by Scott Martin | Mar 23, 2025 | Weekly Newsletter 7pm Sunday
The Bull Market Report
Probably the Best Financial Newsletter in the Country
IN THIS ISSUE
Market Summary
The Big Picture
Netflix
C3.ai
VanEck Semiconductor ETF
Zscaler
Dexcom
iShares Oil & Gas Exploration & Production ETF
Range Resources
Ally Financial
Welltower
The Bull Market High Yield Investor
- Invesco Municipal Trust
Market Summary
We'll count this as a win. While our stocks still have a little ground to recover before we wipe out the last YTD losses and start moving forward again, at least we've started moving fast in the right direction. Broad market benchmarks, on the other hand, still look more than a little stalled, with the S&P 500, Nasdaq and Dow Industrials down 2-3% from where they were two weeks ago. What's changed in the world? Not much at all. Trade policy remains unsettled, the Fed is still on hold and earnings season is effectively over until the next cycle gets underway in mid-April.
However, the recent "flash correction" (seventh-fastest in history, we're told) managed to attract buyers back to a market that felt slightly overpriced relative to the amount of uncertainty out there. A few months ago, investors seemed confident holding onto stocks valued at 22X earnings. Now, while the outlook has weakened a little, investors seem willing to accept roughly 20X as a viable entry point. If that proposition holds in the longer term, this will go down in history as a bottom and not a hard ceiling on the market's ability to keep rallying despite all apparent threats.
After all, the collective corporate bottom line is not going down. It's only going up a little less fast than we hoped a few months ago. We'll talk about this in greater detail in The Big Picture but the executive summary really boils down to the fact that all the apparent threats haven't triggered any kind of earnings recession. All they've done is curbed the most enthusiastic growth forecasts. We're in more realistic territory now. And if investors will pull cash off the sidelines and pour it into stocks with the market at 20X, then that's the world we find ourselves in.
There are at least two key lessons here for BMR subscribers. First, our approach to diversification may superficially hurt us when the bulls are running at full froth, but the minute the market mood turns sour, a little extra exposure to income-oriented stocks and funds goes a long way. These investments rarely have a lot of growth on their side. The underlying businesses are steady cash generators but management is more focused on returning cash to shareholders than pouring it back into corporate expansion initiatives. As a result, while they're rarely sexy, they have a lot of staying power. Our Healthcare portfolio is up YTD. So are most of our REITs, most of our Financials and, in a shock to some, Energy. Yes, the Energy portfolio is up 5% YTD despite all the nattering about the world economy and falling oil prices. Never forget that in a true economic upheaval, it's strategically useful to have a stake in the companies that collectively keep the world's lights on and the trucks running. (We've been loving our SPDR Gold Shares for similar strategic reasons: up 15% so far this year!)
The second lesson is that over time the most dynamic companies will outperform. They rally harder in the good phases and while they might correct almost as hard in the downswings, you just can't keep a good stock down. The rebounds are more robust than the retreats. In some cases, you can't even see the retreat. We're pleased to have names like Netflix (up 8% YTD), Meta Platforms (up 11%, beating everything else in the "Magnificent 7") and Zscaler (up 16%) to both buoy our overall results and demonstrate our expertise. From cycle to cycle, having stocks like this on our list is how we keep outperforming.
Do the allocation math. We currently cover 55 stocks and funds. Unlike top-down passive portfolios, our "BMR Index" is equally weighted to allow smaller names the same shot at the spotlight as the giants. Otherwise, small stocks like Recursion Pharmaceuticals (market cap $2 billion) would vanish in the face of a single Apple ($3.8 trillion). They'd lose all their impact. Netflix accounts for about 1.4% of our equal-weight universe so its strength this year shows up a lot more clearly than it does in index funds that track the S&P 500, for example, which weight the stock at barely half that level. Zscaler, with a relatively lofty $31 billion valuation, doesn't show up in the index fund at all. Those investors are locked out of success stories like this until the stocks have already succeeded. Even then, it takes trillions to add up to more than the percentage point or so of attention we give every single recommendation.
