In this special “new year” edition of Wealthy Retirement, we’re running a stock through the Safety Net model and The Value Meter… at the same time.

Using these two popular methodologies in tandem – one for dividend safety, the other for valuation – can give us a more complete picture of whether a stock is worth investing in.

Without further ado, here’s the first-ever combined edition of Safety Net and The Value Meter… featuring a company that just made a potentially industry-changing announcement.

Chief Income Strategist Marc Lichtenfeld

Safety Net

Now that the calendar has turned to 2026, lots of folks are making promises to themselves that they won’t keep. However, one resolution just got much easier.

Losing weight.

GLP-1 (glucagon-like peptide-1) drugs have been game changers for patients and the pharmaceutical companies that make them. Now, oral GLP-1 drugs will again move the needle significantly for customers and drugmakers.

Last week, Danish pharmaceutical giant Novo Nordisk (NYSE: NVO) received FDA approval for an oral version of Wegovy, which was previously available by injection only. The change to the company’s financial picture will be momentous.

We won’t have the full 2025 figures until next month, but free cash flow is projected to come in at $7.7 billion, a 28% decline from 2024’s $10.7 billion and 36% below 2023’s total.

However, because of the new approval, free cash flow is expected to jump 34% to $10.3 billion in 2026 and another 27% in 2027 to $13.2 billion.

The sharp decline in 2025’s free cash flow costs Novo Nordisk a couple of points on its dividend safety rating.

Another issue is the payout ratio.

Novo Nordisk is expected to have paid shareholders $7.1 billion in dividends in 2025. If free cash flow slid 28% as projected, the payout ratio would rise to 92%, which is way too high.

This year’s projected $8.1 billion in dividends would lead to a payout ratio of 78% based on the consensus cash flow estimate. That is also too high, but it’s within spitting distance of the 75% threshold for Safety Net. If cash flow is a little higher than expected (or dividends paid is a little lower) in 2026, the payout ratio may come in below the 75% level, and the company would not be penalized.

In 2025, American investors received two semiannual dividends totaling $1.73 per share, which comes out to a 3.3% dividend yield.

In its local currency, the Danish krone, Novo Nordisk has raised its dividend for 31 consecutive years – though American investors may have seen slight reductions because of currency fluctuations.

Due to falling cash flow and a too-high payout ratio, Novo Nordisk’s dividend safety rating is low. But this is an unusual situation with the company’s fortunes about to change dramatically due to oral Wegovy.

Combine that with a three-decade run of annual dividend increases and a likely upgrade this year, and the dividend should be okay despite the poor rating.

Dividend Safety Rating: D

Director of Trading Anthony Summers

The Value Meter

Sometimes the best businesses make only decent stocks – not because the company slips, but because expectations outrun what the cash can reasonably deliver.

That’s the situation with Novo Nordisk today. The business is still excellent. The stock, after a long reset, is finally being treated with more discipline.

The company is the unquestioned global leader in diabetes and obesity treatments. And Ozempic and Wegovy – overnight name brands, it seems – have reshaped how investors think about the company.

For a while, the market assumed that dominance meant inevitability. But recent results remind us that even great businesses have limits.

Over the first nine months of 2025, sales rose 12%, or 15% at constant exchange rates. Operating profit increased 5%, held back by roughly 9 billion kroner (roughly $1.4 billion) in restructuring costs tied to a companywide transformation. Free cash flow came in at 63.9 billion kroner (about $10.1 billion). That’s lower than the previous year, but still substantial.

Capital spending climbed as Novo expanded its manufacturing capacity. That spending isn’t optional. It’s the cost of staying competitive in GLP-1 therapies. Management also narrowed guidance and lowered growth expectations for diabetes and obesity treatments.

Novo trades at an enterprise value-to-net asset value ratio of 8.43, well above the universe average of 3.82. On that metric alone, the stock still looks expensive. The market continues to pay a premium for quality.

Cash flow is what keeps that premium from becoming a problem. Novo generates quarterly free cash flow equal to 11.28% of its net asset value. The universe average is just 1.12%. In plain terms, the company turns its assets into cash about 10 times more efficiently than the typical company. That matters.

