Day Hagan Smart Core Equity Strategy Update June 2026
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Summary
The Day Hagan Smart Core Equity Portfolio is designed to invest in companies that we believe have the potential to deliver excess returns through positive economic profitability, solid balance sheets (quality), meaningful cash generation (profitability), and trading at considerable margins of safety (valuation). We believe these factors will continue to provide rational opportunities for the foreseeable future.
Strategy Update
In May, U.S. equities continued to advance, but leadership remained concentrated in a relatively narrow group of growth-oriented companies tied to artificial intelligence, semiconductors, software, cloud infrastructure, and data-center investment. The strongest areas of the market were those with visible earnings momentum and direct exposure to AI-related capital spending. More valuation-sensitive, cyclical, and defensive areas generally lagged.
That backdrop created a difficult environment for value-oriented managers. Investors were willing to pay higher multiples for companies viewed as having scarce growth, while many attractively valued businesses with solid balance sheets, reasonable cash flows, and more traditional earnings drivers were left behind. In the short run, this type of environment can make valuation discipline look unrewarding. Over time, however, paying too much for growth has historically increased the importance of earnings durability, balance-sheet strength, cash generation, and the price paid for those fundamentals.
Corporate earnings were a key driver of market support. According to FactSet’s May 29 Earnings Insight report, with 97% of S&P 500 companies having reported first-quarter results, 85% posted positive EPS surprises and 81% posted positive revenue surprises. The blended year-over-year earnings growth rate rose to 28.6%, which, if finalized, would mark the strongest quarterly earnings growth rate since Q4 2021. Revenue growth also improved to 11.8%. Ten of eleven sectors reported year-over-year earnings growth, with Information Technology, Communication Services, Materials, and Consumer Discretionary leading the advance. Health Care was the only sector still reporting a year-over-year earnings decline.
The earnings data help explain recent market leadership, but they also highlight a potential risk. As expectations rise and valuations expand, investors may become less forgiving if earnings growth slows, margins disappoint, or capital spending assumptions are revised lower. FactSet reported that the S&P 500 forward 12-month P/E ratio was 21.2 at month-end, above both its 5-year and 10-year averages. Elevated valuations do not necessarily signal an imminent market decline, but they do suggest that future returns may depend more heavily on continued earnings growth and investor confidence.
This is where a quality/value discipline may become more important. A value approach does not require predicting exactly when market leadership will broaden or when expensive growth stocks will cool. Instead, it emphasizes owning businesses in which the relationship among price, earnings power, cash flow, and balance-sheet quality appears favorable. Quality also matters because low valuation alone is not enough. Companies with durable competitive positions, prudent leverage, recurring cash flow, and shareholder-oriented capital allocation may be better positioned to withstand a less forgiving market environment.
Periods of value underperformance can be frustrating, particularly when market returns are dominated by a narrow group of large growth companies. But these cycles are not unusual. Market leadership often rotates when expectations become extended, when interest-rate assumptions change, when earnings growth broadens, or when investors begin to refocus on valuation and risk. There is no assurance that value will outperform in the near term, and valuation gaps can persist longer than expected. Still, history suggests that quality and value disciplines can play an important role in managing downside risk and improving the potential for attractive long-term risk-adjusted returns.
Overall, May’s market action reinforced the importance of patience and discipline. The market continued to reward growth scarcity, especially AI-related growth, but valuations and expectations also moved higher. For investors with a full-market-cycle perspective, we believe quality and value remain important to own. The objective is not to chase what has already worked, but to own fundamentally sound companies at reasonable prices where long-term return potential appears favorable relative to risk.
Last month, we discussed several of our software holdings and the potential opportunity we believe they may represent. Through May 29th, using Friday closing prices, the iShares Expanded Tech-Software Sector ETF (IGV) advanced for seven consecutive weeks, potentially reflecting renewed investor interest in the software group.
Below, we highlight several of our software-related holdings and compare today’s stock prices with the first time each company traded at similar levels. We also review key per-share fundamentals—revenue, earnings, and free cash flow—to illustrate how much the underlying businesses have improved since those earlier price points. In our view, these comparisons help frame the potential opportunity: in several cases, the market is valuing materially larger, more profitable, and more cash-generative businesses at prices first reached years ago.