Granted, the last few weeks haven't been kind to a lot of these companies and the rest of our recommendations have taken a significant step back. But we've always said that while Wall Street's moods come and go, the fundamentals always assert themselves as the ultimate arbiter of shareholder value. Or as Warren Buffett's mentor Benjamin Graham once said: "In the short run, the market is a voting machine, but in the long run, it is a weighing machine." The fundamentals remain robust. As long as that situation doesn't change, the votes should ultimately swing back in our direction.
That's how we outperform, with a strong defensive line against the storms and a stronger offense when the skies clear. Let the Fed do whatever it wants. Let Washington swirl. One way or the other, we're in position to ride the wave. And this week in particular, that edge shows up in our tangible results, both recent and YTD.
There's always a bull market here at The Bull Market Report. We've spent a lot of time looking back at trailing earnings reports lately, so it's past time we opened up The Big Picture to what investors actually need to know: our take on the future and whether that projection is bright enough to justify buying (and holding) stocks at this point. Since the Fed met, you can guess what The Bull Market High Yield Investor is all about. And as always, we need to update you on stocks in our favorite sectors.
Key Market Indicators
The Big Picture: Substance Over Shock
A packed news cycle has a lot of investors on edge. We get it. But in our experience, flinching from every hypothetical shock practically ensures that you'll miss out on a lot of opportunities, even if you're not a "trader" looking to sell out ahead of periods when stocks underperform or go down. After all, most of the nightmare scenarios we can imagine simply don't come true, and the ones that happen are rarely as bad as the worst projections suggest. Unless you can't roll with a few rumors, you'll find it challenging to reach for the upside.
And we're in luck because there's one news cycle we can always anticipate and the next one starts in a few weeks when the big Banks start to release their quarterly numbers. Unlike all the speculation about trade policy or taxes, for example, earnings season is a scheduled event. We can all see it coming. Most of the bigger companies let us know weeks in advance when exactly to expect the numbers. They also provide some sense of what to expect from the numbers, which is all "guidance" really means. Of course this advance glimpse at how the cash is flowing is not official or perfectly accurate, but it's the best sense the executives running the operation have of where the trends point.
While that logic might seem intuitive and even basic on the surface, it's worth letting it sink in through all the anxious chatter currently choking the market. Guidance gives us a pretty good sense of earnings, revenue and other key metrics for the current quarter and often the full year as well. At the very least, it's as good as the numbers the executives see every day as they guide the business around short-term threats and toward long-term goals. When something emerges as a real risk factor, they'll mention that they're watching it. If they don't volunteer that information, odds are extremely good that one or more of the analysts on the conference call will raise the question.
Those risk factors are built into every company's projections. When emergent threats have a material negative impact on those projections, a smart management team will acknowledge the pain early and warn Wall Street that the corporate sky has gotten cloudy. Normally somewhere between 55 and 65 members of the S&P 500 will issue this kind of warning at this phase of the quarterly cycle. We're currently tracking 66, which is only a fraction above average. Needless to say, "average" means normal. It isn't elevated. It isn't extreme.
Don't get us wrong: those warnings have a cumulative chilling effect. Our sense of earnings growth across the S&P 500 for the full year (2025) has come down about 3 percentage points in the last two months, which is roughly when the warnings started stacking up. Revenue growth is coming on 1/2 percentage point lower. This does not suggest that either the top or bottom line for America's corporate giants is going down, only that it is rising a little less fast than we hoped. All in all, we are still looking for 11% more profit this year than last and well above 5% higher sales numbers as well. Does that look like a looming crash to you? Remember, executives play a challenging game: when they guide our expectations lower, their stocks go down in the short term, but if they don't warn us at all, the stocks drop hard when we get the results. That's when the real "shocks" that matter happen.
We don't buy the S&P 500 as a whole, so all these numbers are really only relevant when it comes to gauging the overall market's mood. So who is feeling the chill? Materials producers are hurting hard. We don't recommend them. Tesla is hurting hard, with growth forecasts dropping as sales and sentiment falter. We don't recommend them right now either. The Industrials are reeling. Not a lot of that in our portfolios. Walmart warns? We don't cover it.