Novo is consistent too. While the Safety Net model rewards year-over-year cash flow growth, The Value Meter prioritizes quarter-over-quarter growth. Over the past 12 quarters, the company grew its quarterly free cash flow 54.5% of the time, compared with 46.7% for peers. It also produced positive free cash flow in each of the past 12 quarters.

This isn’t a lucky stretch. It’s a durable pattern.

As we saw above, however, the stock has gone through a humbling year. Shares peaked in mid-2024 and slid through much of 2025.

That move wasn’t driven by collapsing fundamentals. It was driven by disappointment. Investors stopped paying for perfection.

That change is important. Novo is not cheap in absolute terms. You are still paying for elite assets. But you are no longer paying as if nothing can go wrong.

The business earns its valuation. The balance sheet is strong. The cash engine is real. What’s different now is the margin of safety. After the sell-off, it finally exists.

This isn’t a stock for traders chasing excitement. It’s for patient investors who want exposure to a world-class cash producer after expectations have cooled. The upside may be quieter from here, but it no longer depends on flawless execution.

The Value Meter rates Novo Nordisk as “Slightly Undervalued.”

The post Novo Nordisk: What’s Next for the Pharma Giant? appeared first on Wealthy Retirement.

If you’ve been reading the recent headlines in the financial media, you might think the sky is falling:

“We will have a crash”

“Of course it’s a bubble”

‘Absolutely’ a market bubble: Wall Street sounds the alarm on AI-driven boom as investors go all in

Stocks have literally never been this expensive

But here at The Oxford Club, our strategists, researchers, and Members don’t just blindly follow the crowd. We stay grounded, think for ourselves, and come to our own conclusions.

That’s why we invited Chief Income Strategist Marc Lichtenfeld into The Oxford Clubroom on Thursday to share what he’s been seeing in the markets lately and break down some of the strategies and tools he uses on a daily basis.

Here’s just some of what he covered during the session:

• Why he’s not too worried about an AI bubble (despite all the fearmongers in the media)
• Some surprising data about buying at market highs and market lows
• The average length of bull markets and bear markets
• Why technical analysis can be so simple that a 5-year-old can understand it
• Three momentum indicators that reveal whether a stock is “overbought” or “oversold”
• His thoughts on the technology sector and how long the uptrend could continue
• A few sectors he’d avoid right now
• The chart pattern that has led to the strongest historical performance
• His latest thoughts on gold
• The one chart that EVERY investor should be paying attention to right now.

It’s not often that I include full Clubroom sessions in Wealthy Retirement, but since Marc covered so much ground, I thought it would be extremely useful to his readers.

To watch the full session, click the image above!

The post Are Stocks in a Bubble Right Now? appeared first on Wealthy Retirement.

Yet most of it misses the essential point for investors.

Let me explain…

On the negative side, AI will eliminate millions of blue-collar jobs that involve routine physical tasks and white-collar jobs such as analyzing data, drafting documents, or handling customer service calls.

Privacy and security challenges loom large. That’s because AI doesn’t just enhance cybersecurity efforts. It also empowers hackers, cyber criminals, and other bad actors.

And deep fakes will make it much harder for people to know if the information or instructions they receive are accurate – or even legitimate.

On the positive side, AI will transform healthcare with more accurate diagnoses, faster drug discovery, and personalized treatment regimens tailored to the patient’s personal genome.

In transportation, it creates self-driving cars and trucks, smarter traffic controls, and coordination of urban infrastructure to lower carbon emissions, reduce accidents and save lives.

In education, it will provide personalized instruction, adapt materials to each student’s pace and learning style, and shrink learning gaps.

There are many more positives, of course, as well as many more negatives.

AI – like most transformative technologies – is not inherently good or bad.

It is a set of risks… and opportunities.

Yet little of the discussion centers on the most transformative aspect of AI: How it will dramatically enhance corporate productivity and efficiency at non-tech companies.

AI will boost economic growth, increase corporate sales, and make public companies far more profitable.

That’s great news for shareholders.

And investors have bid up The Magnificent Seven – and other megacap tech leaders – to record highs.

Since these stocks make up more than a third of the S&P 500, the market has hit record highs too.