Accenture — ACN
At roughly $176, Accenture is trading near a level it first reached around 2019, before the stock’s major pandemic-era and post-pandemic advance. Using the nearest fiscal-year data, ACN generated approximately $66.46 of revenue per share in fiscal 2019, versus $114.95 TTM today. EPS without NRI was about $7.35, versus $13.36 TTM, while free cash flow per share was roughly $9.27, compared with $19.91 TTM. Put differently, the stock price has moved back to a level first seen roughly seven years ago, while revenue per share is up more than 70%, adjusted EPS is up more than 80%, and free cash flow per share has more than doubled. Accenture also now pays a higher dividend per share. The market is clearly discounting slower consulting demand and AI-related uncertainty, but today’s price reflects a much stronger per-share financial profile than when the stock first traded at this level.
Gartner — IT
At roughly $160, Gartner is back near a price that it first reached around 2018, before its substantial multiyear rerating. At that time, the company generated approximately $43.15 of revenue per share, versus $86.14 TTM today. EPS without NRI was about $1.78 in 2018, compared with $11.50 TTM, while free cash flow per share was roughly $3.74, versus $15.53 TTM. The contrast is striking: the stock price is near a level first achieved roughly eight years ago, but revenue per share has about doubled, adjusted EPS is more than six times higher, and free cash flow per share has increased more than fourfold. Gartner has also materially reduced diluted shares outstanding, improving per-share economics. The recent price decline reflects concerns about growth, technology budgets, and multiple compression, but the stock now trades at an earlier-cycle price relative to a far larger, more cash-generative business.
Salesforce — CRM
At roughly $185, Salesforce is trading near a price first reached around early 2020, when cloud software valuations were expanding but CRM’s profit profile was much less developed. Around fiscal 2020, Salesforce generated approximately $20.11 in revenue per share, versus $43.47 in TTM revenue per share today. EPS without NRI was about $2.75, compared with $12.55 TTM, while free cash flow per share was roughly $4.34, versus $15.07 TTM. The stock has effectively round-tripped to a level not seen in more than six years, but revenue per share has more than doubled, adjusted EPS has increased more than fourfold, and free cash flow per share has more than tripled. Salesforce also now pays a dividend, which was not part of the story back then. The market is applying a much lower multiple to a larger, more disciplined, and more cash-generative company than it did when the company first traded at today’s price.
Adobe — ADBE
At roughly $250, Adobe is back near a level first reached around late 2018, when the company was already viewed as a high-quality software compounder but was much smaller on a per-share basis. In fiscal 2018, Adobe generated approximately $18.13 in revenue per share, versus $58.20 in TTM revenue per share today. EPS without NRI was about $6.76, compared with $21.93 TTM, while free cash flow per share was roughly $7.55, versus $24.60 TTM. The stock price has returned to a level first seen roughly eight years ago, yet revenue per share is more than three times higher, adjusted EPS is more than three times higher, and free cash flow per share is more than three times higher. Share count has also declined meaningfully. AI disruption concerns are real, but today’s valuation appears to assign a much lower multiple to a substantially stronger per-share business than the market did in 2018.
ServiceNow — NOW
At roughly $113, ServiceNow is trading near a price first reached around mid-2020, during the early stages of the cloud software rerating. At that time, the company was already growing rapidly, but its per-share fundamentals were far less developed than they are today. Around fiscal 2020, ServiceNow generated approximately $4.46 in revenue per share, versus $12.68 in TTM revenue per share today. EPS without NRI was about $0.93, compared with $3.51 TTM, while free cash flow per share was roughly $1.34, versus $4.33 TTM. In other words, the stock returned to a level first seen roughly six years ago, while revenue per share has nearly tripled, adjusted EPS has increased almost fourfold, and free cash flow per share has more than tripled. In our view, the pullback has created an opportunity to own a larger, more profitable, and more cash-generative enterprise software platform at a prior-cycle price.
Between May 7 and May 11, we made several portfolio adjustments. We added to CDW Corporation (CDW) in the Information Technology sector, as we viewed the company as a high-quality technology solutions provider with durable enterprise relationships, strong free cash flow generation, and broad exposure across hardware, software, cloud, cybersecurity, and services. In our view, CDW was positioned to benefit from continued enterprise IT modernization, including AI-related infrastructure spending across data centers, networking, and computing. Management’s “Geared for Growth” initiative, targeting approximately $100 million to $200 million of run-rate operational improvements through 2027–2028, also supported the case for potential operating leverage over time.
