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This is the Value Investor podcast with Tracy Reinek, all things value, all the time.
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Welcome back, value investors. So this week I want to talk about how many stocks you should own. And this isn't really a value topic per se. All investors should be asking themselves this question. But a lot of value investors talk about it because Warren Buffett has talked about it in the past, and also one of his lieutenants, Ted Wesler, has talked about it in regards to his mega Roth IRA that he owns. So how many stocks should you own? I see a lot of different portfolios, and I get asked this question a lot. People talk about, you know, owning 50 to 100 individual stocks. And so it's a good topic to talk about, especially after we've had a big rally like this. And I know a lot of people have been, you know, expanding their portfolios per se. So as many as you know, I run two portfolios here at Saks, the value investor, of course, and the insider trader. Now, the insider trader usually only owns around 10 stocks. It could be a few more, but sometimes it's a few less. So owning a lot of stocks isn't really the situation in the insider trader, but in the value investor, we're expected to own anywhere from 15 to, say, 30. And I think the most I've ever had in is 35. So I speak from some experience on running a portfolio that is bit smaller versus one that is a little bit larger and not even one that has, say, a hundred names in it. I can't really imagine owning and running a portfolio with that many stocks in it. But over the years, we have gotten some ideas on what is the number that makes a good portfolio. And by good, I mean you can handle the number of stocks in, in the portfolio in terms of monitoring what the companies are doing, listening in on their conference calls, following the news about them, and really staying on top of the companies you own as well as being diverse. So I kind of talk about this on many podcasts. The fewer stocks you own, the less diversity technically, because obviously if you only own one stock, you're putting all your eggs in that one basket. And maybe it's a large cap, maybe it's a small cap, maybe the large caps are in favor when you own it, but maybe when you own the small cap, they're not. So you are putting a little more risk on if you the fewer stocks you own in terms of market cap size and industry. So the studies that have been done have show that if you own at least 10 stocks but up to 20 stocks that appears to be the optimal area to have as a portfolio. And some of that reason you don't want to go bigger, in addition to kind of losing track of what's going on at the companies, is because it can reduce your overall portfolio performance. So I've talked about this in the past as well, and we've seen it in action in Berkshire Hathaway's portfolio, which has owned as many as, I think, 54 stocks at it at one point, and now it's a little bit smaller. But he has owned Buffett when he was managing it. He owned many big winners over the years, including Visa and MasterCard, which have now been sold from the portfolio. But he bought them close to their IPO just a couple of years after, and he rode them way up on both of those. But they were very small positions in the overall Berkshire portfolio. So even though he had massive gains in those positions, they really didn't move the needle at all on the overall portfolio. I mean, we were talking about, you know, a position that's only worth, say, a billion dollars in that overall portfolio. That is massive. So while he hit the big winner on Apple, and that really drove the performance of Berkshire Hathaway, having big winners in MasterCard and Visa didn't really do the same. So that's the, the worries as you get more stocks in a portfolio and somewhat what you see in some of the big, actively say, mutual funds, that once they have, you know, over 50 stocks in them, it takes many of them having outperformance for you to really get outperformance, if that's what you're going for. So, but I think most of us are going for that. So there used to be a ETF that was recent IPOs. I think it's still out there, actually. And you would think, oh, this is great, I'm going to own these and it's going to buy all the recent IPOs. And so we're going to really see, you know, the ones that outperform. It's really going to drive the performance of this etf. And it did have some big winners. And I remember years ago, after Tesla went IPO and it was in that, that etf, and they keep it in for more than like six months. I forget the average time that's in there, but it was a while. And even though Tesla was began to outperform while it was still in that portfolio, it was one of 100 stocks and it didn't move the needle at all for that IPO etf. So it turns out that maybe it's not that great of an investment overall to have that many stocks in the one portfolio. So Warren Buffett has said you could have as few as three stocks in your portfolio and still be diverse. But I've always said on this podcast that for those of us who are not Warren Buffett and have total conviction in the company