The author has initiated a new position in Alphabet (GOOGL) for the Concentrated Value portfolio. Alphabet's primary search business has high margins and a wide moat, making it essentially a monopoly in digital search advertising. Google's search advertising model is not affected by recent privacy initiatives like Apple's "opt-in" policy. Alphabet also owns YouTube, which continues to gain active users and attract greater share of advertising dollars, and is the third largest cloud-computing operator. Alphabet has a pristine balance sheet with $83.7 billion in net cash and throws off tons of cash, with free cash flow of $60 billion last year and expected to grow to $70-$80 billion over the next two years. Normal earnings power at Alphabet is estimated to be between $5.00 and $7.50 per share, but this could prove to be too conservative as the company has recently signaled that they are going to be more disciplined on operating expenses and R&D spending. A more disciplined management team may be poised to cut waste in R&D spending, which could increase the estimate of normal earnings power by as much as $1.50 per share. Alphabet shares have come under pressure over the last year in concert with tech stocks in general, but the author believes the company is worth $100-$165 per share and began accumulating shares around $105.

The author has added Cisco Systems (CSCO) to their portfolio due to meeting all their investment criteria. Cisco is the dominant supplier of network equipment and software with consistently high profit margins. The company has an excellent balance sheet with $12 billion in net cash and a 3.0% dividend yield. The stock trades for 12.5x forward earnings estimates, well below the historical average of 14.5x and the 15-17x multiple the author feels is appropriate. Cisco is benefiting from a strong backlog heading into 2023 as global spending on network equipment continues to accelerate. The company has guided to 10% revenue growth in 2023. Cisco has managed to develop the leading software package that has allowed them to retain their dominant position and pricing power in network equipment. The author believes Cisco has normal earnings power of $3.50-4.50 per share and an intrinsic value of $56-80 per share. The author began building their position in Cisco at $49 per share.

The author previously recommended buying Ares Capital (ARCC) during a panic selloff in March, and the stock has since recovered over 12%. Recent economic commentary suggests the US economy is robust and may avoid a recession in 2023. ARCC still has a forward dividend yield of over 10%, and its valuation reflects a level of pessimism. However, analysts predict ARCC's forward earnings may be impacted in 2024 due to a potentially lower interest rate environment. BlackRock does not anticipate major central banks cutting interest rates this year, which may give investors more time to assess opportunities and risks. ARCC's price action remains constructive, and the author believes its recovery from March lows could lead to a more sustainable recovery. Buyers have been accumulating ARCC steadily, which could be a sign of accumulation. The article reiterates a buy rating for ARCC and suggests its relatively attractive valuation makes current levels reasonable.

Prudential Financial is a financial services company that focuses on conservative underwriting and has a diversified investment portfolio. Q1 2023 financial results showed mixed performance across segments, with challenges in asset management fees, fee income, and variable investment income. Prudential aims to expand access to investing, insurance, and retirement security by investing in growth businesses, delivering exceptional customer experiences, and developing innovative financial solutions. Prudential recently acquired a majority stake in Deerpath Capital Management to enhance PGIM's alternative capabilities and generate additional fee-based revenue. Prudential has a strong capital position and a balanced approach to capital deployment prioritizing financial strength, flexibility, investment in their businesses, and shareholder distributions. The author recommends PRU's stock at current price levels for a 5-10 year investment perspective, citing a dividend in the region of 6% and a $1 billion share repurchase program for 2023, as well as the potential for ROE to recover and credit risk to debt ratio to decline. The author assigns PRU stock a Buy rating with a year-end price target of $95 per share.