But as an investor, the important thing to understand is the world-changing ramifications…

This is not just about the companies creating and improving AI.

It’s about the many hundreds of public companies whose business fortunes will improve dramatically as a result.

For example, during the dot-com boom 26 years ago, investors could foresee the dramatic impact of the internet.

As a result, they bid the leading internet companies on the Nasdaq to levels that were ultimately unsustainable.

The result? From its March 2000 peak to its October 2002 trough, the Nasdaq lost three-quarters of its value.

And many internet stocks lost over 90% of their value.

Think about that. The leading internet stocks were worth only a tenth as much a couple years later, even though the internet did indeed “change everything.”

Over the past few decades, every company has had to move a significant portion of its operations online.

Every company had to cut costs by eliminating middlemen.

And every company began selling products and services on its own website and through other e-commerce sites.

If they didn’t – or were slow to adapt – they’re no longer around.

Many of the dot-com names that investors were chasing – like eToys and Pets.com – are gone.

Former tech darlings like Cisco Systems (Nasdaq: CSCO) and Intel (Nasdaq: INTC) have massively underperformed the market.

Heck, Intel is worth less than it was 26 years ago.

Meanwhile, companies that were not obvious internet beneficiaries at the time – Old Dominion Freight Line (Nasdaq: ODFL), Deckers Outdoors (NYSE: DECK) and Visa (NYSE: V) for example – are up tens of thousands of percent.

Don’t get me wrong. Most AI stocks are not as overpriced today as internet stocks were in the first quarter of 2000.

I don’t believe they will crash and burn like the Nasdaq did 25 years ago.

But many of them are likely to underperform in the months and years ahead.

And the likely outperformers? They are not the ones spending countless billions to build and improve these platforms.

They are the ordinary companies that will be the beneficiaries of all that spending.

Banks, manufacturers, retailers, hospitals, homebuilders, energy companies and even utilities will see a huge increase in efficiency, productivity, and profitability.

But – here’s the key point – without spending all that money, much of it will ultimately be written off because the innovations don’t turn out to be best of class.

Instead, these non-tech companies will merely buy – or subscribe to – what they need and reap the benefits.

That means many of tomorrow’s best-performing stocks – from both an offensive and a defensive standpoint – will be not The Magnificent Seven but smaller companies.

We have many of these in our Oxford Club portfolios now, as we position for the eventual rotation out of Big Tech and into Global Value.

Bottom line? The upside is greater. The valuations are better. (Much better.) And the downside risk is far lower.

Given the market events of the past few weeks, this rotation already appears to be underway.

That means the high-growth/low-risk play today is not the tech behemoths that everyone has been chasing for the past two years.

It’s value stocks, both large and small.

The post The Move Out of Big Tech Is Underway appeared first on Wealthy Retirement.

Over the past year, AI has rocked multiple sectors as businesses have embraced its vast potential. In fact, corporate executives mentioned this disruptive innovation over 30,000 times on 2023 earnings calls.

AI is already proving to be the most important tech breakthrough of the 21st century, transforming finance, healthcare, manufacturing and so on. No sector will remain untouched.

That’s why Tesla’s Elon Musk calls it “the most disruptive technology ever,” suggesting it could enable “an age of abundance.” Experts forecast AI could single-handedly boost global GDP by nearly $16 trillion in the decade ahead.

That would make it the greatest wealth creator in history.

Unsurprisingly, smart investors want exposure to this trend, which is why AI stocks have been on fire lately. So this week, we’ll take a look at an overlooked way to play the AI boom: software giant Adobe (Nasdaq: ADBE).

Adobe is primarily known for its creative and digital media software like Photoshop and Acrobat. But what many people don’t know is that the company has been integrating AI across its offerings through Adobe Sensei, its AI and machine learning platform.

Adobe also recently launched Adobe Firefly, a new family of creative generative AI models for generating images and text. Firefly leverages assets in Adobe Stock – the company’s collection of over 200 million images and graphics – to ensure commercially safe, on-brand content generation that helps boost productivity.

Adobe’s business is booming thanks to the continued adoption of AI.

