Listen here or on the go via Apple Podcasts and Spotify

Steve Cress returns to discuss recent stock picks (1:00) What about Micron? (4:15) PEG, Lumentum and Credo (7:05) AMD vs. CRDO (12:50) Allstate; when to hold and when to sell (17:45) Nvidia valuation (21:30) Willdan Group problems (23:40)

Transcript

Rena Sherbill: Steve Cress, Seeking Alpha's Head of Quant. Always great to have you on Investing Experts. Welcome back to the show.

Steve Cress: Thank you so much for having me. I always appreciate you preparing this for us.

Rena Sherbill: Always appreciate you coming on. As I mentioned last time you were on, you are going to be on, you have been on monthly. So if anybody has any questions or anything they'd like to highlight, please hit us up in the comments and drop us a question.

So that is what we are going to be doing today is I'm going to be asking some questions that commenters have left on our previous episodes and seeing where we get to.

Just for context, last time Steve was on, he was giving us three strong buys from AI as it pertains to the quant system.

I was going to read something that one of the commenters said about the quant system. And I was wondering if you would agree with how they describe things. So in terms of strategy, there is a difference, this is a quote from JusticePipes,

there is a difference between quant-driven portfolio construction and how discretionary analysts and investors interpret ratings. The quant team is not treating hold the way you or I would. They are treating ratings as part of a rules-based system and that's why the 180-day window feels rigid to us.

Maybe they found from back testing their model that holding a hold maximizes returns. Maybe this is a way for the model to block out noise affecting short-term price volatility. It avoids being whipsawed. The 180 day rule also lowers turnover, is easier to track and potentially reduces taxes if you hold for the year. I should also point out that this trading rule is not always optimal in every market environment.

I thought maybe as a way to ground us in terms of the quant approach, how you would respond or reiterate or highlight things in that quote.

Steve Cress: Yeah, I think that's a largely very astute observation. Often people when the stock goes to hold, they want to sell it. I'm like, no, hold means hold. It doesn't mean sell. know, when you want to sell stock, that's when the quantum system will say sell or strong sell. So we clearly put that out there.

One of the benefits of the 180 day rule is it does allow the stock some tolerance in terms of volatility. Often a stock could become overvalued and our value grade could go from a D to D minus, which automatically triggers the stock moving from a buy or strong buy to a hold when it does hit a D minus. But you could be a few days to a quarter away from analysts taking the rest of its up and before you know it, the stock is back at a buy or a strong buy.

So we also like the diversification in our Alpha Picks portfolio. And that really comes true with the holds that allows that diversification for a long period of time. So we can go through cycles where certain stocks and sectors are the flavor of the month, and there's a clustering effect, and the holds help prevent that.

The holds will add diversification for older names. The 180 day rule is really good for holding older positions and that helps maintain diversification in the portfolio.

So really the point that I wanna make, I think in terms of making money and keeping a safe portfolio over the long term, you want to minimize your risk, you want to maximize your returns, and that is accomplished through diversification.

And our 180-day hold period really helps to make that true. So I'm a big believer in it, but I also do believe after 180 days, a stock is still a hold. It's probably time to make room for something else.

Rena Sherbill: In terms of the last episode that you were on, one of the stocks was Micron (MU). And speaking to the cyclical nature of things, one of the questions we had was the fact that Micron looks good, but what about the cyclical nature of it?

Somebody responded to that comment and said the cycle is on an upward trend for the short medium term but how would you respond to a cyclical stock and what would you say is quant agnostic about those things or how is that filtered through your strategy?

Steve Cress: I'd say to a certain extent, quant is focused on the data. And, if a company is hitting a poor cycle or a good cycle, sometimes a company within a sector or industry, they're still going to do well.

So if the data is there and the growth is there, the valuation framework is there and the profitability is there and it measures up to the sector and it's superior, it's still going to be a strong buy.

So now not all the strong buys are created equally. When a sector does hit the sweet spot, many of those stocks in the sector will tend to outperform. So you can have a sector that's not part of that cycle. But even when the sector is not part of that cycle, it can still be a strong buy because the fundamentals for that company are particularly strong.

Now, Micron today happens to be up 11.46 percent. So I think Micron, without question, and if you look at the stock over the last year, it's up 700%. If you look at the stock of the last month, it's up 70%. This stock is still in the sweet spot in its cycle.

