers. And when you click on peers, it will give you a whole bunch of stocks that you can compare against the one stock that you're looking at.

13:31And you can edit it and even delete some of the stocks there. So if you just want to compare two of them against each other, and that's exactly what I'm going to do here. So I have Credo up. And what I'm going to do is type in AMD. So we can actually run right through it. And I'll be able to give you a comparison toe-to-toe, nose-to-nose for Credo and AMD. So year to date, let's just say Credo is up 35.8 % and AMD is up 64%. But if we look at the last month, Credo is up 87 % and AMD is up 58%. And it's really interesting. Credo really had a bit of a correction. And I started pounding the table during that correction and say, this makes no sense.

14:20I mean, analysts are taking their numbers up for the company. Growth is strong. The value looks better than ever. And I'm really glad I said that because the stock has surged since I did that. Now, right now, actually, AMD is a hold. So it had been a strong buy. And I didn't realize this is actually a hold now. And Credo is a strong buy. So for the subscriber that asked that question, I would say if I had to pick between and the two, I would definitely be picking Credo. I apologize. I did not realize that AMD fell to a hold. I have about 5 ,000 stocks I monitor. So it is difficult to know where they are at all times.

14:58And AMD did withdraw from that strong buy platform to a hold. So Credo is the stock. And I can tell you why. The valuation on AMD is a D and the valuation on Credo is a C+. Plus for growth, Credo has a strong plus. AMD has an A. That's not too much of a difference. Profitability, A - for Credo and an A for AMD. So this is kind of interesting because Credo is a much smaller company than AMD. And typically with the smaller companies, you don't always expect the best profitability grade. So I'd say even the fact that Credo has an A - versus AMD's A, the fact that it's smaller and it's so profitable, I think is actually a really positive side.

15:52Both of them for Momentum possess an A-, but for EPS revisions, this is very important. Credo has an A, which means that analysts continue to revise their earnings estimates up overwhelmingly for Credo. For AMD, the EPS revisions grade is a B-, so they're not revising to the same pace. And I'll tell you exactly what that number is. So if I look at Credo, I could see that in the last 90 days, 14 analysts have taken their earnings estimate up for Credo, and zero have taken it down. That's for the last 90 days for the fiscal year. For the upcoming quarter, you've had 12 analysts take up their estimate for Credo and zero have taken it down.

16:41So that means they've actually revised their current estimates up for the company. Now, when we look at AMD, I think it looks okay, but it's not quite as good as with Credo. Let's see, I will tell you. So for AMD, you've had 30 analysts take their estimates up, but you've also had 13 take their estimates down. So it's showing that some of the analysts don't have the same level of conviction. And in fact, 13 analysts took their estimates down. That's for the fiscal year. For the upcoming quarter, you've had 28 analysts take their estimates up and six take them down. So a greater quantity of analysts are covering AMD, but certainly not all of them have the same conviction level that they did.

17:29And as you can see, we're in double digits with the number of analysts that are revising down for AMD. So really very timely question. So at this point, I would definitely be favoring Credo.

17:40Steven Cress:I have a couple of questions here that speaks to what we spoke about, what you spoke about at the beginning of the conversation, which is, you know, when to sell and what a hold is versus what a sell is. somebody asked on your top 10 stocks for 2026, how do you know when to sell these stocks? And then be part of that question, if I may, is somebody asked, curious how Allstate is a top 10 pick across the entire stock universe when it only ranks 16th out of 53 in its industry. By the way, I'm seeing it ranks 10th out of 54. And then somebody asks underneath that, it would be helpful if somebody on Seeking Alpha addresses this, as I have just received a notification of a downgrade to hold from strong buy.

18:27Steven Cress:So I know you've provided this context for us in the past, but I think a nice reminder, and maybe using Allstate as an example, the nature of hold versus sell, hold does not sell, but also when should investors think about selling? Yeah. So I will buy the top 10 stocks at the beginning of the year as well. And my rule of thumb is if a stock drops to hold, I continue to hold it. And if a stock falls to a sell, that's when I sell it from the top 10. And I pretty much will use that 180-day rule as well for my top 10. So what has happened with Allstate? And everybody can make their own decision. I mean, you certainly don't have to hold the stocks.

19:15I encourage you to look at the underlying metrics. So if you have Seeking Alpha Premium or Pro, look at the factor grades. Something has clearly changed. If you look at the factor grades for growth, Allstate now has a D - for growth, where six months ago it was an A+. So their growth situation has changed dramatically. And I'll tell you what, even more than value, growth is more important to me. If I see that growth grade drop, that really can be a reason to sell the stock. So the fact that it was an A plus and now it's a D minus, it has changed a lot. You know, one of the benefits was that their EPS growth rate was strong and their three to five year EPS growth rate was very strong in the beginning of the year.

20:03But that's been reduced. So it is not quite the same growth scenario as it was. So just look at the underlying metrics. And, you know, even you go right to the stock page, you don't even have to click on the underlying metrics. You'll see those factor grades. It'll show you where the grade is now versus where it was three months ago or six months ago. And that alone can help you make a decision.