We also adjusted our Energy exposure by exiting Devon Energy (DVN) and reducing our holdings in Chevron (CVX) and Kinder Morgan (KMI). Following recent oil price strength, we viewed this as an opportunity to reduce direct commodity sensitivity while maintaining a constructive longer-term view of energy infrastructure demand.
On May 18, we initiated a new position in ServiceNow Inc. (NOW) in the Information Technology sector. We viewed ServiceNow as well-positioned to benefit from growing enterprise demand for AI, automation, and digital workflow solutions. Management continued to report momentum across large customer wins, backlog growth, and adoption of newer AI offerings, including Now Assist and AI Control Tower. The company also continued to expand its platform capabilities through acquisitions and product integration, strengthening its position across IT, security, operations, and governance workflows. Following a meaningful pullback from prior highs, we believed the stock offered a more attractive risk/reward profile, supported by strong revenue growth, cash flow generation, profitability, and a healthy balance sheet.
We also reduced our position in Cisco Systems Inc. (CSCO). While we remained constructive on Cisco’s long-term positioning in networking, security, AI infrastructure, and enterprise connectivity, the stock had rallied sharply. We viewed the strength as an opportunity to rebalance the position to a more neutral allocation and better manage portfolio risk.
Overall, the portfolio is tilted toward quality, cash-flow generation, and large-cap stability, with meaningful exposure to Information Technology/software, select Health Care, Communication Services, and defensive income-oriented holdings. The largest factor sensitivity is likely large-cap growth and quality, driven by positions such as Microsoft-adjacent software names, ServiceNow, Salesforce, Adobe, Accenture, Gartner, Qualcomm, Meta, Netflix, and Trade Desk. However, the portfolio is not a pure growth allocation; holdings such as Berkshire, JPMorgan, Bank of New York, Merck, Bristol Myers, Campbell’s, REITs, Utilities, and short-term T-bills provide balance.
The portfolio is sensitive to technology spending, AI adoption, interest rates, credit conditions, and equity market risk appetite. REITs, Utilities, and dividend-oriented holdings add rate sensitivity, while Energy exposure is modest but still tied to commodity trends. Overall, the portfolio blends growth recovery potential with defensive ballast.
The portfolio sector allocations versus the Russell 1000 Value Index are as follows: Information Technology 28.9% vs. 16.2% benchmark, Healthcare 9.5% vs. 10.7%, Financials 11.0% vs. 19.1%, Consumer Discretionary 6.1% vs. 6.8%, Communication Services 8.9% vs. 8.3%, Industrials 1.9% vs. 12.7%, Consumer Staples 5.8% vs. 7.1%, Energy 3.3% vs. 6.8%, Utilities 4.4% vs. 4.1%, Materials 0.0% vs. 4.0%, Real Estate 9.0% vs. 3.9%, and cash levels approximating 11.3%.
If you have any questions or would like to discuss the portfolio in more detail, please do not hesitate to contact us directly.
Sincerely,
Donald L. Hagan, CFA®
Regan Teague, CFA®, CFP®
Disclosure: The aforementioned positions may change at any time.
Disclosure: *Note that individuals’ percentage gains relative to those mentioned in this report may differ slightly due to portfolio size and other factors. Returns are based on a representative account. The information contained herein is provided for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. The securities, instruments, or strategies described may not be suitable for all investors, and their value and income may fluctuate. Past performance is not indicative of future results, and there is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses. All investments involve risk, including the possible risk of loss.
This material is intended to provide general market commentary and should not be relied upon as individualized investment advice. Investors should consult with their financial professional before making any investment decisions based on this information.
Data and analysis are provided “as is” without warranty of any kind, either express or implied. Day Hagan Asset Management, its affiliates, employees, or third-party data providers shall not be liable for any loss sustained by any person relying on this information. All opinions and views expressed are subject to change without notice and may differ from those of other investment professionals within Day Hagan Asset Management or Ashton Thomas Private Wealth, LLC.
Accounts managed by Day Hagan Asset Management or its affiliates may hold positions in the securities discussed and may trade such securities without notice.