And the beauty of Micron is it's really one of the few companies in the semiconductor sector that still has incredible valuation framework. It is so cheap compared to the sector. The sector median for IT on a PE basis, on a forward basis is about 32 times.

The stock only has a PE of 9.9 times. So it is dirt cheap versus the sector. Yet when you look at the company's growth rate, and I've been pounding this table for a while on Micron, the forward EPS growth rate is 327%.

I still can't even believe that you can have a stock with a PE multiple of close to 10 times and its forward growth rate is 400%. That's unheard of.

So this stock is still screaming buy. So it's no wonder that it's up 11.4 % today and the fact that it's appreciating so much over the last year and a year to date, but at a multiple of 10 times and that kind of growth rate, the stock still has a lot of legs.

Rena Sherbill: In addition to Micron, on the last episode, you also were discussing Lumentum (LITE) and Credo (CRDO). And there was a commenter that said, I have a good volume of Credo and some Micron and want to have exposure to Lumentum. Isn't Lumentum already a runaway horse?

Somebody responded to that, not really. The PEG is reasonable under 800. This is from last month, by the way, this comment thread.

And then somebody else answered you want exposure to Lumentum because it's pumping and you have FOMO either wait for a proper correction or just accept you missed the boat there's always other opportunities out there. Thoughts?

Steve Cress: Well, the stock is up 25 % in the last month. So you clearly would have missed out on the 25 % move. The stock is still a strong buy. The growth grade is an A plus. The valuation grade is a D. So the stock is expensive. But first, just taking a look at the growth, the forward EPS growth rate for the company is 153%.

Again, that's 153% versus the sector at 15%, hence the A plus growth rate. So, you we could just pinpoint that EPS diluted growth rate. Now, when we look at the valuation, we will see on many metrics, it has an F, which means it's very, very expensive versus the sector. I will say though, the subscriber who pointed out the PEG is spot on. The PEG is actually a B plus.

And what I love about PEG is that it combines together the company's growth rate and the P.E. And I'm a big believer in PEG because many, many times you can have a company that's overvalued and will have an F grade and could have a multiple that's extremely high.

But when you combine it with a growth, it makes a lot more sense. So you're getting a sense, a more well-rounded view of combining that growth and value together. And that's what PEG does. So on a PEG basis, this is still attractive.

I would say the time where our system will go to a hold from a strong buy is when the valuation hits D-. So that's something that defaults automatically. It's at that point that we're like, okay, maybe it is time to take a step back.

And there are a number of stocks that we do miss because that PEG is still very high. You can have that overall value grade at D- with the peg still being a B or even an A, but the system will default to a hold when that value grade is a D minus.

So far it's a D, so we're still at a strong buy and yeah, whoever was looking at it a month ago, they were right to stick with it and recommend it. The stock even today is up 3.6%.

Rena Sherbill: Since you're discussing the PEG ratio and we've discussed it so many times before, a commenter said that PE is not a valid criteria to use. What would you say to that?

Steve Cress: I'd say that's why I like PEG so much.

And when we look at value, we're looking at more than just PE. So when you click on value, you will see all the different metrics we use. So we have both trailing and forward PE, but we also have PEG, we have EBIT to sales, we have EBITDA, we have price to sales, we have price to book, we have price to cash flow, and we even have dividend yield.

So when it comes to the valuation framework, I do not like looking at just PE. It's a good metric, but it can't be the only metric that you look at for value. So that's why we have a really good sampling. And when we look at that overall value grade and all the underlying metrics that make a value, I will tell you we do not equal weight the underlying metrics.

Some metrics are more predictable than others and they have a higher weight. Thus, PEG has a higher weight than many of the other evaluation metrics and that's why sometimes you can have a situation like Lumentum where you're looking at, know, both the trailing and forward PEs are all Fs. Price to book is an F. So when people say, how can everything be an F but the value rate is a D, and you only have one grade that looks good, which is PEG and B +, it's really heavily over-weighted because it is a good predictor in terms of future price action.

Rena Sherbill: A couple episodes ago, you were talking about three REITs for inflationary times. Somebody was wondering, are there Canadian equivalents of companies mentioned here? By the way, very happy with (ATI), one of your top quant picks for the year.