What we like (and what we overweight) is growth at the right price. That means a lot of Technology, a handful of Finance and Communications companies that effectively double as Tech and a surprising amount of Healthcare. Healthcare is booming, with earnings across the sector on track to expand 18% this year, right in line with traditional Tech. Some of these stocks have rallied so hard that they've gotten ahead of their realistic growth curves, but others have the dynamism to validate their valuations.
Here's the basic barometer: the S&P 500 might give us 11% growth this year and trades at 20X forward earnings. While that's not great by historical standards, it gives you a sense of what a vanilla "stock investor" would get in an index fund right now. Across the Tech sector, that growth rate might come in around 19% and Wall Street is paying 25X for that accelerated trajectory. Again, not great calculations by historical standards (back in the E.F. Hutton era, Tech would need to drop another 25% or so to qualify as a screaming buy) but not exactly bad enough to dump existing positions and start over. We'd call it a "hold" at worst. Healthcare looks much better at 18% growth and 17X forward earnings. Yes, that is that E.F. Hutton era "screaming buy," and it's why we are so happy with so many of our Big Pharma names.
Growth isn't everything, either. We have always preferred some sectors and industries (Real Estate, high-yield Financials and lately Energy) because they satisfy different investment criteria, the main one being the ability to lock in decent current income as the dividends accrue. Energy, as you know, is a boom-and-bust cycle. Right now these stocks are far out of favor with earnings stalled this year, but management feels comfortable forecasting 17% growth next year and we find no reason to disagree. At that point, Energy will be expanding faster than Tech. Investors who buy that story now at barely 14X current earnings will feel pretty smug in that scenario. That's exactly how all of this works. Buy clarity, don't flinch until it's clear that the bad headlines are actually headed into your lane.
BMR Companies and Commentary
Netflix (NFLX: $960, up 5% last week)
LONG TERM GROWTH PORTFOLIO
Streaming giant Netflix is riding high on the blockbuster success of its new tiers, content, and initiatives, and Wall Street, too, is taking notice with a string of bullish price targets in recent weeks. The most prominent take comes from MoffettNathanson which states rather definitively that ‘Netflix has won the streaming wars, case closed’ as its content and engagement metrics are miles ahead of competitors.
The stock released its fourth quarter results recently, reporting $10.3 billion in revenue, up 16% YoY, compared to $8.8 billion a year ago. Profits came in at $1.9 billion, or $4.27 per share, doubling from $940 million, or $2.11. We believe that the streaming giant’s profits are only just beginning to scale as it begins to unlock value from its massive worldwide landed base of 300 million paid subscribers.
The platform now reaches an audience of over 700 million viewers, or a little under a tenth of the world’s population, putting it right alongside the world’s top media conglomerates. The company’s much-publicized foray into advertising and its new powerful ad suite are all aimed at unlocking the billions in untapped value that comes from having so many eyeballs on you each evening.
The company’s relentless focus on engagement and customer satisfaction is paying off and is not slowing down. There was a time when its original content was hit-or-miss, but the company has finally cracked the content game and is now on par with the big studios such as Disney and Paramount. The move into live sports has flourished similarly in recent months, driving millions of fresh sign-ups.
Since the beginning of streaming play, Netflix's goal has been to have as many people spend as much time on the platform as possible. Having attained this goal, gears are shifting toward monetization. We expect advertising to become a major contributor to profits over the following months and years, in addition to several new content and pricing tiers.
In 2024, Netflix had more shows ranked #1 in the ‘Top 10 Streaming’ charts than the other streaming platforms combined. The Jake Paul vs. Mike Tyson boxing match last year was the most-streamed sporting event in history, and with the Christmas Day NFL Game, WWE Raw Pro, and the Screen Actors Guild Awards, it is now an entertainment powerhouse. Talk about streaming—Netflix’s profits will keep flowing in, and they’re already impressive, with $1.9 billion in profit on $10.3 billion in revenue.
