Value Pick of the Week

No Value Pick this week. My apologies for the long post, but a re-evaluation of some of our past picks needed to be done — that’s further down, following our normal review of how the past picks did.

Market Summary

The past week saw the S&P 500 fall 1.4% on economic news that wasn’t directly tied to the stock market.

📉 The story was the bond market, not the stock market.

  • The U.S. national debt topped $40 trillion for the first time. Investors responded by demanding higher returns to keep lending: the 30-year Treasury yield hit 5.33%, a 19-year high, and the 10-year rose to 4.737%.
  • Behind it: a July deficit of $432.3 billion — the largest monthly total since March 2021 — with interest on the debt costing roughly $1.2 trillion this year.
  • Treasury Secretary Scott Bessent announced a surprise doubling of government bond buybacks to try to calm things. Yields dipped, then climbed right back.

📉 Technology took the hit. When yields rise, expensive growth stocks fall hardest. Information technology shed more than 3% for the week, with Meta Platforms (META) down nearly 7%.

📈 Healthcare was the bright spot. Moderna (MRNA) surged 177% Wednesday — reportedly the biggest one-day gain for an S&P 500 stock in 25 years — after it and Merck (MRK) reported successful late-stage results for a personalized mRNA cancer vaccine targeting melanoma. Moderna finished the week up ~129%, Merck gained ~12% and hit a record high, and healthcare led all sectors at more than 4%.

📈 Friday clawed some back. The index rose 0.4% to close around 7,674 on news that U.S. business activity grew at its fastest pace in over four years — though that same strong data pushed yields back up, capping the rebound.

The takeaway: this wasn’t about weak earnings or a slowing economy. It was the bond market repricing government debt risk, and the most rate-sensitive corner of the market — big tech — absorbing the blow. The annual Jackson Hole Fed meeting and Nvidia (NVDA) earnings are both next week.

How Our Picks Fared

Our past picks lost 2.3% to the S&P 500 as our technology stocks took a hit along with the rest of the sector. All three of our picks that fell more than 10% (AMKR, CRWD, and ON) are in the tech sector, and three more tech picks — IES Holdings (IESC), Dell (DELL), and Western Digital (WDC) — fell more than 9%.

📉 Amkor Technology (AMKR) fell 14.8%

  • Selling pressure persisted after Amkor’s late-July results paired a strong quarter with a lighter Q3 revenue outlook than investors hoped — the Q2 itself was a record, with net sales of ~$1.90 billion and EPS of $0.70.
  • The market remains cautious about near-term weakness in the communications business and the company’s elevated 2026 capital spending plan.
  • Insider selling isn’t helping: 20 open-market sales and zero purchases over the prior six months.
  • Amkor is a semiconductor packaging company, so it sat squarely in the crosshairs of the week’s 3%+ information technology decline.

📉 CrowdStrike (CRWD) fell 11.5%

  • Bloomberg reported CTO Elia Zaitsev is leaving after more than 13 years to launch a venture fund; his last day was August 20, and no successor had been named — a concern given the company is actively expanding its AI security operations. Shares fell 4.2% that morning.
  • The stock had round-tripped a rally: it hit a three-month-high close of $225.53 on August 13, then gave it all back.
  • Valuation left no cushion — at $213.90 the stock traded at roughly 174x forward earnings, and the 53-analyst average target of $198.35 sat below the market price.
  • Earnings call Wednesday, August 26, so some of this is investors de-risking ahead of the report.

⚠️ Worth noting the business itself looks fine: revenue grew 23.2% over the trailing twelve months with a 36% operating cash flow margin. This was a positioning move, not a fundamentals move.

📉 ON Semiconductor (ON) fell 10.2%

Mostly sector drag layered on an unresolved deal overhang.

  • There was no news that brought ON down last week, but the announcement that ON’s acquisition of Synaptics (SYNA) — first announced in June — had cleared FTC review ten days ago added fuel to the overall sector drop.
  • The deal is now closer to certain: ON Semiconductor cleared FTC review on August 13, and terms leave ON shareholders with about 88% of the combined company, which will carry $5.4 billion in gross debt against $4.2 billion in cash.
  • Rosenblatt cut its Synaptics target to $115 from $160 in early August, which implicitly devalues what ON is paying for.