that they're investing in have done all the the back research on it, he's probably talked to management by that point. For those of us who aren't in that position, three is pretty risky to throw all of your money into. But again, the studies have shown at least 10, no more than 20, can give you a diverse portfolio. So if you have 10 and one of them blows up, hopefully it's just a 10% position. That would be, you know, you taking a blow in your portfolio, but it's not going to really send you all the way back down. In other words. Now a key thing to that is to be diverse in industries as well as market cap. So if you have 10 AI technology stocks in there, or, you know, I don't know, 10 banks, then you are still putting your portfolio at a higher risk. So definitely have different industries in that type of portfolio. If you're only doing 10 stocks. And you have to have a stronger stomach as well because it will move a lot more up and down. And you have to have strength in your convictions on the companies that you own, that if it sells off for whatever reason, that your research into the company and your understanding of it allows you to stay in in that company as long as the business is performing how you expected it to perform. So keep that in mind when you're thinking about how many stocks should own. And for those of you who do own 50 stocks or more, you might want to think about, hey, which of these can I pare back? Which of them do I have multiple companies invested in? Do I own three or four of the chip makers? Maybe I don't need to own four of them. Do I own Micron and Sandisk on the memory side? Maybe I don't need both. Do I own United Airlines, Delta and Southwest? Maybe I don't need all three of those airlines. So start to look at your portfolio a little clearer if you have that many stocks. And trust me, if you pare it back, you'll begin to feel better and your performance should probably improve as well, but you'll just feel better not having to keep track of so many companies and wondering what's going on with which one. And you're likely to Miss some during earnings season or you overlooked some. So I definitely recommend looking at a portfolio if you haven't done so for quite amount of time and paring back some of the names, maybe taking some gains off the table and you know, readjusting your portfolio every once in a while to make it easier, make it easier on you. And then today I did want to run a screen and talk about some value stocks. But I wanted to include some growth names in there this week because people might be listening to this podcast who aren't solely value investors today because again, how many stocks should you own is a universal question. And I know some of those growth investors tend to get a few more stocks than maybe us value investors might get. But it's an issue that affects every investor as we've seen. So I decided to run the PEG screen for this week which is looking at the PE divided by the growth and it is giving us both value stocks and growth stocks because of that growth component in the, in the PEG ratio. And this is a rare combination. And so I wanted to see who is having both the growth right now with attractive valuations. But usually if you get a low peg, which is one and under to get me that value side of the components, if I get a low peg, it usually means something really good is going on with the earnings. And right now in The S&P 500, the earnings growth is phenomenal. We saw first quarter earnings up 25% year over year and they're expected to be up another 24% here in second quarter. So a lot of companies are growing those earnings and not just the AI stocks, companies like banks. Banks are growing their earnings again. So what is going to have an attractive PE but also that growth component. I was curious. We're only in the very beginning of earnings season, so this screen does look at the Zach's rank and that's going to change a lot as we move forward. So it did look for number ones and number twos, the buys and the strong buys and we're going to see that change as these earnings reports come in. So this list is going to change. But right now I was curious to see who's the number ones and number twos as we're just starting earnings season and who also has this growth going on. So I ran this screen, it also looks for stocks over $5, the peg under 1, of course, and then it has current average broker recommendation of 2.5 or less, which would get you a little bit better than, than neutral than just hold. So they are more Bullish on the broker recommendation side, but I don't use the broker recommendation that much on my screens. But in this screen maybe to give a little more power than just having the PEG ratio. So it's, it's a very simple screen, but I'd love to run it. It's on the Zack's Premium screens and this time when I ran it, it gave me 18 matches. And there are some very intriguing stocks in here. There are a couple banks. The banks have already reported earnings, so they're getting that better. Zach's Rankiness. I don't really care so much about the PEG ratio with the bank, however, but it does indicate to me when I see the banks on this list that the earnings are