Revenues have steadily risen 16.5% annually and are expected to grow another 10.7% this year. Likewise, EBITDA (earnings before interest, taxes, depreciation and amortization) has climbed 19.1% per year and is projected to increase by 31.6% in 2024.

Free cash flow generation has been rock-solid, too. It’s risen by 13% per year over the past five years and is expected to grow by up to 25.2% this year.

Now, as I noted recently, I’m upgrading some components of The Value Meter.

A metric I’ve been looking at more closely in recent years is enterprise value. It’s an alternative to market cap that better reflects the total cost of acquiring a company, not just the total value of its shares.

Net asset value, which is simply a company’s total assets minus its total liabilities, is another key measure I’ll be looking at. I’ll also consider companies’ cash flow generation.

By putting these factors together, the updated system underlying The Value Meter ranks companies based on more than just their price-to-sales (P/S) or price-to-earnings (P/E) ratios. It focuses instead on their acquisition cost relative to their net assets and their ability to produce positive cash flows.

The higher a stock’s ranking, the more undervalued it’s likely to be. And Adobe’s rank falls within one standard deviation of the mean among the over 3,600 stocks my system has scanned. In fact, it’s one of the most well-priced AI stocks out there.

The ratio of its enterprise value to its net assets, or its EV/NAV ratio, is around 15. That’s about 2 1/2 times higher than the average for all the stocks that were screened that have positive net assets. (Companies with a negative net asset value post a negative EV/NAV ratio, so they were excluded from the average.)

But that higher relative acquisition cost seems warranted.

Since the average company generates negative free cash flow, Adobe is already looking stronger financially than most stocks out there. Plus, on average, its free cash flow was 46% of its net assets over the past two quarters, compared with an average of 26% among companies that have positive cash flows and net assets.

In other words, Adobe generates almost twice as much free cash flow as the average company relative to its net assets. So the stock seems attractively priced.

With AI-enhanced offerings driving huge earnings and free cash flow growth in the years ahead, the stock looks well worth its current market price.

The Value Meter rates shares of Adobe as being “Appropriately Valued.”

As always, if you have a stock that you’d like to have rated by The Value Meter, leave the ticker symbol in the comments section below.

The post An Overlooked Way to Play the AI Revolution appeared first on Wealthy Retirement.

Many thanks to all of you for your kind words and encouragement. It certainly feels good to be back at the Club, and I look forward to sharing my honest thoughts with you, as I’ve always done in years past.

In addition to the niceties, I also received many requests to run certain stocks through The Value Meter. Today’s stock is one such example.

Pfizer (NYSE: PFE), one of the world’s largest drugmakers, became a Wall Street darling during the pandemic as demand surged for its COVID-19 vaccine and booster shots. But now, with that health crisis mostly behind us, shareholders have seen their fortunes reverse.

Since hitting an all-time high a couple of years ago, Pfizer’s stock price has been cut in half, reverting to pre-pandemic levels. This steep drop now has many investors wondering whether Pfizer has “value” written all over it.

However, it’s important not to mistake a lower price for inherent value. Let’s look more closely at the company’s financials to see why.

Again, as global demand for its COVID-related products has waned, Pfizer’s revenues and EBITDA (earnings before interest, taxes, depreciation and amortization) have unsurprisingly retreated back to their pre-pandemic levels.

You can see that the company’s growth in both revenue and EBITDA was tepid for several years before spiking during the pandemic.

Meanwhile, free cash flow generation has been steadily deteriorating for the past couple of years, and it has now fallen significantly below pre-pandemic levels.

Simply put, both the euphoria and the exceptional financial performance that buoyed Pfizer’s stock price have vanished. And investors know it. Hence the sell-off.

The deep cut in the stock price means the market is rightfully pricing in the post-pandemic reality of Pfizer’s core business, which happens to look a lot like it did before the pandemic.

But I don’t think the stock is quite at the point of being undervalued yet.

Pfizer’s price-to-cash flow ratio of 19.3 is roughly equal to the industry average of 18.2. Its price-to-book ratio of 1.6 also approximates the average of 1.5 for all publicly traded stocks.

But in terms of sales, earnings and cash flow growth, the company pales in comparison with many of its peers, which offer better opportunities to grow your capital.