Steve Cress: We have a number of Canadian companies. It's usually the ADR Well almost always the ADR and sometimes for Canadian companies are primarily listed in the United States So it will only be an ADR for Alpha Pix. It has to be a primary listing in the United States for REITs .There I believe there are REITs that we have that are US listed that are also in Canada as well

So to that extent, a REIT can be represented in our system. Alpha Picks though, which we often refer to does not own REITs. So that's something to keep in mind. And I have nothing against REITs. We have a new product that we'll be launching in June, which is called Quant Growth and Income. And that is focused on stocks that pay dividends and that does include REITs in it.

Rena Sherbill: That comment was left by SpicySpark; Choosecats left a comment. (AMD) made it into your top 10 and Credo (CRDO) made your top 10 AI. If you could only own one would you take AMD or Credo at these levels?

Do you want to bring up the the grades for AMD and Credo and maybe talk about your favorite thing about owning each?

Steve Cress: So one of the wonderful things about our platform is you can actually quite easily compare our stocks. When you go into our stock page, there's actually an area that says peers.

And when you click on peers, it will give you a whole bunch of stocks that you can compare against the one stock that you're looking at. And you can edit it and even delete some of the stocks there.

So if you just want to compare two of them against each other, and that's exactly what I'm going to do here. So I have Credo up and what I'm going to do is type in AMD.

So we can actually run right through it. And I'll be able to give you a comparison toe to toe, nose to nose for Credo and AMD. So year to date, let's just say Credo is up 35.8 % and AMD is up 64%. But if we look at the last month, Credo is up 87 % and AMD is up 58%.

And it's really interesting. Credo really had a bit of correction and I started pounding the table during that correction saying this makes no sense. I and I'll start taking their numbers up for the company.

Growth is strong. The value looks better than ever. And I'm really glad I said that because the stock has surged since I did that. Now, right now, actually, AMD is a hold. So it had been a strong buy and I didn't realize this is actually a hold now and Credo is a strong buy.

So for the subscriber that asked that question, I would say if I had to pick between the two, I would definitely be picking Credo. I did not realize that AMD fell to a hold. I have about 5,000 stocks I monitor. So it is difficult to know where they are at all times. And AMD did withdraw from that strong buy platform to a hold. So Credo is the stock.

And I can tell you why the valuation on AMD is a D and evaluation on Credo is a C plus. For growth, Credo has a strong plus. AMD has an A. That's not too much of a difference. Profitability, A minus for Credo and an A for AMD. So this is kind of interesting because Credo is a much smaller company than AMD. And typically with the smaller companies, you don't always expect the best profitability grade.

So I'd say even the fact that Credo has an A minus versus AMD's A, the fact that it's smaller and it's so profitable, I think is actually a really positive side. Both of them for momentum possess an A minus, but for EPS revisions, this is very important. Credo has an A, which means that analysts continue to revise their earnings estimates up overwhelmingly for Credo.

For AMD, the EPS revisions grade is a B minus, so they're not revising to the same pace. And I'll tell you exactly what that number is. So if I look at Credo, I could see that in the last 90 days, 14 analysts have taken their earnings estimate up for Credo and zero have taken it down. And that's for the last 90 days for the fiscal year.

For the upcoming quarter, you've had 12 analysts take up their estimate for Credo and zero have taken a dab. So that means they've actually revised their current estimates up for the company.

Now when we look at AMD, I think it looks okay, but it's not quite as good as with Credo. Let's see, I will tell you. So for AMD, you've had 30 analysts take their estimates up, but you've also had 13 take their estimates down.

So it's showing that some of the analysts don't have the same level of conviction. And in fact, 13 analysts took their estimates down. That's for the fiscal year.

For the upcoming quarter, you've had 28 analysts take their estimates up and six take them down. So a greater quantity of analysts are covering AMD, but certainly not all of them have the same conviction level that they did. As you can see, We're in double digits with the number of analysts that are revising down for AMD.

So really very timely question. So at this point, I would definitely be favoring Credo.

Rena Sherbill: I have a couple of questions here that speaks to what you spoke about at the beginning of the conversation, which is, when to sell and what a hold, what a hold is versus what a sell is. Somebody asked on your top 10 stocks for 2026, how do you know when to sell these stocks?

