Day Hagan Smart Value Strategy Update November 2025
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Summary
The DH Smart Value Portfolio continues to invest in companies that deliver excess returns through strong economic profitability, solid balance sheets (quality), significant 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
U.S. stocks posted gains in October, with the S&P 500 advancing to near-monthly all-time highs. Strong third-quarter earnings helped drive the advance. Companies in the index were on pace for 13.1% year-on-year profit growth. Monetary policy developments mattered: the Federal Reserve cut its policy rate by 25 basis points on October 29, but also emphasized that further cuts are not assured, which muted investor enthusiasm for broad risk-taking.
The U.S. government shutdown, beginning October 1 and impacting roughly 900,000 federal workers, added uncertainty. While initial market commentary suggested the economic effects were modest, data flows and confidence were disrupted. Growth stocks, particularly large-cap technology firms often grouped as the “Magnificent Seven,” dominated the advance; tech accounted for roughly 36% of the S&P 500’s weight, and investor focus on artificial-intelligence themes amplified demand for high-multiple growth names.
Meanwhile, value stocks and mid-cap issues lagged as market breadth narrowed and money concentrated in fewer names. Quality stocks underperformed growth: investors opted for high-beta names tied to AI, and rotation into cyclicals was limited amid an unclear path for rate cuts. Even so, maintaining exposure to quality equity remains appropriate given its historical resilience in stress scenarios. In sum, the month reflected strong earnings fundamentals, tech-driven breadth, and policy support—yet elevated valuations, narrow participation, and fiscal uncertainty left little margin for error.
Given current conditions—persistent inflation, softening labor dynamics, the likelihood of additional rate cuts, and cautious policy guidance—we remain selectively constructive. We do not anticipate a sustained market downturn at present; however, we are prepared to reduce risk should our indicators deteriorate. Our portfolio maintains a balanced exposure between durable cash-flow compounders and cyclical opportunities where conviction is high.
As discussed last month, 2025 has been challenging for several portfolio holdings. Quality and value factors have lagged, and our emphasis on economic profitability has been overshadowed as already-expensive companies have moved even higher.
Growth and “meme” segments have outperformed value and quality for interconnected reasons. The primary driver has been ongoing enthusiasm around technology and artificial intelligence. Large-cap growth firms tied to cloud infrastructure, semiconductors, and AI applications continue to draw substantial capital, reinforcing momentum and concentrated positioning even as valuations move further above historical norms. While we maintain exposure to these companies, elevated multiples limit our willingness to materially overweight them.
Value stocks—more concentrated in staples, healthcare, financials, energy, and industrials—have faced macro headwinds. Moderating energy prices, slower global trade, and uncertainty around tariff policy have constrained earnings revisions. Quality stocks, typically characterized by durable margins and strong balance sheets, have also underperformed as investors rotated away from defensive sectors toward higher-beta growth. Risk appetite remains elevated, with markets increasingly rewarding projected future cash flows over current profitability and return on capital.
While the recent performance gap is uncomfortable, our long-term record demonstrates the discipline of our process. Our philosophy has not changed: we continue to focus on businesses with strong balance sheets, durable cash generation, and valuations that provide a margin of safety. Over time, these attributes tend to be recognized by the market, and we remain confident that this positioning will be rewarded.
What to watch heading into November:
In November, equity markets will be sensitive to corporate earnings updates, especially from major tech firms where valuations are most elevated and investor expectations run high. Additional central-bank commentary—particularly from the Fed ahead of its next meeting—will influence perceptions of the rate-cut trajectory and thus affect growth-versus-value dynamics.
The ongoing government funding standoff and potential debt-ceiling or shutdown extension risks could disrupt data releases, dampen investor confidence, and delay policy decisions. Rotation pressures may intensify: if growth-stock valuations stretch further, value and quality names could attract renewed interest. Risk-premium shifts may hinge on AI-investment disappointment, supply-chain disruptions, or international-trade headlines. Overall, a selective approach is warranted: exposure to growth remains warranted given momentum, but built-in risk buffers should account for tighter valuations amid policy uncertainty, potentially supporting value and quality names.
Turning to our holdings, below are abridged views of recent earnings reports (from October and into November) affecting our portfolio. As you will see, overall, our holdings continue to outpace analyst expectations.
BEN (Earnings report on 11-7-2025): Franklin Resources (BEN) delivered a strong Q4 2025, with adjusted net income up 37% quarter-over-quarter to $357.5 million and EPS of $0.67—beating expectations. Assets under management reached $1.66 trillion, driven by robust inflows into alternatives and multi-asset strategies. The firm’s operating margin improved to 26%, and its balance sheet remains solid, reflecting significant financial flexibility and positioning BEN for continued upside into fiscal 2026.