While the stock is much cheaper today than it has been over the past two years, Pfizer does not appear meaningfully undervalued.

The Value Meter rates shares of Pfizer as being “Appropriately Valued.”

Be excellent,

Anthony

P.S. In the weeks ahead, I will be updating The Value Meter to better reflect my own research and my approach to finding the best value opportunities in the market. My hope is that these updates will make my ratings even more accurate and will make identifying undervalued gems – and avoiding overinflated traps – even simpler.

As always, if you have a stock that you’d like to have rated by The Value Meter, leave the ticker symbol in the comments section below.

The post Is Pfizer a “Buy” After Crashing Back to Earth? appeared first on Wealthy Retirement.

And this year, he’s upping the ante… Instead of issuing just one big prediction, he’s issuing 10!

Keep reading below for a sneak preview!

– Rachel Gearhart, Publisher

The beginning of a new year is always fun. We reflect on our accomplishments of the past year and create goals for the new one.

My year started out great when I ran 5 miles on New Year’s Day – my longest run in more than a year.

The following day, I had a doughnut for breakfast, so I’m back to even.

I expect 2024 to be fascinating for the markets, the economy and our country. It’s a pivotal year in so many ways.

Obviously, the election in November will have ramifications for years.

In the nearer term, everyone is wondering whether the Fed will or won’t change interest rates. And if it does, which direction will it be?

The overwhelming consensus is that rate cuts are coming in 2024. I’m not so convinced. We’re not seeing much evidence of a slowdown. That doesn’t mean it can’t happen, but the Fed is not likely to get out ahead of a recession and reduce rates to ward off a slowing economy. It will likely wait until it’s painfully obvious that the economy is in a downturn.

That doesn’t happen overnight (other than during a global pandemic). And even if that does occur again, it’s hard to imagine our government and many others immediately halting their economies as they did in 2020.

Last January, in the Annual Forecast Issue of my newsletter, The Oxford Income Letter, I said a new bull market would begin in 2023. It sure did. The S&P 500 gained 24% last year.

In 2022, I said value stocks would outperform growth stocks. That year was a difficult one for stocks, with the S&P 500 falling 19%. Growth stocks dropped 30%, while value stocks slipped 7%. It was certainly not a great year for value stocks, but their 7% drop was way better than the 30% haircut in growth stocks and the 19% reduction in the broad market.

With oil at around $75 per barrel, I observed that the oil market was undersupplied and projected that crude would soar to $140. It peaked above $130.

In January 2021, I wrote, “I expect inflation to take off in 2021.”

Boy, did it ever. Inflation rose from 1.4% in January of that year to 7% in December… and eventually reached a high of 9.1% in June 2022.

Keep in mind, this was not at a time when anyone was really expecting inflation. We were in the throes of the pandemic. Fed Chair Jerome Powell had just called the U.S. economy “extraordinarily uncertain.”

So I have a history of not only making bold predictions but also being right about them – especially when the crowd is leaning heavily in the other direction.

This year, in The Oxford Income Letter‘s Forecast Issue, which comes out on Tuesday, I explain why I’m once again bullish on energy. In fact, I make 10 predictions, including forecasts on interest rates (this one will surprise you), the markets, the economy and geopolitics, as well as a shocking projection about the U.S. presidential election.

I fully expect 2024 to be a wild year in a variety of categories. Investing successfully will require you to use some foresight, be nimble and be willing to take action. Those of you who do those three things should have a fantastic opportunity to make serious money this year.

The post Marc’s Bold Market Predictions for 2024 appeared first on Wealthy Retirement.

More and more, I believe that we have seen today’s market setup before.

That pleases me because I know how to profit from it.

Last time we had the market setup we have today, I watched a great investing team generate an incredible profit.

Today, I’m going to tell you about a lesson I learned 20 years ago that is still relevant today.

Then, I’m going to tell you how one of the greatest investors of our generation is positioning his firm to profit in the months and years ahead.

While the Market Crashed, This Fund Rose 71% in a Year

Some things you just never forget.

Twenty years ago, I was living in Bermuda working at a hedge fund administrator.

I provided accounting services to hedge funds and got to see what they were buying and selling on a weekly basis.