Moderna presented positive phase 2b data for its personalized cancer vaccine mRNA-4157, which showed a 65% reduction in the risk of distant metastases or death when combined with Keytruda in adjuvant melanoma patients. The FDA could approve the drug based on further updates from the phase 2b study, but a confirmatory phase 3 trial is expected prior to approval. Moderna's mRNA technology has potential in other combinations and other forms and stages of cancer. The probability of approval for mRNA-4157 is assumed to be 60%, with probability-adjusted sales to Moderna of roughly $2.5 billion by the end of the 10-year explicit forecast period. Moderna's mRNA platform has yielded a diverse pipeline of mRNA-based therapies, including vaccines, oncology treatments, regenerative therapies, and systemic and intracellular protein therapies. The company's COVID-19 vaccine, mRNA-1273, is expected to generate significant sales in the coming years, with recurring boosters in high-risk populations. Moderna's ability to launch differentiated mRNA therapies beyond COVID-19 will be key to establishing a moat, but multiple competitors are lining up that could interfere with its potential to see monopoly pricing power. Moderna has a Very High Morningstar Uncertainty Rating due to potential rapid changes in the competitive landscape and in the COVID-19 virus itself, as well as the unproven nature of its technology and potential for competing technologies to prove safer and more effective. Access to basic services is seen as the biggest potential ESG risk that Moderna needs to manage.

BorgWarner is well-positioned to capitalize on industry trends arising from global clean air regulations, consumers' demand for fuel economy, and the popularity of sport utility and crossover vehicles around the world. The company's revenue growth potential remains unchanged regardless of the powertrain automakers choose, and its revenue increases at above-market rates as its products reduce emissions and support vehicle electrification. BorgWarner's consistent technology innovation and ability to find alternative vehicular applications enable more favorable pricing relative to many automotive industry suppliers. The company has a sound balance sheet, fair investment, and appropriate shareholder distributions, with a Standard capital allocation rating. However, the company's operations are capital-intensive with significant fixed costs, so a sudden decline in volume translates into a significant drop in profitability. Commodity costs can be volatile and could be a margin headwind. The author estimates a rough standalone fair value of $63-$68 for BorgWarner and $13-$18 for NewCo, assuming shareholders receive one share of NewCo for every share of BorgWarner. The author's Morningstar Uncertainty Rating for BorgWarner is High, with sudden declines in global light vehicle production and volatile commodities representing the biggest risks to their forecast.

Wayfair's Q2 gross revenue has improved, and the company's shares are undervalued despite a 60% run-up in stock price year-to-date. Wayfair's differentiation comes from its product breadth and logistics network, and its inventory-light model benefits inventory turns and has led to 21.7 million active users who spend more than $550 per year. However, Wayfair competes with mass-market retailers, specialty retail, and low-cost providers, making it harder to stay top of mind, and low customer switching costs and competition from other e-commerce and mass-merchant competitors may bound long-term margin expansion. Wayfair does not have an established economic moat, but the company has different brands that cater to various income and age demographics, expanded into untapped markets, and has a B2B opportunity that could grow faster than anticipated. Wayfair consistently outspends its peers on advertising and technology improvements, but a $1.4 billion cost savings plan underway should allow for modest deleverage over time. Wayfair targets a wide market of 20-64 year olds with annual household incomes of $25,000-$250,000, including the sizable millennial cohort, and has been targeting growth in the B2B marketplace. Wayfair's unique business model with the CastleGate network may be at risk due to competition from Amazon and other peers attempting to speed up delivery times. Wayfair has a strong balance sheet with low net debt/EBITDA and financial flexibility, and the company is controlled by founders Niraj Shah and Steven Conine. Wayfair's investment strategy is viewed as fair, with strategic investments in supply chain, vendor offerings, and logistics leading to improving adjusted gross and operating margin performance.

The author previously wrote an article about Nutrien Ltd. being undervalued and oversold going into earnings, based on strong potash fertilizer fundamentals. However, Nutrien's earnings report resulted in a cut in guidance and a 13% decline in share price since the prior article. Despite this, the author remains bullish on Nutrien and has continued to add to their position. Nutrien plans to increase production capacity in Saskatchewan and has a strong position in the industry. Potash has a positive outlook due to geopolitical developments, affordability, and pressure to increase crop output, but the return of Eastern-European supply is a risk. Nutrien reported worse than expected results for 1Q23, with revenue down 20.2% compared to the previous year and earnings per share missing estimates by $0.37. The company revised its full-year 2023 adjusted EBITDA and net earnings guidance downwards due to market factors, with significant adjustments to cash from operations. Despite a decline in stock price, Nutrien's NTM EBITDA has increased. The author believes that analysts have become too bearish and that actual numbers in 2023 and 2024 will be higher than expected. The author predicts that Nutrien will generate close to $4 billion in free cash flow in 2024 and maintains a target price of $90, implying a 50% upside potential.