NFG (11-5-2025): National Fuel Gas (NFG) posted adjusted EPS of $1.22, a 58% jump over last year, while GAAP EPS hit $1.18 versus a net loss previously. Full-year adjusted EPS climbed 38% to $6.91, riding record natural gas production and reduced capital spending. NFG’s acquisition of CenterPoint’s Ohio utility doubles the segment’s rate base, reinforcing growth. With bullish 2026 guidance and 55 consecutive dividend increases, NFG’s momentum looks intact.
CF (11-5-2025): CF Industries (CF) posted Q3 2025 results that easily beat estimates, with EPS at $2.19 on $1.66 billion revenue, and year-to-date net earnings hitting $1.1 billion ($6.39 per share). Operational strength—like a 97% ammonia utilization rate, robust cash reserves, and innovative low-carbon product launches—underscores the momentum. Management’s new $2 billion buyback plan and bullish mid-cycle guidance point to strong upside potential through 2026, making CF a compelling growth play.
QCOM (11-5-2025): Qualcomm’s Q3 2025 earnings handily beat estimates, with EPS at $3.00 and revenue up 10% year-over-year at $11.27 billion. Automotive and IoT segments delivered double-digit growth, providing diversification momentum. Management also provided strong guidance for Q4, confidently topping analysts’ forecasts. Robust capital returns—$3.8 billion repurchased and high dividend payouts—further support a bullish outlook. Qualcomm’s innovation pipeline and AI expansion position the company for continued upside.
OC (11-5-2025): Owens Corning (OC) reported Q3 2025 revenue of $2.7 billion, down 3% year-over-year due to lower volumes and the sale of its China building materials business. Despite missing earnings expectations by 5 cents, driven by a goodwill impairment, OC generated strong adjusted EBITDA of $638 million and a 24% margin. The company returned over $700 million to shareholders year-to-date through dividends and share buybacks, maintaining a disciplined capital return approach. OC’s resilient market position and efficient operations support a positive outlook amid a challenging environment.
IT (11-4-2025): Gartner's Q3 2025 earnings exceeded expectations with an adjusted EPS of $2.76, up 10% year-over-year, on revenue of $1.5 billion, a 3% increase. The launch of its AI-driven tool, Ask Gartner, enhances its product suite and boosts growth prospects. Gartner raised full-year revenue and EBITDA guidance, signaling strong confidence. Contract value grew 3%, with broad-based gains across sectors. Strategic share buybacks and solid free cash flow further support a bullish outlook for sustained growth in 2026. IT is a recent purchase.
CTRA (11-3-2025): Coterra Energy (CTRA) reported positive Q3 2025 results with revenue up 33.2% year-over-year to $1.78 billion, driven by $984 million in oil sales and operational efficiency gains. Earnings surged 27.8% to $322 million, with EPS of $0.42, beating expectations and prompting a 6.3% stock rise. The company raised its 2025 production guidance, emphasizing Permian Basin expansion and management restructuring. With a 3.6% dividend yield and renewed share buybacks, CTRA’s operational discipline and growth prospects lean bullish for the future.
CLX (11-3-2025): Clorox (CLX) reported Q3 2025 revenue of $1.43 billion, slightly beating estimates despite an 18.9% year-over-year decline due to temporary disruptions from its ERP system implementation. Adjusted EPS was $0.85, surpassing expectations by 9.2%. Management reaffirmed full-year adjusted EPS guidance of $6.13. Despite near-term challenges, margin expansion, strong brand presence, and ongoing productivity enhancements position Clorox well for recovery and growth, supporting a positive outlook into 2026.
CVX (10-31-2025): Chevron (CVX) reported Q3 2025 adjusted EPS of $1.85, beating analysts' expectations of $1.69, driven by record production post-Hess acquisition and improved refining margins. Revenue was $49.73 billion. Despite a 21% year-over-year earnings decline due to lower oil prices, Chevron’s upstream production rose 21% to 4.1 million barrels per day. Downstream profits surged 91%, supported by strong refining margins. The company’s capital discipline, rising free cash flow, and robust production growth underpin a positive outlook.
MRK (10-30-2205): Merck (MRK) reported strong Q3 2025 results, with adjusted EPS of $2.58 beating the consensus estimate of $2.36, and revenue of $17.28 billion, up 4% year-over-year. Keytruda sales rose 8% to $8.1 billion, driving oncological growth, while gross margin improved to 81.9%. Merck raised its full-year revenue guidance to $64.5- $65 billion, with EPS expected to be between $8.93 and $8.98. The robust pipeline, strong cash flow, and strategic investments support a bullish outlook into 2026.