I had the pleasure of working with some of the greatest investors in the world.

It was a sweet gig, to be sure. Pink sand beaches, a crystal clear ocean and wonderful weather year-round.

I loved watching how these world-class hedge funds operate.

Then, in 2000, the technology bubble popped and the stock market crashed.

But one fund had been positioned for this for months.

Week after week, Orbis Funds posted excellent results as the rest of the market was melting down.

Each Thursday, I raced to work to see how the fund had performed over the past seven days.

It was exciting – I felt like I was a part of what was going on.

In 2001, the first year of the bear market, this fund notched a 71% return while the market crashed.

The lesson I took away from watching this outperformance is that what this hedge fund did was incredibly simple.

It is also the exact same thing that another investing legend is doing right now…

I Don’t Plan to Just Watch the Trade This Time…

Grantham, Mayo, Van Otterloo & Co., or GMO, is an investment firm led by the investing legend Jeremy Grantham.

What GMO sees in the stock market today is the same thing my hedge fund client saw 20 years ago.

There is an absurdly wide spread in valuation between “growth” and “value” stocks.

That means the expensive stocks are far too expensive and the cheap stocks are way too cheap.

The same market conditions are back – and the trade that will help GMO profit is fairly basic.

GMO launched a fund that shorts the most expensive growth stocks and goes long the cheapest value stocks.

That means GMO is positioned to profit from both the expensive stocks falling and the cheapest stocks going higher.

The underlying data shows that the fund’s timing looks spot-on.

Value stocks have underperformed badly for the last 10 years.

Over that time, the Russell 1000 Value Index has gone up only 165% while the Russell 1000 Growth Index has gone up 415%.

That is one of growth’s largest outperformances over value over any 10-year period in history.

But unlike GMO, I have no interest in shorting stocks. I don’t think you should either.

What I am very interested in, however, is owning value stocks. I believe they will outperform over the next several years, potentially by a wide margin.

Exactly 20 years ago, growth stocks were very expensive and value stocks were very cheap.

That meant it was time to buy value.

That time has come again. The tide is starting to change.

Good investing,

Jody

The post The Lesson I Learned in Bermuda appeared first on Wealthy Retirement.

More and more, I believe that we have seen today’s market setup before.

That pleases me because I know how to profit from it.

Last time we had the market setup we have today, I watched a great investing team generate an incredible profit.

Today, I’m going to tell you about a lesson I learned 20 years ago that is still relevant today.

Then, I’m going to tell you how one of the greatest investors of our generation is now positioning his firm to profit in the months and years ahead.

While the Market Crashed, This Fund Rose 71% in a Year

Some things you just never forget.

Twenty years ago, I was living in Bermuda working at a hedge fund administrator.

I provided accounting services to hedge funds and got to see what they were buying and selling on a weekly basis.

I had the pleasure of working with some of the greatest investors in the world.

It was a sweet gig, to be sure. Pink sand beaches, a crystal clear ocean and wonderful weather year-round.

I loved watching how these world-class hedge funds operate.

Then, in 2000, the technology bubble popped and the stock market crashed.

But one fund had been positioned for this for months.

Week after week, Orbis Funds posted excellent results as the rest of the market was melting down.

Each Thursday, I raced to work to see how the fund had performed over the past seven days.

It was exciting – I felt like I was a part of what was going on.

In 2001, the first year of the bear market, this fund notched a 71% return while the market crashed.

The lesson I took away from watching this outperformance is that what this hedge fund did was incredibly simple.

It is also the exact same thing that another investing legend is doing right now…

I Don’t Plan to Just Watch the Trade This Time…

Grantham, Mayo, Van Otterloo & Co., or GMO, is an investment firm led by the investing legend Jeremy Grantham.

What GMO sees in the stock market today is the same thing my hedge fund client saw 20 years ago.

There is an absurdly wide spread in valuation between “growth” and “value” stocks.

That means the expensive stocks are far too expensive and the cheap stocks are way too cheap.

The same market conditions are back – and the trade that will help GMO profit is fairly basic.

GMO has launched a fund that shorts the most expensive growth stocks and goes long the cheapest value stocks.