rising for the banks for many of them. And I like to see it. I did not pick a bank for the three stocks I'm going to talk about though. So let's just dive right in because I know you're waiting to find out what these stocks are. Okay, the first one is one I have not talked about ever. I don't believe on the Value Investor podcast and it's Harmony Biosciences ticker is H as in Harry, M as in Mary, N as in Nancy Y like Harmony H M N Y. And they are a biotech company, they're in the biomedical and genetics industry and they call themselves a neuroscience company developing therapies for sleep and wake disorders and rare neurological diseases. Basically they do cover narcolepsy and this is a big problem for a lot of people. So it's nice to see someone trying to tackle this. And I know what you think, like a lot of companies on the drug side don't have positive earnings, but Harmony Biosciences does. So that's what I'm liking about it is that they actually are making money. They have a drug that's out into the marketplace. So that's what we like to see for 2026. Expecting to make $3.30. That's up from 326 just seven days ago or 32030 days ago. So Harmony isn't expected to report until early August. August 4th. But they pre announced, they pre announced on July 16th. That's why we're getting the number one rank. Pre announced already record second quarter revenue. But they did reaffirm full year revenue guidance. So while it's great they pre announced they saw the record revenue, sounds like they're being a little cautious in just reaffirming full year revenue growth. But that revenue growth is expected to be at Around a billion dollars. And that is year over year growth of 17.7% because last year it was 868 million. So that's nice revenue growth. You like to see it on these companies with a drug that is emerging 2027, up 13 on the revenue side to 1.2 billion. 1.16 technically on the revenue side. And again earnings expected to be up 21.7% this year to that 330 now that they pre announce, the estimates are up a bit on both the quarter and the year. And the most accurate estimate up a lot more. So most accurate estimate for the year is at 387. Consensus now is at 330. So that analyst who came out in the last seven days is very bullish and really raising their estimate there. Now they have missed four times in a row. Four quarters in a row they've missed. So will they finally beat again here? The, the quarterly estimate is up a lot, up $0.10 in the last seven days to $0.97 from 87. Will they actually beat that? They made $0.55 in the first quarter. So we'll see. But Harmony Biosciences is not a large cap. Let's see, trying to get it here. Yeah, it's pretty small. 2.1 billion on the market cap. The shares haven't really gone anywhere. Maybe those four misses really impacted. They've been trading sideways for about three years now. But with these earnings estimates on the rise and a PEG ratio of just 0.3 because they have a forward P of just 11 here, maybe we'll start to see that change a bit as people discover that hey, this is a cheap drug company that has something that is selling well and those earnings are expected to rise quite nicely here. And so this is cheap. It's cheap. Plus it's got the growth component, no dividend. But I wouldn't expect that off of this small drug company. So this is Harmony Biosciences Ticker hr. Oh wait, it's hr. Sorry, I had the wrong thing. I said the wrong one in the beginning. Hrmy it might help to have the right ticker. HR as in Robert my. So forget the other one. You'll see when you go in there, you'll be like, what is she talking about? This isn't Harmony Biosciences hr My for Harmony. That makes sense because it's like Harmony, okay, The second company. I can't believe it was on this list. I don't think I've ever seen it on this screen for peg. And so we're Going to jump on it because US value investors have not gotten this stock ever on any screen I've ever done. And it's Nvidia. Yes, Nvidia is on a value and growth screen ticker. Nvidia vda. It has gotten cheap on a PEG ratio basis. I've talked about it over the years on the PEG ratio, which was high in the initial years of the AI revolution when the stock soared and then as the earnings have continued to rise, expected to be up 90.6% in fiscal 2027. I can't believe I'm saying that. They were up 59.5% last fiscal year and 130% the prior fiscal year. So normally how it works, you get the big gains right in the beginning of whatever the good news is and the change in the business model. So in 2024, that's fiscal year 2024. So that included calendar year 2023. Earnings were up 293% as the AI revolution began and burst out. And that's when everybody thought, oh, Nvidia, this is all fake. It's not real. Because who can do earnings growth like that? But then the next year 24 into 25, they did 130% on the earnings side again. And then they kept it up even though they're a trillion dollar market cap company. And then they grew the earnings 59.5% again. And now we're heading up again up 90.6 expected for this fiscal year and then the next fiscal year more conservative because nobody knows how long can this keep going? Up 38%. But these are numbers for a