The party didn’t last long for value investors

THE WEEK IN REVIEW Every Sunday Starting At 8am PT / 11am ET Every week we review the rollercoaster ride that is the most dynamic stock market in history. We review, in detail, the best options and equity plays of the week. Your host, Mike Anderson, will provide a step by step breakdown of how these winning trades were first identified and how they were timed. Understanding how these trades are made will help you to identify similar trends and have confidence in executing your own successful trades. Plus: Bring your ticker and we will use Trade Algo's proprietary algorithms to help you analyze that trade you've been thinking about. [JOIN OUR LIVE TRADING SESSION @ 8am PT / 11am ET!]( [Shadow] Hello investor, Value investors finally had their glory in 2022 when value stocks had their best year versus growth stocks since the dot-com crash. But that didn’t last long. Investors flocked back to tech stocks as artificial intelligence sparked a newfound enthusiasm in these stocks. The collapse of three regional banks also sent investors to mega-cap tech stocks since Alphabet, Microsoft, Apple and others have perhaps the safest growth prospects versus other sectors. - “It was a shorter run than I would have anticipated,” said George Cipolloni, portfolio manager at Penn Mutual Asset Management LLC, regarding value stocks’ brief glory. “Now, sentiment is clearly in growth’s favor.” (Source: Bloomberg) The Nasdaq 100 had its sixth straight weekly gain. On the other hand, value stocks underperformed growth for the 7th straight week. In fact, The Russell 1000 Value Index fell 4% in May. What about its growth counterpart? It had a 4% gain. During the 14-year bull market, investors wonder whether value investing went out of the style. Meta and Alphabet rely on virtually zero physical assets. It was all about network effects and intellectual property. But some value stocks think it is still too early to declare value investing dead. - “The underperformance for a lot of us value people isn’t that significant,” said Kim Shannon, founder of Sionna Investment Managers Inc. “We’re just biding our time for a better opportunity to make some hay again.” Regardless, investors pulled more than $15 billion from value-focused ETFs in the last three months – the fastest outflow since at least 2016. - “Value tends to have the lowest exposure to many of the megacap growth names and popular themes like AI driving the market,” said Drew Pettit, director of ETF analysis and strategy at Citigroup Inc. “Value factor funds tend to be cyclical. It has been hard to find a bull on anything economic sensitive as recession fears linger.” Will the trend continue? We will see. The hype surrounding AI created a mini bull market for certain tech stocks, and only time will tell if other sectors can follow with gains of their own. Top Compounding Stock With A 70%+ Market Share For Its Flagship Product Today’s Stock Pick: Intuit Inc. ([INTU]( Intuit knows how to do one thing: thoroughly dominate the market it enters. And I am not kidding. I am sure you’ve heard of TurboTax. It made filing taxes such a painless process for millions of Americans. Guess how much market share TurboTax has in tax preparation software? Believe it or not, TurboTax commands a whopping 73% market share. That’s just one product, though. You’ve heard of QuickBooks, too. It’s the gold standard in accounting software. Obviously, accounting is also a big pain for self-employed individuals and small- and medium-sized businesses. QuickBooks makes it insanely easy, and Intuit is well-rewarded for its top-of-the-line product. QuickBooks holds a 77% market share in accounting software! And of course, QuickBooks brings a marvelous recurring revenue to Intuit. The viable alternative is near zero. This accounts for nearly half of Intuit’s total revenue. As a software company, you’d be correct if you suspect that Intuit generates ridiculously high Return on Equity. It boasts a 27.9% ROE along with a profit margin of 20.3%. And its customer base grew from 29 million to 102 million in July 2021: (Source: Intuit) Big acquisitions: Intuit acquired Credit Karma and Mailchimp. Why Mailchimp? Intuit found that the greatest pain point for small businesses is finding new customers. Being online and developing intelligent marketing campaigns are now the lifeblood of nearly any small business. That’s right in Mailchimp’s backyard. (Source: Intuit) Mailchimp does more than just email marketing. It offers e-commerce platforms, website building, analysis, and behavioral targeting. In fact, it generates 2.2 million AI-driven predictions every day. (Source: Intuit) It makes QuickBooks a natural extension to Mailchimp that manages the financials aspect of the business: (Source: Intuit) That’s for small- and mid-sized businesses. Now, Intuit has a tremendous number of consumers from its TurboTax business. But it’s seasonal, only busy during the tax season. Don’t you think it’s a lost opportunity with these consumers? That’s why Intuit acquired CreditKarma to add its offerings to TurboTax customers. Credit Karma offers a personal financial assistant to help consumers improve their lives by finding financial products to increase savings, pay down debt and access their money faster. Believe it or not, Credit Karma has over 100 million customers and half of all U.S. millennials. After these two acquisitions, Intuit boasts a valuable list of high-loyalty customers under its umbrella: (Source: Intuit) A classic compounder: Intuit is a textbook case of a compounding stock. Thanks to its recurring revenue and software-based business, Intuit routinely posts 20%~ annual earnings growth. Intuit is a cash-rich company with a strong balance sheet. It holds more cash ($3.25 billion) than debt ($2.04 billion). Sure enough, Intuit saw a 1,600% return in the last 12 years. But it is only the beginning. Intuit has a strong competitive moat for QuickBooks, and it is starting to expand its business internationally. Credit Karma and Mailchimp will add future earnings growth. In other words, it’ll be business as usual for the next decade. (Source: Intuit) Bottom line: TradeAlgo projects a 20% EPS growth for this year. It would be exactly the same as Intuit’s five-year average EPS growth at 19.96%. With its recent sell-off, Intuit is a perfect buy and hold stock. And I emphasize the “hold” part. Intuit is a compounding stock, which usually sees enormous gains after holding for a decade. 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