Our Target for Netflix is a hefty $1300, and We Would Not Sell Netflix. We believe we have one of the highest targets on The Street. We can see a 10-1 stock split in the company’s future. Wouldn’t that be nice?
C3.ai (AI: $23, up 5%)
EARLY STAGE PORTFOLIO
Enterprise AI company C3.ai released its third quarter results recently, reporting $100 million in revenue, up 26% YoY, compared to $78 million a year ago. The loss during the quarter stood at $16 million, or $0.12 per share, against $16 million, or $0.13. Still, the company had a spectacular beat on consensus estimates at the top and bottom lines, giving investors renewed confidence in its future performance.
Subscriptions led the way at $86 million, up 22% YoY, followed by professional services at $13 million, a big 62% over the prior year. This was an eventful quarter for the company, with 66 new agreements, up 72% from the preceding year, made possible by its expanding global distribution network comprising several heavy-hitters in the cloud, AI, and professional services.
C3.ai signed 28 agreements spanning 9 industries via its partnership with Microsoft alone. It is now entering into similar partnerships with Amazon’s AWS and McKinsey QuantumBlack, which is focused on spearheading digital and AI transformation across large enterprises. The company realizes that such partnerships are key for seamless reach and execution at the leading edge of enterprise AI and tech.
We saw several new and expanded agreements from well-known brands during the quarter, including Sanofi, Nucor, ExxonMobil, and Coca-Cola. C3’s federal business continues to scale with similar agreements with the Department of Defense, US Air Force, the CAE USA, and the Missile Defense Agency, alongside 21 different state and local government wins during this period.
While investors remain concerned about the company’s persistent losses, profitability is approaching. Management aims to be profitable towards the end of 2026. In the meantime, we cannot ignore that this is one of the few companies to have succeeded with productized AI for large enterprises, which is bound to accrue value.
The markets, however, have been unable to look past the losses, with CEO Tom Siebel’s health issues* also weighing on their concerns. The stock is down 35% YTD, but we believe in this beaten-down speculative stock and its underlying tech platform. It has the resources to stay afloat till it turns profitable, with $720 million in cash and just under $5 million in debt.
*Siebel has been diagnosed with an autoimmune disease that is impairing his vision. The company has made specific accommodations, and he remains in charge of the day-to-day operations; however, when traveling for treatments, Jim Snabe, the former co-CEO of SAP and chairman of Maersk, Allianz, and Siemens, will be in charge. So, we know that things remain on course even as he battles this unfortunate condition.
Our Target is $50, and our SP is $30. The stock is way below our Sell Price. Perhaps it is time for you to get out, especially with the government cutback going on in Washington. We will hang in here for a few weeks and watch events unfold.
VanEck Semiconductor ETF (SMH: $225, down 1%)
HIGH TECHNOLOGY PORTFOLIO
As the name suggests, the VanEck Semiconductor ETF allocates its assets to the various high-fliers of the burgeoning semiconductor and AI industries. The well-known heavy-hitters in the Fund include Nvidia (NVDA), Taiwan Semiconductor Manufacturing (TSM), Broadcom (AVGO), and ASML Holding (ASML), along with several under-the-radar picks such as Lam Research (LRCX) and KLA (KLAC), among 20 other stocks that it deems crucial for this computing revolution that is upon us.
The Fund hasn’t had a great start to the year, with most of its holdings struggling with high valuations and uncertainties regarding the trade wars. We’ve seen an 8% pullback YTD, and while this pales in comparison to the 120% rally since 2022, investors are perplexed about the future of this Fund and industry, particularly in the near term. We, however, have no such qualms, and neither should you.
Leaving aside all the hue and cry surrounding geopolitics, trade wars, tariffs, technicals, and valuations, what truly matters is the underlying demand for chips and the growing use cases for AI across sectors and businesses, which show no signs of slowing down. We’re trying to say that the secular trends of AI, cloud computing, 5G, and electric vehicles are here to stay and will continue to grow dramatically.