trillion dollar market cap company. It's now at 5 trillion on the market cap that none of us have ever seen before and will never see again. And so to show up in a value screen like this is really tremendous because the growth is just so big that even though the forward PE on Nvidia is at 22.8, which is not normally that cheap with this kind of growth and that not super expensive pe, it gives a combination of a PEG ratio of just 0.39. So a really low PEG ratio because this growth continues. So this is a cheaper growth stock right here. But I had to talk about it because we don't get many chances to talk about Nvidia on this podcast unless we're looking for the cheapest of the Mag 7 stocks. And then it might qualify, certainly on a PEG ratio basis. Price to book is still elevated at 25. Price to sales is at 19, but that's down from where the price of sales used to be in the 20s. So the stock just kind of hanging out and not going anywhere for a couple of months here in 2026 after hanging out, not going anywhere for a couple months in 2025 as well. And then we did get a burst higher. But because of this kind of, you know, treading water periods that it's doing while the earnings are still growing and the revenue is still up big, then the valuations have come down to something more attractive. So I don't consider this to be like Palantir of old that we saw with those really sky high valuations. But it's not a true classic value. But with that growth, you are getting a deal here with Nvidia. So it is a Zach's number one right now going into its earnings report which we're not getting until the end of August because it is on that fiscal year. So the number one is coming off of some estimates going higher here in the middle, middle of nothing going on. But we are getting earnings reports from competitors and others in the AI industry and space and those have been better than expected. So people are looking to Nvidia to be better than expected. So we have two estimates higher in the last week for fiscal 2027 and 2028 and that's, that's pushed 2027 up to 909. They only made 477 last year. So once again it's just seemingly not really stopping here. But we're at 909 now and then they're looking for 1256 for next year and that is starting to really rise as well. So the AI story is still going. If you are a value investor, it's time to take a look at Nvidia for your portfolio because of some of these fundamentals like the PEG ratio being so cheap, you can get this growth at a cheap level. So that's Nvidia nvda. And then I'm going to wrap it up with one that I have covered this year since the Iran war started. And it's not an oil producer stock but is one of the refineries. So it's Valero Ticker V as in Victor L as in Larry O Vlo. This is a number two. The other two Harmony and Nvidia number ones. Valero is a number two. It's reporting at the end of this month, end of July, July 30th. So we don't yet have the earnings in where I suspect it'll probably go back to a number one. We do have one estimate higher in the last week, however, and that's because those crack spreads continue to rise. And it's. What does that mean when you talk about a refiner? So that's the price the refiner gets for taking the barrel of oil and turning it into a product. So right now oil is not that expensive relative to what is happening with the products. So they're able to get that barrel of oil, say for $80 and they're able to turn it into a barrel of jet fuel where someone's willing to pay $200 for the jet fuel. So that difference in between is the crack spread. And you can see how massive it is if jet fuels at 200. So these ref are cashing in as quickly as they can. And so we're seeing it in the earnings. So one estimate higher in the last week for 26 and 27 on Valero. Someone getting more bullish again. 5 are higher in the last 30 days because those crack spreads have been rising. 6 in the last 60 days. That's after the last earnings, I'm assuming. But where we're really seeing that, the analysts probably can't keep up. It's had four big beats in a row. Last quarter it reported 422. The estimate was 307. That was just the very beginning of the Iran war. The second quarter is going to reflect the entire war period. And now we're looking for 9 81. And just 90 days ago we were looking for 640. So we're really seeing that estimate rise for this quarter but also for next quarter now that we're into the next quarter already and these crack spreads have remained high. So Q3 is up to 1022. It was at 5:36 just 90 days ago. So this is the golden age for the refiners. This is when they're cashing in. Earnings expected to be up this year 207% to 3261. They made just 1061 a year ago. This is all going to depend on what goes on with the Iran war. How quickly the straits and everything can get back to normal when this war is finally over. Right now we're still kind of in the middle of it and diesel prices are on the rise again. Additionally, Russian refineries are now offline. Something like 60% of the refineries are offline. They put a ban on diesel exports. They were the second largest diesel exporter in the world at about 11% of the market. So they ban that because their own