📈 Merck (MRK) rose 12.3%

The week’s clearest good news, and it’s substantial.

  • Merck and Moderna (MRNA) announced successful late-stage trial results for an experimental personalized mRNA cancer vaccine targeting high-risk melanoma.
  • The significance goes beyond one drug — it’s validation that mRNA technology may have applications well beyond infectious disease.
  • Moderna surged 177% Wednesday, reportedly the biggest single-day gain for an S&P 500 stock in 25 years, finishing the week roughly 129% higher.
  • Merck reached a record high, and healthcare was the best-performing S&P 500 sector at more than 4%.

Looking Back at 2023 — and the Full Record

Looking back at picks from 2023, and with the benefit of hindsight, the record is humbling in a specific way: of the 26 stocks recommended that year, only three — CrowdStrike (CRWD), American Express (AXP), and Cencora (COR) — actually beat the S&P 500 over their own matched holding period. The average pick returned 50.4%, which sounds respectable until you see that the S&P 500 averaged 81.2% over those same stretches. Nineteen of the 26 picks were profitable in absolute terms, so this isn’t a story about bad stock-picking — most of these calls made money. It’s a story about the bar the index itself set.

That bar is unusually high because of how the S&P 500 is built. It’s cap-weighted, meaning the largest companies drive a disproportionate share of its return, and the past few years have been an extraordinary run for a small handful of mega-cap tech names — the “Magnificent Seven”: Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG/GOOGL), Amazon (AMZN), Nvidia (NVDA), Meta Platforms (META), and Tesla (TSLA) — that now make up an outsized slice of the index’s total weight. When those few stocks post triple-digit gains, they pull the entire benchmark up with them, in a way a diversified basket spread across industrials, financials, healthcare, retail, and energy simply can’t match unless it happens to be concentrated in the same names.

The Past Picks list has two examples that prove the point from opposite directions. CrowdStrike (CRWD), a 2023 pick, returned 629% — more than six times the S&P’s return over the same window. And going back further, the September 11, 2022 pick was NVDA itself, up 1,303.8% since — not a company riding the Magnificent Seven’s wake, but one of the seven names actually driving it. Between the two of them, they’re the biggest reason the overall recommendation history is beating the S&P 500 by 10.0% in aggregate. Sometimes the way to beat a concentrated index is to end up owning a piece of the concentration yourself.

But zoom out to the full track record and the same tension from the 2023 group shows up again, just at scale: since April 2022, there have been 82 recommendations, and only 28 of them — about a third — have individually beaten the S&P 500 over their own holding period. The +10.0% aggregate edge isn’t coming from a broad base of picks quietly outperforming; it’s being carried by a small number of exceptional winners, NVDA and CRWD chief among them, while roughly two-thirds of the picks are trailing the index they’re being measured against. That’s not a knock on the process — it’s the same lesson as the 2023 numbers, just harder to see when you only look at the average: in a market this concentrated, beating the benchmark on paper and beating it stock-by-stock have become two very different things.

Re-Evaluating Past Picks: Healthcare Providers & Services

This analysis of what happened with the 2023 picks has led me to begin looking at all of the past picks, industry by industry, to determine which should be sold. The analysis doesn’t look at it from the point of what the company has done since it was recommended, but whether it’s likely to beat the benchmark going forward. For the next 12 months, the S&P 500 is expected to rise 18.9%.

The first industry I looked at was Healthcare Providers & Services.