20:26Steven Cress:Speaking to the top stocks for the year, commenter Eric Lung said, looking for the recommendation on managing the top 10 from year to year in a portfolio. Do you hold on to these stocks year after year unless they are a strong sell? Or do you swap out stocks year after year? Without the swap, one just accumulates 10 more stocks into the portfolio each year, and it keeps growing. Wondering how other investors are using these recommendations. I think you'll find a number of them will hit a sell or a strong sell, and you get rid of those. I definitely carried over stocks from the previous year that were a strong buy, and some of them that were hold.

21:02And some of them definitely weakened, but then they started coming back as well. At the end of the game, if the stock has good fundamentals, if it's got a good growth scenario, and a good valuation scenario, you know, they can run into situations where cycles change, sentiment changes, they could be out of favor. But if they have good fundamentals, I tend to stick with it. And eventually, after a couple quarters, those stocks will come back.

21:26Steven Cress:Somebody, a commenter, wrote underneath that question, as a note, NVIDIA has had hold status, valuation is a D minus or F for the last three years, as its price has been climbing to the heavens. Well, it definitely was climbing to the heavens. I'm not so sure it's been climbing to the heavens this year. So let me pull up NVIDIA as we're talking about that. Let us see. So as we're looking at the summary page there, so a bunch of stocks we were looking at today, like MU, Sandisk, Lumentum, all up strongly. NVIDIA is actually down 1.12%. Let's see. NVIDIA had a good month. And a lot of these chip companies have had a good month.

22:09It's up 10%. Some of the others I was quoting were up 20%. Year-to-date, NVIDIA is up 5.23%. So definitely this year, it's not climbing to the heavens, but it was. Even over the last year, it's up 72%. And a lot of our top 10 stocks are more than 72 % on a 52-week basis. But no question. I mean, NVIDIA hasn't had a good run. It just has not had a great run this year. and, you know, we've had a valuation grade of a D - on that stock or worse for a long time. You know, I will say the valuation is starting to look a little bit better. You know, for a long time, the PE on the stock was an F on NVIDIA.

22:54It's now a C +, and the Ford PE is actually a B. The PEG is an A. so um i will say this you know is getting closer and closer than it's ever been to becoming um a buy or a strong buy and that there's valuation grades but i used to click on the valuation card it was just all f's for nvidia it was just super expensive but perhaps with the stock flattening out here and the earnings growth continuing to move up this stock could be getting closer and closer to becoming a buy or a strong buy. So it's getting close.

23:37Steven Cress:So another stock that you had from your top 10 stocks for 2026 was Wildan Group, WLDN. And somebody asked, any further opinion on WLDN from the last time you had suggested it as a top pick? It's literally a falling knife right now. This was written a couple of weeks ago. Any change in opinion. Okay. So taking a look at the top 10 stocks, I'm bringing it up right now. Let's see how we've done that. We're going to look at Wilden. I just want to get an overall picture. All right. So from the day that we recommended the top stocks, I believe it was like January 8th was the date. The top 10 stocks are 41.2%.

24:18I believe the S &P is up around 4 % for that period. We've had two stocks up over 100%. Cohort is up 80%. AMD is up 60%. Celestic is up 42%. ATI is up 28%. Allstate, which we were talking about, is up 7%. So that still beat the S &P 500 year to date. So it's still outperforming. Then we have three losers. So 70 % have hit. That is a very good win rate to have a 70 % win rate. The best hedge funds have a win rate of about 50%. We have three losers. Insight is down 4.3%. Barrick Mining is down 15%. And the stock you were discussing, Wilden, is down 30%. Double digits, not great. Not a fan that we picked a stock that performed poorly, but we're not going to get all of them.

25:15So why is Wilden down where it is? So when we take a look at the stock page, of course today the stock is up 5.4 % but it has definitely had problems it's down significantly year to date as I said I guess at this point it's down about 20 percent 26 percent since January 2nd and what has gone wrong so it's quite easy to see so when you go to your stock page right next to the summary button there is a ratings button and when you click on that ratings button the wonderful thing about CK Alpha and the Quant system is we're incredibly transparent. We show you what the factor grades are and the directional recommendation being buy or sell.

26:00We show it to you every single day. So we could see that Wilden went to a sell not too long ago. It was April 28th. It was$66 when it went to a sell. And then it went back to a hold on May 4th. and the stock then was$72 and today it's$76. So as it's gone from a sell to a hold of this backup, but where did it get crushed? When we recommended this stock back in January, on January 2nd, the stock was$106. So it's easy to see where it went wrong. Take a look at the investment characteristics that we list, which are value, growth, profitability, momentum, and EPS revisions. We could see at the time that growth for World End was an A-, the valuation was a C-, momentum was an A-, EPS revisions were an A-, so all in all, a lot of green there with the growth, profitability, momentum, and EPS provisions on January 2nd.

27:11So as time moved forward, we found that the growth for the company just started to decline. So we went from sort of that A category in growth. And then when we got to February, we hit a couple A minuses. Then when we got to March, we went from A minus to B plus. and then as we got from March to the end of March, it became a B. Then in April, I see a B - for the stock. And then as we got to May, it went from a B to a C for growth. For the momentum grade, which was back in A-plus territory, that moved from A-plus to B-minus to C-plus to C to D-plus. and a couple of Ds. For EPS revisions, we were in A territory.