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Definitions:
Adjusted EPS / EPS without NRI — Earnings per share excluding non-recurring items. This metric is often used to evaluate a company’s underlying profitability by removing unusual gains, losses, or one-time expenses.
AI Infrastructure — The technology hardware, software, networking, data-center capacity, cloud resources, and power systems needed to support artificial intelligence workloads.
Balance-Sheet Quality — A measure of a company’s financial strength, including cash levels, debt burden, liquidity, and ability to fund operations through different market environments.
Cash Flow Generation — A company’s ability to produce cash from its business operations after funding expenses and investment needs.
Cash / T-Bills — Portfolio holdings in cash or short-term U.S. Treasury bills. These positions typically provide liquidity, lower volatility, and income tied to short-term interest rates.
Cloud Infrastructure — The servers, data centers, networking equipment, and software platforms that allow companies to store, process, and access data and applications remotely.
Commodity Sensitivity — The degree to which a company’s earnings, cash flow, or stock price is affected by changes in commodity prices, such as oil or natural gas.
Defensive Ballast — Portfolio holdings that may help reduce volatility or provide stability during weaker equity markets, often including cash, utilities, consumer staples, health care, or high-quality dividend-paying companies.
Digital Workflow Solutions — Software platforms that automate, organize, and improve business processes across departments such as IT, security, operations, finance, and human resources.
Earnings Surprise — The difference between reported earnings and analysts’ expectations. A positive earnings surprise occurs when reported earnings exceed consensus estimates.
Enterprise IT Modernization — The process by which companies upgrade technology systems, including software, cloud platforms, cybersecurity, networks, data centers, and computing infrastructure.
EVA / Economic Value Added — A measure of whether a company is generating returns above its cost of capital. Positive EVA suggests the company is creating economic value for shareholders.
Factor Sensitivity — A portfolio’s exposure to common investment characteristics, such as growth, value, quality, momentum, size, dividend yield, or interest-rate sensitivity.
Free Cash Flow Per Share — Free cash flow divided by shares outstanding. It shows how much cash a company generates for each share after capital spending.
Growth-Oriented Companies — Companies expected to grow revenue, earnings, or cash flow faster than the broader market. These businesses often trade at higher valuation multiples.
Large-Cap Stability — Exposure to larger, more established companies that may have stronger balance sheets, broader revenue sources, and greater access to capital.
Operating Leverage — The ability of a company to grow earnings faster than revenue as fixed costs are spread across a larger revenue base.
Per-Share Fundamentals — Financial metrics expressed on a per-share basis, such as revenue per share, earnings per share, free cash flow per share, or book value per share. These measures help evaluate whether shareholder economics have improved over time.
Price-to-Cash-Flow — A valuation ratio comparing a company’s stock price to its cash flow per share. Lower ratios may suggest a more attractive valuation, depending on business quality and growth prospects.
Quality / Value Discipline — An investment approach that emphasizes financially sound companies trading at reasonable valuations, with attention to earnings durability, cash flow, balance-sheet strength, and risk.
Rate Sensitivity — The degree to which a stock, sector, or portfolio may be affected by changes in interest rates. REITs, utilities, and dividend-oriented stocks often have meaningful rate sensitivity.
Revenue Per Share — Total company revenue divided by shares outstanding. It helps measure how much revenue is generated for each share owned.
Risk/Reward Profile — The balance between potential return and potential downside risk. A more attractive risk/reward profile suggests that expected upside appears favorable relative to possible losses.
Run-Rate Operational Improvements — Estimated recurring cost savings or efficiency gains expected to continue over time once fully implemented.
Sector Allocation — The percentage of a portfolio invested in each economic sector, such as Information Technology, Financials, Health Care, Energy, Real Estate, or Consumer Staples.
Share Repurchases / Buybacks — When a company buys back its own shares, which can reduce shares outstanding and improve per-share metrics over time.
TTM / Trailing Twelve Months — Financial results from the most recent 12-month period. TTM data is often used to compare current fundamentals with prior fiscal-year results.
Valuation Multiple — A ratio used to compare a company’s market value with financial metrics such as earnings, cash flow, revenue, or EBITDA.
Value-Oriented Managers — Investment managers who focus on companies trading at prices they believe are reasonable or discounted relative to fundamentals such as earnings, cash flow, assets, or long-term value.
Year-over-Year Earnings Growth — The percentage change in earnings compared with the same period one year earlier.