AMZN (10-30-2025): Amazon (AMZN) reported a strong Q3 2025 with EPS of $1.95, well above the $1.57 estimate, and revenue of $180.2 billion, beating expectations. AWS led with 20.2% revenue growth, reaching $33 billion, supported by strong demand for AI infrastructure and services. CEO Andy Jassy highlighted AWS's rapid expansion, the launch of a $11 billion AI data center, and plans to increase capital spending to $125 billion in 2025. These factors contribute to a positive outlook for continued growth across Amazon's diverse segments.
CMCSA (10-30-2025): Comcast (CMCSA) reported Q3 2025 earnings with adjusted EPS of $1.12, beating the $1.10 consensus, despite a 2.7% revenue decline to $31.2 billion due to the absence of the Paris Olympics. Free cash flow surged 45% to $4.9 billion, highlighting operational strength. Wireless segment growth was robust with 414,000 new lines, and Peacock narrowed losses significantly. Comcast’s strong cash generation, connectivity resiliency, and strategic content investments support a positive outlook despite near-term challenges.
PSA (10-29-2025): Public Storage (PSA) delivered a solid Q3 2025 with net earnings of $2.62 per share, up from $2.16 last year, reflecting strong operational execution. Revenue rose 3.1% year-over-year to $1.22 billion, supported by successful acquisitions and development activities. The company maintained a robust 78.5% same-store net operating income margin and declared a $3.00 quarterly dividend. PSA’s strategic growth, efficient cost control, and raised full-year guidance underpin our outlook for 2026.
OGE (10-29-2025): OGE Energy Corp. reported a strong Q3 2025 with net income rising to $231.3 million from $218.7 million year-over-year. Earnings per share increased to $1.14, beating last year's $1.09 and meeting forecasts. Operating revenues grew to $1.05 billion from $965 million, supported by the regulated electric business. The company is expanding with 550 MW of new natural gas turbines under construction, positioning itself well for future growth while maintaining low customer rates. This bodes well for sustained performance.
CTSH (10-29-2025): Cognizant Technology Solutions (CTSH) reported strong Q3 2025 results with non-GAAP EPS of $1.39, beating estimates by 7.75% and up 11.2% year-over-year. Revenues of $5.42 billion exceeded expectations, driven by robust North America performance and AI-driven services, with 7.4% growth. Operating margins expanded 140 basis points year-over-year, while cash flow and liquidity strengthened. The company raised its full-year outlook, signaling confidence in sustained growth through expanding AI adoption and continued strong client demand.
META (10-29-2025): Meta Platforms (META) reported strong Q3 2025 results, with non-GAAP EPS of $7.25, beating estimates by nearly 10%, and revenue of $51.24 billion, up 26% year-over-year. Ad revenues surged, driven by AI-powered content and global user engagement. Operating income grew 18.4% to $20.54 billion, with an operating margin of 40.1%. Meta’s AI innovations, expanding Family of Apps revenues, and robust cash flow underpin a bullish outlook, with Q4 revenue guidance of $56-$59 billion signaling continued momentum into 2026. Meta missed GAAP earnings per share expectations in Q3 2025 due to a one-time, non-cash tax charge of $15.93 billion, linked to President Donald Trump's One Big Beautiful Bill Act. Despite beating revenue expectations with $51.24 billion, the tax hit drove EPS down to $1.05, below forecasts. Management anticipates significantly lower federal tax payments in the coming years. The miss stemmed from this extraordinary tax expense, not from underlying business weakness, highlighting an unusual accounting impact.
GOOGL (10-29-2025): Alphabet (Google) reported an outstanding Q3 2025 with revenue soaring 16% year-over-year to a record $102.3 billion, surpassing expectations. Net income rose 33% to $35 billion, with earnings per share at $2.87, beating estimates. Strong growth was driven by robust advertising performance and a booming cloud business, which grew around 29%. AI-driven innovations continue to enhance Google's offerings and profitability, supporting a bullish outlook for sustained momentum and market leadership in 2026.
SEIC (10-22-2025): SEI Investments Company (SEIC) posted a strong Q3 2025 with diluted EPS rising 9% to $1.30, beating estimates. Revenue grew 8% to $578.5 million, while operating income increased 11%, lifting operating margin to 28%. Net sales events hit $30.5 million this quarter, driving a record $106.3 million for the year so far. Growth in Investment Managers and Advisors segments, along with disciplined cost management, supports a positive outlook on SEIC's continued performance and pipeline strength.