And then the b part of that question, if I may, is somebody asked: curious how Allstate (ALL) is a top 10 pick across the entire stock universe when it only ranks 16th out of 53 in its industry. By the way, I'm seeing it ranks 10th out of 54. And then somebody asks underneath that, would be helpful if somebody on Seeking Alpha addresses this, as I have just received a notification of a downgrade to hold from strong buy.

I know you've provided this context for us in the past, but I think a nice reminder, may be using Allstate as an example. The nature of hold versus sell, hold is not sell, but also when should investors think about selling.

Steve Cress: I will buy the top 10 stocks at beginning of the year as well. And my rule of thumb is if a stock drops to hold, I continue to hold it. And if a stock falls to a sell, that's when I sell it from the top 10. And I pretty much, you know, will use that 180 day rule as well for my top 10.

So what has happened with Allstate and everybody can make their own decision. I mean, you certainly don't have to hold the stocks. I encourage you to look at the underlying metrics. So if you have a seeking alpha premium or pro, look at the factor grades. Something has clearly changed. If you look at the factor grades for growth.

ALL now has a D minus for growth where six months ago. It was an a plus so their growth Situation has changed dramatically I'll tell you what, even more than value Growth is more important to me if I see that growth grade drop that really can be a reason to sell the stock.

So the fact that it was an a plus and now it's a D minus it has changed a lot one of the benefits was that their EPS growth rate was strong and their three to five year EPS growth rate was very strong in the beginning of the year, but that's been reduced. So it is not quite the same growth scenario as it was.

So just look at the underlying metrics and you even you go right to the stock page, you don't even have to click on the underlying metrics. You'll see those factor grades. It'll show you where the grade is now versus where it was three months ago or six months ago. And that alone can help you make a decision.

Rena Sherbill: Speaking to the top stocks for the year, commenter EricLung said, looking for the recommendation on managing the top 10 from year to year in a portfolio. Do you hold on to these stocks year after year unless they are a strong sell, or do you swap out stocks year after year? Without the swap, one just accumulates 10 more stocks into the portfolio each year, and it keeps growing. Wondering how other investors are using these recommendations.

Steve Cress: I think you'll find a number of them will hit a sell or a strong sell and you get rid of those. I definitely carried over stocks from the previous year that were strong buy and some of them that were hold and some of them definitely weakened but then they started coming back as well. At the end of the game, the stock has good fundamentals, it's got a good growth scenario and a good valuation scenario.

They can run into situations where cycles change, sentiment changes, they could be out of favor, but if they have good fundamentals, I tend to stick with it. And eventually after a couple quarters, those stocks will come back.

Rena Sherbill: A commenter wrote underneath that question, as a note, NVIDIA (NVDA) has had hold status, valuation is a D minus or F for the last three years as its price has been climbing to the heavens.

Steve Cress: Well, it definitely was climbing to the heavens. I'm not so sure it's been climbing to the heavens this year. So let me pull up NVIDIA as we're talking about that.

All right, let us see. So as we're looking at the summary page there. So a bunch of stocks we were looking at today like MU, SanDisk, Lumentum, all up strongly. NVIDIA is actually down 1.12%. Let's see, NVIDIA.

Had a good month and a lot of these chip companies have had a good month It's up 10 percent. Some of the others I was quoting were up 20 percent year-to-date Nvidia is up 5.23 percent.

So definitely this year it's not climbing to the heavens, but it was Even over the last year, it's up 72 percent and a lot of our top 10 stocks up are more than 72 percent on a 52 week basis. But no question. I mean Nvidia hasn't had a good run just has not had a great run this year.

We've had a valuation grade of a D minus on that stock or worse for a long time. I will say the valuation is starting to look a little bit better. For a long time, the PE on the stock was an F on Nvidia it's now a C plus and the Ford PE is actually a B. The PEG is an A.

So I will say this is getting closer and closer than it's ever been to becoming a buy or a strong buy and that there's valuation grades. When I used to click on the valuation card it was just all As for Nvidia.

It was just super expensive. But perhaps with the stock flattening out here and the earnings growth continuing to move up, this stock could be getting closer and closer to becoming a buy or a strong buy. So it's getting close.

