Russ Koesterich, Global Allocation Fund portfolio manager at BlackRock, says investors will really need to think about stock selection in 2026 and sees "reasonable concern" for AI in equities and credit. ...

Core Insights - The U.S. equity markets are currently experiencing volatility due to high valuations, sluggish economic signals, and uncertainty regarding the Federal Reserve's future actions, particularly affecting growth and AI-linked stocks [1] Group 1: Stock Selection Strategy - Retail investors face challenges in stock selection amidst market volatility, making traditional stock-picking methods more relevant [2] - Sales growth is emphasized as a more reliable metric for evaluating stocks compared to earnings growth, as it reflects underlying demand and business model durability [3][10] - Sustained sales growth leads to predictable cash flows, allowing companies to reinvest and maintain stability without excessive borrowing [5] Group 2: Screening Parameters for Stocks - Selected stocks should have a 5-Year Historical Sales Growth (%) greater than the industry average and Cash Flow exceeding $500 million [6] - Additional criteria include a Price-to-Sales (P/S) Ratio lower than the industry average, indicating better value for revenue [7] - Positive revisions in sales estimates compared to the industry can trigger stock price increases [7] Group 3: Key Metrics for Evaluation - An operating margin greater than 5% over the last five years indicates effective cost control and sales growth outpacing costs [8] - A Return on Equity (ROE) greater than 5% ensures that sales growth translates into profits, indicating wise spending and profitability [9] - Stocks with a Zacks Rank of 1 (Strong Buy) or 2 (Buy) are expected to outperform in various market conditions [9] Group 4: Recommended Stocks - Take-Two Interactive (TTWO) is projected to have a sales growth rate of 14.8% for fiscal 2026 and holds a Zacks Rank of 1 [11] - Globus Medical (GMED) anticipates a sales growth rate of 14.5% for 2025, also with a Zacks Rank of 1 [12] - Rockwell Automation (ROK) expects a sales increase of 5.8% in fiscal 2026 and has a Zacks Rank of 2 [13] - Canadian Natural Resources (CNQ) forecasts a sales growth of 5.7% for 2025, currently holding a Zacks Rank of 1 [14] - VICI Properties anticipates a sales growth of 4.1% in 2025 and has a Zacks Rank of 2 [15]

Core Insights - The Russell 2000 index features high-growth potential stocks but requires careful selection due to the inherent risks associated with smaller companies [1][2] Company Summaries The Marzetti Company (MZTI) - Market Cap: $4.73 billion - Known for frozen garlic bread and other food products, MZTI trades at $172.14 per share with a forward P/E of 24.1 [3][5] BrightSpring Health Services (BTSG) - Market Cap: $6.76 billion - Offers a range of health services including home health care and hospice, trading at $32.60 per share with a forward P/E of 26.7 [6][8] Westamerica Bancorporation (WABC) - Market Cap: $1.19 billion - Provides banking services across Northern and Central California, facing several challenges including slow growth and declining profitability metrics [9] Concerns Regarding Companies The Marzetti Company (MZTI) - Specific concerns about MZTI are not detailed in the provided content [4] BrightSpring Health Services (BTSG) - Specific concerns about BTSG are not detailed in the provided content [7] Westamerica Bancorporation (WABC) - Annual net interest income growth of 6.2% over the last five years is slower than peers [10] - Revenue growth of 4% annually over the last three years indicates demand lagging behind consumer staples [10] - Estimated sales growth of 1.8% for the next 12 months suggests a slowdown in demand [10] - Gross margin of 23.4% is inferior due to competition and product substitution [10] - Earnings per share have decreased by 46% annually over the past four years, raising concerns about long-term stock price trends [11] - Investment activity has increased, putting pressure on a weak free cash flow margin of 1.3% [11] - Return on invested capital (ROIC) of 3.9% indicates management challenges in finding attractive investment opportunities [11] - Estimated net interest income decline of 11% for the next 12 months points to a challenging demand environment [12] - Net interest margin has shrunk by 46.7 basis points over the last two years, indicating decreasing profitability or increased competition [12]

Chemicals & Fertilizers - The chemicals sector is experiencing strong performance, particularly with Navin Fluorine, which reported a 16% surge in quarterly numbers and robust growth across all segments, including CDMO and specialty chemicals [1][14] - In contrast, SRF's performance was disappointing, indicating mixed signals within the sector, with Navin Fluorine having a competitive edge [4][14] - Elevated valuations in the chemicals sector necessitate selective stock picking, especially as global R22 chemical prices are declining from their highs [5][14] - Government policy support and improved global supply chains are positive factors for the fertilizers sector, with a favorable outlook on stocks like Coromandel International and PI Industries [6][14] Banking - The State Bank of India (SBI) is expected to report steady quarterly results, supported by strong asset quality and margins, similar to other major banks like ICICI [7][8][14] - SBI has one of the highest coverage ratios in the banking sector, reinforcing a positive outlook and a buy rating for the stock [8][14] Metals - The metals sector is showing renewed optimism, with a positive outlook driven by global cues and strong price action [9][14] - Tata Steel is positioned to benefit from improving steel price realizations, operational efficiencies, and robust domestic demand, leading to an upgrade from neutral to buy with a target price of ₹210 [10][12][14] - The ongoing US-China talks are expected to positively influence base metal prices, contributing to the overall positive sentiment in the metals sector [11][14]

Core Insights - The Mid Cap Value portfolio experienced a gain of 1.70% in Q3 2025, underperforming compared to the Russell Midcap® Value Index, which increased by 6.18% [2] Performance Analysis - The portfolio's performance was primarily affected by stock selection, indicating that specific investment choices did not yield favorable results compared to the benchmark [2]

Core Insights - The current second-quarter reporting cycle favors stocks with top-line growth and increasing profit numbers, with a focus on companies' efficiency in generating cash flows as a more rewarding investment strategy [1][2] Group 1: Importance of Cash Flow - A profit-making company can still face bankruptcy if it lacks cash flow management, highlighting the necessity of a solid cash position for flexibility and growth [2][3] - Positive cash flow indicates an increase in liquid assets, enabling a company to meet obligations, reinvest, and return wealth to shareholders, while negative cash flow suggests declining liquidity [4] - Increasing cash flow is essential for future growth, reflecting management's efficiency and reducing reliance on external financing [5] Group 2: Screening Parameters for Stocks - Stocks were screened for those with cash flow in the latest quarter at least equal to the 5-year average cash flow per share, indicating a positive trend [6] - Additional criteria included Zacks Rank 1, average broker rating of 1, current price above $5, and a VGM Score of B or better [7] Group 3: Featured Stocks - Catalyst Pharmaceuticals (CPRX) focuses on therapies for rare diseases, with a revised 2025 earnings estimate of $2.25 per share, reflecting a positive outlook [8] - SunOpta (STKL) provides supply-chain solutions in the food industry, with a 2025 EPS estimate of 18 cents, a 63.6% increase from the previous year [9] - Gambling.com (GAMB) offers marketing services for the online gambling industry, with a revised 2025 earnings estimate of $1.07 per share [10] - Orion Group (ORN) operates in construction services, with a revised 2025 earnings estimate of 17 cents per share [11]