UnitedHealth Group (UNH) — SELL

  • Scale is now a liability, not a moat. UNH holds roughly 26–28% of the Medicare Advantage (MA) market nationwide — by a wide margin the largest of any insurer (Humana is next at around 19%, CVS around 11%, Kaiser around 7%). That dominance means UNH carries the single largest absolute exposure to the industry-wide “governmental headwinds” — Centers for Medicare & Medicaid Services (CMS) reimbursement pressure, coding-intensity scrutiny, and the broader regulatory tightening Moody’s flagged across the whole sector. When the whole industry is under pressure, the company with the biggest share of the pressured business has the most to lose.
  • Being the largest player cuts against being able to adapt quickly. CVS can lean on its pharmacy and PBM businesses to offset insurance-segment pain; ELV, smaller and more regionally concentrated through its Blue Cross Blue Shield affiliations, can reposition around a narrower book. UNH’s sheer size — the thing that made it dominant — is the same thing that makes shifting its business mix or repricing its way out of trouble slower and harder to execute at scale.
  • The 2026 guidance shock is recent, real evidence of exactly this problem. The first annual revenue decline in more than three decades, a DOJ investigation, and a CEO change all happened within the same stretch — not a hypothetical risk, but a demonstrated instance of the largest player in the space getting blindsided by conditions it should have had the most visibility into managing.
  • The recent rally doesn’t change the underlying calculus. Two solid beats and a round of analyst target increases are real, but they were always a “show me” recovery story layered on top of a structural exposure problem, not a reason the exposure problem goes away.
  • Median 1-year target based on 25 analysts: +25.6% ($475)

CVS Health (CVS) — HOLD

  • A much smaller, less concentrated bet on the segment under the most pressure. UNH’s sell case rests heavily on its roughly 26–28% share of the Medicare Advantage market — by far the largest exposure to the CMS reimbursement and coding-scrutiny headwinds hitting the industry. CVS/Aetna’s MA footprint is a fraction of that, on the order of 11% market share. Same industry, same governmental pressure — but CVS is carrying a much smaller absolute bet on the specific business line taking the hit.
  • Insurance is one leg of the stool, not the whole company. Where UnitedHealthcare’s health-insurance business is close to the core identity of UNH, Aetna is one piece of a more balanced CVS — sitting alongside the Caremark pharmacy-benefit business and the retail pharmacy and consumer-wellness operations. A Medicare Advantage-specific headwind lands on a smaller share of CVS’s total business than it does at a company built primarily around managed care.
  • CVS is showing improvement right now, not asking to be trusted on a recovery. The medical benefit ratio has moved meaningfully in the right direction this year (84.6%, down from 87.3%), S&P upgraded CVS’s credit outlook to Stable, and the August 5 quarter beat on both revenue and adjusted EPS with guidance raised on the back of it. That’s a different starting point than a company still working to prove a recent guidance shock is behind it.
  • CVS has its own version of this risk, and it’s worth being honest about it. This isn’t a claim that CVS is immune — Moody’s negative 2026 outlook on medical-cost inflation applies across Medicare Advantage, Medicaid, and commercial plans industry-wide, and management flagged real Caremark-specific headwinds of its own for 2027 (client-driven membership declines tied to the “TrueCost” repricing transition, continued 340B pressure), on a stock that had already run up sharply into the print. The difference from UNH isn’t that CVS is risk-free — it’s that CVS’s version of the sector risk is smaller in scale, sits alongside a business that’s diversified beyond insurance, and is paired with visible, current improvement rather than a recovery still being proven.
  • Median 1-year target based on 25 analysts: +24.7% ($116)

Elevance Health (ELV) — HOLD

  • Smaller and more diversified within the pressured segment. ELV’s Medicare Advantage footprint is meaningfully smaller than UNH’s, and its business runs through more regionally concentrated Blue Cross Blue Shield-affiliated plans — the same structural argument that argues against UNH argues in ELV’s favor here: less concentrated exposure to the specific segment under the most regulatory strain, and more room to adjust.
  • The Street’s underlying view is the most bullish of the three. 16 of 20 covering analysts rate ELV Strong Buy, and it’s beaten consensus in each of the last four quarters — this isn’t a name anyone’s souring on.
  • The weaker return-math signal reflects valuation, not deterioration. ELV’s lower implied upside versus the S&P benchmark comes from the stock already having re-rated on strong execution, plus a modest guidance-light quarter — not from a growing structural problem the way UNH’s guidance shock was.
  • Same sector headwinds, different starting position. ELV faces the same industry-wide medical-cost and regulatory pressure everyone in managed care does, but from a smaller, more targeted base rather than the position of maximum exposure — worth continuing to hold and watch, not exit.
  • The Strong Buy consensus and favorable business case argue in favor of ignoring the mediocre 1-year target.
  • Median 1-year target based on 21 analysts: +14.1% ($449)

Have a great week!

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