Welcome to this week’s update. If you’ve been with me for a while, you know the drill—same service, same strategy, just a sharper focus on deep value and trade alerts. And if you’re just joining us, welcome aboard.
Now, let’s get right into it.
Market Recap: The Sky Didn’t Fall
It was a down week for stocks, but just barely. If you listened to the talking heads early in the week, you’d think the world was on fire. The DeepSeek AI news broke, and all the so-called experts started throwing around doomsday predictions. And yet, here we are, markets holding up just fine.
DeepSeek is the latest AI drama making waves. The CEO of Anthropologic—the company behind Cloud—says their $6.5 million budget was just to build a database. Meanwhile, OpenAI is out here saying, “Hey, you stole our code!” So is DeepSeek a game-changer? Maybe. Maybe not. Did they steal code? Probably.
Let’s be real—China has a long and well-documented history of intellectual property theft. For forty years, I’ve watched Chinese companies operate, and I trust exactly none of them. We rarely touch Chinese stocks because ownership rights and investor protections simply don’t exist. DeepSeek is a hot topic, but it’s still a massive unknown, and I’m not about to bet my portfolio on an unknown.
Tariffs: Nobody Knows Anything
Everybody has an opinion on tariffs, and most of those opinions are nonsense. The reality is, no one—probably not even the policymakers themselves—knows exactly what these latest trade measures will do. Slapping heavy tariffs on our two closest trading partners and neighbors isn’t a strategy for strengthening relationships, and it could absolutely slow down economic activity in North America. But could it also work out just fine? Sure. We’ll see.
Here’s what we do know—everything eventually shows up in price and valuation. The U.S. economy is still strong. Wage growth is steady, consumer spending is solid, and the job market is one of the best we’ve seen in decades. Inflation is still sticky, but the market remains in an uptrend. The noise might make for great headlines, but on a weekly chart, the market is still doing just fine.
Baker Hughes ($BKR): Energy Demand Rolls On
Only one earnings report this week—Baker Hughes (BKR)—and they crushed it. Revenue up 8%, free cash flow up 20%, and they sent $1.3 billion back to shareholders through dividends and buybacks. The dividend is up, too.
Baker Hughes is benefiting from continued strong demand for energy, particularly natural gas, which remains the backbone of U.S. electricity generation. Love green energy? Hate fossil fuels? Doesn’t matter. The reality is we’re going to be burning fossil fuels for a very, very long time. And that means companies like Baker Hughes will continue generating cash flow hand over fist.
$KKR and the Real Estate Bottom
KKR is back to making deals, picking up a larger stake in medical products company Henry Schein. Just typical KKR—rolling capital, leveraging influence, and extracting value. They’ve also got a massive real estate business, and their main competitor—Blackstone—just came out and said high-end office real estate has bottomed. If that’s true, it’s fantastic news for KKR’s real estate and real estate debt businesses.
We’ll see how things play out when KKR reports earnings on Tuesday. The estimate is $1.28 per share, but KKR has a habit of making analysts look foolish with big beats.
Momentum Pick: Cloudflare ($NET)
Last week, we added two new stocks—one momentum, one deep value. On the momentum side, Cloudflare (NET). These guys are in cybersecurity and edge computing, and they’re not playing small ball.
Cloudflare handles 25% of the world’s websites and 10% of global internet traffic. That’s staggering. Cybersecurity is a massive, growing industry, and Cloudflare has a dominant position. Their revenue has been growing at 46% annually over the last five years, and they’re set to report earnings this week. The consensus estimate is 18 cents per share, and I’d be shocked if they don’t crush it.
The real kicker? Edge computing. Right now, we use it for smart homes and gaming, but this is the future of computing—faster, more efficient, and better positioned to handle the explosion of AI and data processing demand. Cloudflare is in the perfect spot to capitalize.
Deep Value Pick: Peabody Energy ($BTU) – Coal is Far from Dead
Every time I mention Peabody Energy (BTU), I get the same reaction—”Tim, are you out of your mind? Coal is dead!”
No. No, it is not.
Peabody mines thermal coal and metallurgical coal, and both have long runways. The company recently acquired four major metallurgical coal mines from Anglo-American in Australia, adding 11.3 million tons of expected production. They paid about three times cash flow for the deal. That’s an absolute steal.
And here’s where people get this all wrong—global coal demand isn’t dying. It’s growing.
- China and India are still building coal-fired power plants.
- Japan and South Korea are still using coal for industrial applications.
- Metallurgical coal is essential for steel production. There is no large-scale replacement for coal in making steel.
The U.S. might be moving away from coal, but the world isn’t. And Peabody has positioned itself perfectly to supply those growing global markets.
Right now, the stock is trading around $18, way down from its recent highs of $30. It’s trading below tangible book value, at five times earnings, and less than three times free cash flow. That’s absurd. The market is completely ignoring the upside from the Australian deal.
We’re buying because the assets are worth far more than the stock price suggests. And I won’t be surprised if this thing starts moving higher very quickly.
Final Thoughts: Playing the Long Game
We’re trying to add one deep value and one momentum stock each week. Will we succeed every week? Absolutely not. Some weeks, the market won’t give us a deep value pick worth buying. Other weeks, the momentum just isn’t there. That’s fine. The goal is to let the market come to us—not force trades.
Right now, we’re positioned exactly where we want to be heading into earnings season. We don’t make blind bets before earnings unless we have real, compelling evidence that makes it worth the risk—like we do with Cloudflare.
We’ve built this portfolio using decades of academic research and real-world experience, and I couldn’t be more excited about what’s ahead.
Thanks for being part of the ride. Let’s keep making money.