refineries are down, so they're hoarding their own diesel so they don't have to import it in, but they probably still do have to. And this is going to put pressure on the entire supply chain because basically that 11% is now offline to all the other buyers globally. They can't get that. And Russia is going to be itself buying diesel. So it's really going to tighten that diesel market. Diesel prices are going to rise and we're going to see a refiner like Valero wanting to make more diesel because they're going to see higher prices and that higher crack spread on the diesel and make more money there too. So now is the time to own Valero. It is at new highs and it continues to rise as the earnings do. So you're basically jumping on board for this moment. This isn't a long term hold necessarily because once those crack spreads go down off of their records, so will earnings and then so will the shares. But everybody's getting in for this trade right now. And so that's what we get. The number 2 on it forward P is just 9.6, but it's going to be low while we're in this cycle. PEG ratio of just 0.38. And so the peg is low because we've got this tremendous growth plus a low pe. It does pay a dividend, but since the stock has taken off, it's yielding just 1.5%. But I'm not sure what they're doing with all this extra money either. Is that going to go back to the shareholders? Are they going to do a big share buyback? They might already be doing one. I'll have to tune in on July 30th to check out what they're going to do with all this cash. Are they going to throw it into some Capex? Are they going to build another refinery or buy one somewhere? That would be interesting. So Valero is cashing in weekend too. It's cheap, but it won't be so cheap when those earnings decline. So it is a cyclical, so be warned. But shares still on the rise here with Valero Ticker vlo. Okay, let me recap the stocks again. So we had Harmony Biosciences with that ticker. H as in Harry, R as in Robert, M as in Mary Y H, R, M Y Then we had Nvidia nvda and then we had Valero Vlo. And as you can see, all three of these stocks are in completely different industries. They all have similar cheap peg ratios and good Zach's ranks But if I were to own these three in a portfolio were at least getting different industries, different market caps. Valero with a 93 billion market cap that used to be big. Nvidia with a 5 trillion market cap, and then Harmony with just a 2 billion market cap. So try to be diverse in your portfolio, even if it's only 10 stocks. Don't put all your eggs into one basket, like technology or drugs or whatever it may be that floats your boat. Don't put everything into commodities. For instance, have a diverse portfolio of industry and market cap even in your 10 stocks. And if you do have a lot of stocks in your portfolio, you know, 50 or more, think about powering back some of those because your portfolio will perform better if you have fewer stocks. I know there's a lot out there right now that many of us like and we want to own and we think about like, oh, maybe I should own that. But as Ted Weschler has said, his Roth IRA outperformed so magnificently because he did overweight in companies he thought were going to outperform and be his big winners. You're not always going to guess right or be right on those companies. So that's why you need to have more than a couple. But he did overweight in, you know, just a few names, and he guessed right on those few names. And that's how he was able to grow it into that multi million dollar Roth ira. So I like that advice from Ted. But, you know, have the 10 to 20 stocks in your portfolio so that you're getting a good diverse number. Again, those Tickers, Harmony, BioSciences, HR, my Nvidia, NVDA and Valero vlog. Okay? So be sure to subscribe so you don't miss a single one of these. And if you're new here, definitely subscribe. Get us on Zach's podcast channel on YouTube. It's just under Zach's Podcast. Subscribe there and you'll get the ETF Spotlight and all of our other podcasts except the Market Edge, which is on our normal channel, our video channel per se, because it is a video podcast that's just Zach's Investment Research. Subscribe to both so you get all of our content. And you can also find these podcasts on Apple, Spotify, Amazon Music, just about anywhere you can get podcasts. You can get the Value Investor, but value is hot. Look at this Nvidia on the Value Investor Portfolio. Be sure to tune in every week and I'll be back again next week with some more value.
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This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting, or tax advice or a recommendation to buy, sell, or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this podcast is not intended to create, and the information contained herein does not constitute an attorney client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities companies, sectors and markets identified, described were or will be profitable. All information is current as of the date herein and is subject to change without notice. Any views or opinions expressed may not reflect those of Zack's investment research as a whole.