KMI (10-22-2025): Kinder Morgan (KMI) delivered a solid Q3 2025, reporting net income of $661 million, up from $601 million year-over-year. Earnings per share advanced to $0.30, beating analyst expectations. Revenue climbed to $4.08 billion, led by Natural Gas Pipelines and Products Pipelines segments. The company continues to generate stable cash flows, supporting a high-yield dividend. Ongoing infrastructure investments and expanding capacity underpin our outlook for KMI’s growth, resilience, and shareholder returns in 2026.
BK (10-16-2025): Bank of New York Mellon (BK) posted record Q3 2025 results, reporting revenue of $5.1 billion, up 9% year-over-year, with EPS surging 25% to $1.91. Pre-tax margin expanded to 36%, and return on tangible common equity reached 26%. Broad-based growth across Security Services and Markets & Wealth Services fueled strong operating leverage. BK’s disciplined expense management and AI-powered platform innovations underline bullish momentum.
JPM (10-14-2025): JPMorgan Chase delivered an impressive Q3 2025, with net income surging 12% to $14.4 billion and EPS beating forecasts at $5.07. Revenue grew 9% year-over-year to $47.1 billion, led by strong markets and double-digit asset management gains. Investment banking and wealth segments outperformed, supporting shareholder returns. Continued AI investments, industry-leading deposit share, and robust credit metrics position JPM bullishly for enduring growth into 2026, even amid economic uncertainty.
GS (10-14-2025): Goldman Sachs delivered a record Q3 2025, posting net revenues of $15.18 billion, up 20% year-over-year and driven by robust market activity. EPS soared to $12.25, dramatically beating last year's $8.40 and consensus estimates. Net earnings grew 37% to $4.1 billion, while annualized ROE reached 14.2%. Strong investment banking, AI-driven initiatives, and record assets under supervision bolster a bullish outlook for GS’s continued growth and leadership.
BLK (10-14-2025): BlackRock delivered stellar Q3 2025 earnings, posting revenue of $6.5 billion—up 25% year-over-year—and adjusted EPS of $11.55. Assets under management reached a new high of $13.46 trillion, powered by $205 billion in net inflows this quarter. Operating income climbed 23% to $2.6 billion, demonstrating strong margin execution. Broad growth across ETFs, private credit, and technology positions BlackRock favorably for continued expansion and industry leadership into 2026, making the outlook for BLK constructive.
PEP (10-9-2025): PepsiCo (PEP) delivered a better-than-expected Q3 2025, with core EPS reaching $2.29, beating forecasts by $0.03. Net revenue grew 2.6% to $23.94 billion, reflecting better pricing and resilient international demand. Despite a modest decline in global volume, margin improvements and innovation in major brands like Lay’s and Gatorade bode well for future growth. Continued cost optimization and strategic international expansion support a bullish outlook for PepsiCo’s long-term momentum into 2026.
As you can see, the portfolio’s holdings' earnings reports over the last month have been executing well overall.
Positive economic margins support each of our positions. Note that our Economic Value Added (EVA) analysis directly measures value creation beyond the cost of capital, capturing true economic profit, enhancing insight into operational efficiency and capital allocation beyond standard accounting profits, and informing investment decisions and valuation discipline.
The portfolio’s largest sector allocations are Financials, Information Technology, Communication Services, and Consumer Staples. Our target weightings versus the Russell 1000 Value Index are as follows: Information Technology 19.5% vs. 11.1% benchmark, Healthcare 4.2% vs. 11.9%, Financials 15.7% vs. 22.1%, Consumer Discretionary 5.7% vs. 7.7%, Communication Services 11.5% vs. 8.1%, Industrials 4.3% vs. 13.1%, Consumer Staples 5.8% vs. 7.3%, Energy 5.4% vs. 5.9%, Utilities 4.6% vs. 4.6%, Materials 3.9% vs. 3.9% and Real Estate 5.7% vs. 4.1%.
Overall, this portfolio aims to strike a balance between growth and stability by combining innovative growth companies with established blue-chip stocks and defensive sectors, making it suitable for investors seeking long-term capital appreciation through prudent diversification across the U.S. economy.
The Smart Value portfolio strategy utilizes measures of economic profitability, balance sheet sustainability, cash flow generation, valuation, economic trends, monetary liquidity, and market sentiment to make objective and rational decisions about how much capital to allocate and where to invest that capital.
Please let us know if you want to discuss the portfolio in more detail or learn more about our approach.
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.
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