A key feature of the Fund is its concentration across many stocks, but as we’ve discussed in the Newsletter, it’s a double-edged sword. With nearly 40% of its assets allocated to just three stocks, Nvidia, Taiwan Semiconductor, and Broadcom, it captured the phenomenal upside in these stocks during the AI frenzy in 2023 and 2024. But now, as the market has pulled back a little, it is facing the downside, with no diversification to come to its aid.
A recent earthquake in Taiwan caused a pullback in Taiwan Semiconductor, though the company claims it had minimal impact on production. However, the VanEck Semiconductor ETF took a hit, as smaller holdings like Lam Research and Applied Materials—due to their limited allocations and long sales cycles—were unable to offset the losses from larger stocks.
During its recent earnings release, Nvidia CEO Jensen Huang claimed that advanced reasoning AI models require 100 times more computing power than the current models. This matters to us, as it means that we’ve barely scratched the surface so far. The VanEck Semiconductor ETF is one of the best vehicles to ride this trend, with a robust track record and a low expense ratio of just 0.35%.
Our Target is $300, and our Sell Price is $230; as you can see, the stock is below this. We added the stock at $270 last summer, so we are undoubtedly underwater. Should we sell and move on, or hold and hope? Good question. No one knows if the overall market will move higher from here, but if it moves lower, we can be sure that the Fund will fall even more. We’re going to stick with it for the next few weeks.
Zscaler (ZS: $205, up 4%)
HIGH TECHNOLOGY PORTFOLIO
Cloud security giant Zscaler released its second-quarter results two weeks ago, reporting $650 million in revenue, up 23% YoY, compared to $520 million a year ago. Profits during the quarter stood at $130 million, or $0.78 per share, against $100 million, or $0.63, beating estimates at the top and bottom lines, coupled with strong guidance for the third quarter and full-year, lifting the stock following the results.
The company’s calculated billings - contractual revenue yet to be realized - stood at $740 million, up 18% YoY, followed by deferred revenue at $1.9 billion, up 25% YoY. Zscaler continues to ride the rising demand for Zero-Trust architecture and security solutions in an increasingly digitalized world. It fulfilled the promise of simplified enterprise security, which has long been the dream of this industry.
Zscaler now sports a customer retention rate of 115%, which is impressive for a SAAS company of this size. It has nearly 3,300 customers with annual contract values over $100,000 and 620 with ACVs greater than $1 million. During the quarter, we saw several new marquee logo adds, including a Fortune 50 energy company, a Global 2000 manufacturing giant, and a nation-state.
The big story is its new Zero Trust Everywhere Initiative, which bundles its security solutions, helping consolidate tools and services while transferring enormous savings to enterprise customers. This gives it a powerful competitive moat, leaving newer entrants and even a few established players at a disadvantage, unable to match Zscaler’s scale and pricing in enterprise security.
The company is making strides by combining Zero Trust with AI, which many companies are scrambling to access, given the risk of data loss when using AI tools such as ChatGPT and Microsoft Copilot. Zscaler checks data streams going to and from tools like ChatGPT, ensuring no leakage in between. This is a critical solution for enterprises looking to fast-track their AI adoption and workflows.
The stock is up 13% YTD and shows no signs of slowing as the company outperforms and outwits peers. Over the years, it has built remarkable moats that the industry is just starting to notice. With the amount of data it tracks and trains its models on, no new entrant can offer similar solutions at scale. It ended the quarter with $2.9 billion in cash, $1.2 billion in debt, and $900 million in cash flow. Our Target is $280, and the SP is $170. We added the stock at $85 in 2019, so we’d like to see it return to its peak in 2021 at $375.
Dexcom (DXCM: $74, up 4%)
HEALTHCARE PORTFOLIO
Medical devices company Dexcom released its fourth quarter results recently, reporting $1.1 billion in revenue, up 8% YoY, compared to $1.0 billion a year ago. It posted a profit of $180 million, or $0.45 per share, down from $200 million, or $0.50 the prior year. For the full year, the company reported $4.0 billion in revenue, up 11% YoY, with a profit of $670 million, or $1.64, against $620 million, or $1.52.