Rena Sherbill: So another stock that you had from your top 10 stocks for 2026 was Willdan Group (WLDN). And somebody asked any further opinion on WLDN from the last time you had suggested it as a top pick? It's literally a falling knife right now. This was written a couple of weeks ago. Any change in opinion?

Steve Cress: Okay, so take a look at the top 10 stocks. I'm bringing it up right now.

Let's see how we've done there. We're going to look at Willdan. Just want to get an overall picture. So from the day that we recommended the top stocks, I it was like January 8th was the date. The top 10 stocks are 41.2%. I believe the S&P is up around 4 % for that period. We've had two stocks up over a hundred percent. Coher is up 80 % AMD is up 60%. So Lesick is up 42%, ATI is up 28%, Allstate, which we were talking about, is up 7%, so that still beat the S&P 500 (SP500) year to date, so it's still outperforming.

Then we have three losers. So 70% have hit, that is a very good win rate to have a 70 % win rate. The best hedge funds have a win rate of about 50%. We have three losers. Insight is down 4.3%. Barrick Mining is down 15%. And the stock you were discussing, Willdan, is down 30%. Double digits, not great, not a fan that we picked a stock that performed poorly, but we're not gonna get all of them.

So when we take a look at the stock page, of course today the stock is up 5.4% but it has definitely had problems.

It's down significantly year-to-date. As I said, I guess at this point it's down about 26 % since January 2nd and what has gone wrong. So it's quite easy to see. So when you go to your Stock page right next to the summary button There is a ratings button and when you click on that ratings button the wonderful thing about Seeking Alpha and the quant system is we're incredibly transparent. We show you what the factor grades are and directional recommendation being buy or sell.

We show it to you every single day so we could see that Willdan went to a sell not too long ago is April 28. It was $66 when it went to a sell and then it went back to a hold on May 4th and the stock then was $72 and today it's $76 so as it's gone from a sell to a hold it is back up but where did it get crushed when we recommended this stock back in January.

On January 2nd, the stock was $106. So it's easy to see where it went wrong. Take a look at the investment characteristics that we list, which are value, growth, profitability, momentum, and EPS revisions. We can see at the time that growth for Willdan was an A minus, the valuation was a C minus, momentum was an A plus, EPS revisions were A- so all in all a lot of green there with a growth profitability momentum in the EPS revisions on January 2nd.

So as we as time move forward we found that the growth for the company Just started started to decline. So we went from sort of that a category in growth and then when we got to February we hit a couple of a minuses. Then when we got to March we went from a minus to B plus and then as we go from March to the end of March it became a B then in April I see a B- for the stock and then as we got to May it went from a B to a C for growth.

For the momentum grade which was back in A-plus territory that moved from A-plus to B-minus to C-plus to C to D-plus and a couple of Ds. For EPS revisions, we were in A territory, and over that same time period, it moved from A to B minus to C to C.

A couple of times where it actually, there were revisions that did go back up, but most recently, analysts did move up the EPS revisions, and perhaps that's why the stock today is up 5%.

It could be attributed to that analyst taking the rest of its backup. So this stock really has been all over the place. Currently ranks 13 out of 40 in its industry, which is research and consulting and services. The sector is industrial. But the system is very transparent. You can see when the ratings are moving. You can see where the growth changes. You can see when EPS revisions change.

So going all the way back to January, every single day, you could take a look at that. So when you see a directional recommendation changing, your first move should be to know why that directional change has occurred.

Why has it stock gone from a strong buy or buy to hold? And all you have to do is click on that ratings button and you can see which of the investment characteristics weakened and you make that decision for yourself. Based on that move, do I want to hold this stock or do I want to get rid of it?

So again, it's a very transparent system. It makes it easy for you to make that decision.

Rena Sherbill: I just have one more question and it pertains also to WLDN. I felt like this was an interesting common thread talking about how seeking alpha can affect especially small cap stocks.

A commenter said the RSI for WLDN, this was written on April 27th, speaking to your timeline of the sell and hold changes. The RSI for WLDN on Friday was 50 to 70, price rose slightly, the sell trigger was to Seeking Alpha members on Monday after the sell rating. RSI was between 25 and 30. The price dropped 14.2%. Wow, the influence of Seeking Alpha and Alpha Picks on a small market cap stock. I haven't read yet what caused them to flip the trigger earnings or May 7th.

