Industry Overview - The energy sector has shown significant performance in 2026, with an increase of 19%, making it the best-performing sector in the S&P 500, surpassing the broader index and other sector groups [1][2] - There is a notable rotation from mega-cap tech stocks into energy, highlighting the importance of hard assets that drive the economy [3][4] Company Insights - Exxon Mobil, the largest oil and gas company in the U.S., has seen its stock rise over 20% in the past year, attributed to its strong free cash flow yield, which is above 5%, compared to other sectors in the S&P 500 that are below 3% [5][6][7] - Williams Companies, traditionally viewed as a pipeline company, is expanding into the data center market by supplying power directly to hyperscalers, which is expected to significantly grow its business and maintain lower retail electricity prices [8][11] - Williams Companies anticipates a 10% annual growth in EBITDA for the foreseeable future, with dividends likely to increase alongside this growth [11][12]

Core Insights - The Pacer US Cash Cows 100 ETF (COWZ) has increased nearly 7% year-to-date, contrasting with the flat performance of the S&P 500, indicating a shift in investor sentiment towards profitable companies amid concerns over high technology valuations and concentration risk [2][9] Investment Strategy - COWZ targets profitable, cash-generative businesses with reasonable valuations by screening the Russell 1000 for the 100 stocks with the highest free cash flow yield, holding them in equal weight, which reflects a quality value strategy [3] - The fund's focus on strong free cash flow allows companies to fund dividends, buy back shares, pay down debt, or reinvest for growth without relying on external financing, which is increasingly important in the current interest rate environment [4] Market Context - With the Federal Funds rate at 3.75% and the 10-year Treasury yielding 4.09%, companies generating cash internally have a competitive edge, avoiding costly external financing while providing returns that compete with fixed income alternatives [5] - The portfolio is tilted towards sectors generating cash today, with healthcare representing 22.3% and energy 18%, both known for mature businesses with established revenue streams [6] Performance Metrics - COWZ has outperformed the market by nearly 20 percentage points over five years, driven by a fundamental market shift as investors moved away from unprofitable growth companies towards those with proven profitability and strong balance sheets [7] - The fund holds established companies like Exxon Mobil, Chevron, Gilead Sciences, and Merck, which generate cash rather than burn it, demonstrating institutional validation with $18.3 billion in assets under management and a low portfolio turnover of 1.51% [8][9]

Core Viewpoint - Pacer US Cash Cows 100 ETF (COWZ) has outperformed the S&P 500 significantly, reflecting a shift towards profitable, cash-generative businesses amid concerns over high technology valuations and concentration risk [1] Performance Summary - COWZ surged 7% year-to-date, outperforming the S&P 500 by nearly 20 percentage points over five years [1] - The ETF has $18.3 billion in assets under management and a low portfolio turnover of 1.51% [1] Investment Strategy - COWZ screens the Russell 1000 for the 100 stocks with the highest free cash flow yield, holding them in equal weight, which emphasizes a quality value strategy [1] - The focus on strong free cash flow allows companies to fund dividends, buy back shares, pay down debt, or reinvest for growth without relying on external financing [1] Sector Allocation - The ETF's holdings are concentrated in healthcare (22.3%) and energy (18%), sectors known for mature businesses with established revenue streams [1] - This cash flow focus leads to a portfolio that is less speculative and more aligned with current market conditions [1] Market Context - The shift in investor preference from unprofitable growth companies to those with proven profitability is attributed to the Federal Reserve's aggressive rate hikes, making capital more expensive [1] - COWZ's strategy positions it well in a high-interest-rate environment, as companies generating cash internally gain a competitive advantage [1] Cost and Yield - COWZ charges a 0.49% expense ratio, which is reasonable for an actively managed strategy, though it is higher than broad market ETFs [1] - The fund offers a 1.8% dividend yield, which requires significant equity appreciation to justify the yield gap compared to 10-year Treasuries yielding 4.09% [1] Risk Considerations - The concentration in energy and healthcare sectors may lead to volatility, particularly with fluctuations in oil prices [1] - Investors should consider the total return profile of COWZ, as its cash flow methodology and equal-weight approach create specific risk-return characteristics [1]

Core Insights - BofA Securities highlights rising cost pressures and uncertainty in earnings estimates for managed care organizations, indicating that Medicare presents greater risks compared to Medicaid, and reported EPS may not accurately reflect true earnings potential [1] Group 1: Cigna Group - Cigna Group (NYSE:CI) is noted for providing clean exposure to commercial health insurance, which is the only segment performing consistently well, alongside a scaled pharmaceutical platform [2] - Through its pharmacy benefit manager and specialty pharmacy businesses, Cigna is well-positioned to benefit from increasing drug spending, including obesity therapies and gene therapies, without relying on specific products [3] - Cigna is expected to achieve 10%–15% annual EPS growth post-2026, as the Pharmacy Benefits Manager model resets [3] Group 2: Valuation and Market Position - Cigna's stock trades at approximately a 12% free cash flow yield and has significantly less government exposure than peers, supporting a similar 10%–15% return profile [4] - The valuation at 8.1x 2027 earnings appears compressed relative to de-risked estimates, with potential for a re-rating towards a historical multiple of 10x–12x [5] - BofA is also optimistic about Alignment Healthcare, Inc. (NASDAQ:ALHC), expecting over 20% member growth due to favorable conditions from Stars in 2026 [5] Group 3: UnitedHealth Group - UnitedHealth Group Inc (NYSE:UNH) is viewed as well-positioned for the coming years, contingent on a supportive Medicare Advantage rate environment [6] - The firm is awaiting the 2027 Medicare Advantage rate proposal to evaluate potential coding changes that could impact margins [6] - If regulatory stability is indicated, UNH could significantly expand margins in 2027 as a $6 billion headwind is expected to roll off [7] Group 4: Medicaid and Market Dynamics - Ongoing declines in Medicaid enrollment are reshaping the risk pool, complicating rate setting for states and limiting margin expansion for Medicaid-focused insurers like Centene Inc. (NYSE:CNC) and Molina Healthcare Inc. (NYSE:MOH) [7] - Accurately pricing exchange risk for 2026 remains uncertain due to shifting membership trends, leading to a lack of market reward for execution until at least the second quarter of 2026 [8]