The decline in profits during the quarter was primarily due to a one-time charge of $21 million due to certain mistakes by Dexcom’s shipping partner. Besides this, the company’s new build configurations took a toll on its production yield and gross margins, which stood at 59%, down from 64% a year ago. Management is taking all necessary steps to get production and margins back on track.
Dexcom’s global user base now stands at an impressive 2.8 million, up 25% YoY, with its newly launched over-the-counter solution, Stelo, already adding 150,000 users within four months of launch. This comes amid growing concerns about competitive and substitutive headwinds among investors. Starting with the popularity of GLP-1 drugs, followed by the entry of Abbott and Medtronic in this segment.
As we’ve covered before, the entire premise of GLP-1 drugs reducing demand for continuous glucose monitoring (CGM) devices is flawed. Regarding the competition, Dexcom is addressing this head-on by rehauling its sales and distribution strategy. It has dedicated enormous resources to training sales reps while expanding existing relationships with medical equipment distributors, which are key to this business.
In addition, it is vying for deeper penetration in existing markets while executing aggressive expansions overseas. During the quarter, the company got three of the largest pharmacy benefit managers (PBMs) to cover its products and is now working to onboard other PBMs. It gained similar coverage in New Zealand and France and is set for more wins across Canada, Germany, and others.
In 2025, the company projects $4.6 billion in revenue and 14% YoY growth. The stock didn’t have a great year last year and is down 50% from its all-time high in 2021, but we expect things to turn around soon. The company has barely scratched the surface of the multi-billion-dollar diabetes industry and ended the quarter with $2.6 billion in cash, $2.6 billion in debt, and $1.0 billion in cash flow.
Our Target is $90, and our SP is $70. We have faith in this company and believe that, given a few more months, it will come out on top in its quest to be the best in its class in this great business of continuous glucose monitoring (CGM) technology. Dexcom has built a reputation for accuracy, ease of use, and innovation, making it the gold standard in CGM technology. With expanding adoption beyond Type 1 diabetes and strong financial growth, Dexcom remains the leading player in the space.
iShares Oil & Gas Exploration & Production ETF (IEO: $93, up 2%)
ENERGY PORTFOLIO
As the name suggests, the iShares Oil and Gas ETF is a fund that provides exposure to the high-fliers of the energy industry. However, note that the fund steers clear of the industry's diversified, vertically integrated giants, such as ExxonMobil and Chevron. It allocates most of its assets to pure-play oil and gas producers, allowing it to track commodity prices more closely.
The fund holds a basket of 51 different securities in the energy space, with its top three holdings, ConocoPhillips, EOG Resources, and Phillips 66, constituting 35% of total assets. So far, this year looks to be a mixed mag for the industry, with supply tightening in key regions of the world such as Iran and Venezuela, but things looking up in the US with a new fossil-friendly White House administration.
However, several geopolitical factors are at play, the most prominent of which are tariffs and trade wars by the US government. Most recently, India agreed to buy more oil and gas from the US instead of Russia, Iraq, and Saudi Arabia. This has sent ripples across the industry and bodes well for the US domestic players and, by extension, the IEO fund.
The US government will likely try to reach a similar deal with Europe. With Russian supply still under sanctions, the path is clear for American companies to dominate the global energy industry. US LNG supplies to Europe have already risen over 3,700% since 2017 and will go higher with Russian gas transit through Ukraine now blocked and Europe looking to wean itself off Russian energy entirely.
Asian markets have been out of reach, mainly due to the distances involved and partly the high fees levied by the Panama Canal. The Trump administration is now dealing with the latter, which would be a win for US oil and gas giants. Of course, in the long run, how the industry fares depends a lot on whether the US keeps sanctions on Russia.
The iShares Oil and Gas ETF didn’t have a great year in 2024 and is flat YTD, but things are looking up for its constituents, at least in the mid-term. There are several reasons to love this fund, with a few prominent ones being its low expense ratio of just 0.40%, annualized yield of 2.5%, and an illustrious track record going back nearly two decades. Over the past five years, the fund has returned 320%.
Our Target is $120, and our Sell Price is $95.