And then there was a further comment stream about how Alpha Picks has so many members now that they can move the market when it comes to these names in particular. What would you say about Alpha Picks membership, how you see that moving the market, how you think about that?

Steve Cress: Well, I'd say with the small cap socks, typically when there's going to be an impact on the very day that we recommend the stock, but it doesn't matter if you are an Alpha Picks customer or a Morgan Stanley customer or a Merrill Lynch or Goldman Sachs, any of those firms that recommend a small cap stock due to the limited liquidity, they will move those stocks. So I think Alpha Picks has 35,000 subscribers.

Morgan Stanley, I used to work there for 13 years. They have something like eight million customers. So like if we recommend a small cap stock, we might have an impact on it for a day or two. Literally if a Morgan Stanley or a Merrill Lynch recommends a small cap stock, like bare minimum, it will move that stock for like 13 to 15 days. So my guidance, no matter where your customer, if a small cap stock is recommended, buy into it in phases feel obliged to buy it the second that it's recommended.

Usually the reason why we like small cap stocks is they have a longer tail. You'll get better appreciation and adds diversification to your portfolio. Not only in terms of sectors when we think of diversification, we also think of market cap and geographic location. So most of the small cap stocks that we recommend, even if you consider the first day of movement, and that's when the tenants had the biggest move, they tend to still significantly outperform the S&P 500 over a brief period and I think in one of my last AP webinars we actually took five of the most recent small cap stocks and we counted for the first day move and they still had significantly beaten the S&P 500 I think was like a 100 % hit right, maybe one missed I can't remember exactly but it was still significant outperformance.

Rena Sherbill: I'm curious, just as we end the conversation, and I'm gonna put you on the spot a little bit, I'm curious if you have thoughts like what your takeaways are from an investing standpoint that you took away from your time at Morgan Stanley, and what are your takeaways from being at Seeking Alpha as long as you've been.

Steve Cress: Well, more in senility, I was on the institutional desk. So most of my clients were actually like the largest institutions in the world, had companies like BlackRock, Fidelity, Lazard. So they were really large customers. They were the most sophisticated portfolio managers in the world. So it was a wonderful experience, but a bit of a different client base.

What I'm finding with our Seeking Alpha client base is for the individuals that are really engaged in stocks, they actually tend to move faster than some of the portfolio managers did. They don't have to worry about a boss or a consultant that's overseeing them. So they actually have the opportunity to make better decisions and bring more diversification into the portfolio in the case of small and mid cap stocks than a large institution will be.

And honestly, if you follow Alpha Picks or PQP, both the performance are both are crushing the S&P year to date. So if you're a customer that follows those picks, we're not making these recommendations for institutions.

We do have a fair number of institutional clients, but the institutional clients that are participating in this, really they are looking for the recommendations that are out of the box that most institutions would get.

And most of those institutions will listen to Morgan Stanley, Goldman Sachs, Merrill Lynch, and they'll focus really on the mega cap stocks or the large cap stocks. So you're missing an incredible world of opportunities if you're stuck in that institutional limitation. At Seeking Alpha, there's a lot more diversification for our subscribers.

Rena Sherbill: Yes, a lot of opportunity to be nimble in seeking alpha. The shackles are a bit more off.

Steve Cress: Yeah, it's interesting. I was interviewed the other day and our performance is really outstanding. I try to be humble about it, but even going back to our back test 2010 and then starting the simulated trades, it's been the S&P 500 every year. Almost no portfolio manager has done that.

Our performance is better than Renaissance and Bridgewater, which are some of the largest hedge funds in the business. And again, I would really say it's because we're focusing on a diversification within geographic locations, sectors and market cap and it gives us opportunities that these large institutions would not be able to participate in.

Rena Sherbill: It's not the exact definition of a humble brag, but we could call that a humble brag. Yes. I think many people are in unison saying, thank you, Steve, thank you.

So if you wanna follow Steve Cress, you can follow him on Seeking Alpha. You can get all of his very, very edifying articles. You can subscribe to Alpha Picks. You can become a pro subscriber and then you are granted the ProQuant Portfolio.

Just a reminder to listeners to leave us with questions, comments, and we will get to them next episode. I really appreciate you taking on these questions with no pre-approval. So thanks for getting into it with us.

Steve Cress: Absolutely, loved it. Thank you so much for your time.