That means GMO is positioned to profit from both the expensive stocks falling and the cheapest stocks going higher.

The underlying data shows that the fund’s timing looks spot-on.

Value stocks have underperformed badly for the last four years.

Over that time, the Russell 1000 Value Index has gone up only 17% while the Russell 1000 Growth Index has gone up 104%.

Over the last 12 months specifically, growth has outperformed value by 40%.

That is growth’s largest outperformance over value over any 12-month period in history.

But unlike GMO, I have no interest in shorting stocks. I don’t think you should either.

What I am very interested in, however, is owning value stocks. I believe they will outperform over the next several years, potentially by a wide margin.

Exactly 20 years ago, growth stocks were very expensive and value stocks were very cheap.

That meant it was time to buy value.

I believe that time has come again.

Good investing,

Jody

P.S. There’s still time to register for tonight’s event! To learn how you can earn 4X more on the trades you make, click here and sign up for the free broadcast.

The post The Lesson I Learned in Bermuda appeared first on Wealthy Retirement.

The panic hit on September 15, 2008, when Lehman Brothers failed. The global financial system froze.

This lasted for months. By the first week of March 2009, the mainstream consensus was that another Great Depression was at hand.

Nobody was buying stocks.

With the benefit of hindsight, we now know that the first week in March 2009 was the greatest stock-buying opportunity in a generation.

But what should we have been buying?

Should we have been focusing on stocks with the cheapest valuations?

Or should we have loaded our portfolios with quality and bought great companies trading at good – but not absurdly cheap – valuations?

Value or Growth?

In March 2009, you could find energy companies down 90% from where they were 12 months prior.

With oil trading for not much more than $30 per barrel, producers were at absurdly low valuations relative to their production and reserves.

It was a value investment opportunity if there ever was one.

The tech sector, meanwhile, loaded with some of the most dominant growth companies on the planet, was certainly down – but not nearly as much as the energy sector.

Instead, the tech sector in March 2009 offered growth at a very reasonable price.

So which should we have been buying? Energy sector deep value or tech sector growth at a very reasonable price?

Consider the chart below…

Since March 2009, the Vanguard Information Technology ETF (NYSE: VGT) is up 950%.

If an investor had put $100,000 into these growth stocks at a reasonable price in March 2009, they would have $950,000 today. That is a life-changing return.

Meanwhile, the Energy Select Sector SPDR ETF (NYSE: XLE) is not even up. The sector is actually down 11.21%.

A $100,000 investment there at the bottom of the financial crisis would now be worth only $89,000.

At no point since the March 2009 bottom did the energy sector outperform the tech sector. That is despite the price of oil more than tripling from $30 per barrel in March 2009 to more than $100 per barrel for several years heading into 2014.

Quality growth at a reasonable price smashed deep value.

What REALLY Drives Stock Market Results?

One common misconception is that there is a difference between growth and value investing.

There isn’t.

Just because a stock is trading cheaply relative to its earnings, cash flow or assets doesn’t mean it actually offers value.

And just because a rapidly growing stock trades at an expensive value relative to its earnings, cash flow or assets doesn’t mean that isn’t a great value.

The truth is that the best investments are companies that are able to grow their value over long periods of time.

A great tech company that trades at 20 times earnings but will grow those earnings at a rate of 20% per year is a much better bargain than an energy company trading at eight times earnings that will never grow.

As investors, we need to be able to identify what makes a company great – and that greatness always boils down to how much free cash flow a business can generate.

The tech and energy sectors provide the perfect context for this.

The value in tech companies comes from their intellectual property. They don’t need to invest huge amounts of money in machines, buildings, etc.

Their businesses spit out cash flow every year that can then be reinvested to grow the business or be distributed to shareholders through dividends and share repurchases.

Energy producers, on the other hand, generate very little (if any) free cash flow. They must always spend their cash on drilling new wells, finding new discoveries and paying for their rigs just to replace declining production.

The reality is that tech companies are far better businesses than energy producers.

Over the long term, it is always worth paying up a little bit for the long-term free cash flow growth that quality companies generate.

Good investing,

Jody

The post Should Investors Focus on Growth or Value? appeared first on Wealthy Retirement.