Range Resources (RRC: $40, up 4%)
ENERGY PORTFOLIO
This company is one of the largest natural gas producers in the world and released its fourth quarter results recently, reporting $630 million in revenue, down 34% YoY, compared to $940 million a year ago. It posted a profit of $160 million, or $0.68 per share, against $150 million, or $0.63, performing admirably despite bottom-tier gas prices, with results hinting at strong cost controls and execution excellence.
For the full year, the company reported $2.4 billion in sales, down 28% YoY, compared to $3.4 billion a year ago, with a profit of $560 million, or $2.30, down marginally from $570 million, or $2.40. Production averaged 2.18 billion cubic feet equivalent of natural gas per day, coming in ahead of estimates, with 68% being natural gas and the rest comprising natural gas liquids and crude oil.
The company took a hit at the top and bottom lines during the quarter, owing to comparatively lower realized prices. Natural gas realizations stood at $2.36 per million cubic feet equivalent, down from $2.40 last year. Natural gas liquids, however, saw an uptick to $26.43, compared to $24.91, while its negligible crude oil output saw a decline in realizations at $59 per barrel, down from $68 last year.
However, realizations were well ahead of Henry Hub averages, owing to the company’s efforts in marketing and exposure to better-priced markets in the Midwestern and Gulf regions. Even as domestic prices remain under pressure, Range has executed well enough to benefit from prevailing dock constraints and global demand tightness, which we expect to persist.
Range Resources is known for its operational efficiencies that allow it to keep its head comfortably above water even during harsh conditions. Throughout the year, it ran a 2-rig, 1-frac crew operation, which means only two rigs were operational at any given time, with one completion crew digging 800,000 lateral feet across 59 wells, with an average of 14,000 lateral feet per well, thus maximizing efficiencies.
The company is also renowned for its capital allocation. During the quarter, it used its $450 million cash flow to pare down its debt by $170 million while returning $140 million to investors through buybacks and dividends. All-in capital expenditures for the year stood at $650 million, and its balance sheet continues to grow more robust, with $300 million in cash and just $1.8 billion in debt.
The stock has been a solid investment for us - we added it at $28 in 2022. It would be nice to see it at $90 like it was in 2014. Our Target is $41, and our Sell Price is $27, which are moving today to $50 and $33, respectively. It’s a relatively small firm, clocking in at just under $10 billion in market cap, and it is certainly a buyout candidate. With higher crude prices later this year or early next, we can see this stock back up to the $50+ level.
Ally Financial (ALLY: $36, up 7%)
FINANCIAL PORTFOLIO
Banking and auto finance giant Ally Financial released its fourth quarter results recently, reporting $2.1 billion in revenue, up 5% YoY, compared to $2.0 billion a year ago. It posted a profit of $250 million, or $0.78 per share, against $120 million, or $0.40 the prior year. Despite bearing the brunt of a $560 million credit provisioning against bad loans, this also hints at a phenomenal year ahead.
The company originated $10.3 billion of auto loans during the quarter, up 7% YoY, with a weighted average yield of 9.6% and 49% of originations in the higher credit quality tiers. This is down a bit from their yearly average of 10.4% in response to falling interest rates. Still, the company’s net interest rate margins hold steady at 3.3%, leaving plenty of cushion to deal with uncertainties.
Ally’s insurance business continues to grow, with $370 million in written premiums during the quarter, up from $330 million a year ago. Retail deposits stood at $143 billion, up from $142 billion across 3.3 million customers, and an average retention rate of 95%. During the fourth quarter alone, the company saw retail deposit growth of over $2.0 billion. The company is a top-tier banking services provider.
The big story during the quarter concerns the sale of its credit card business, which, despite being a good business, allows Ally to focus all of its efforts and resources on its core offerings, banking and auto financing. It called to cease mortgage originations, which only offer 3% yields, so this move is expected to free up capital for other high-yielding loans and investment opportunities.
Ally has been restructuring its operations, which involve extensive workforce reductions, resulting in savings worth over $60 million annually. The sale of its credit card business is expected to dampen net interest margins in the medium term, as the segment yields over 20% annually. Still, it will minimize future credit costs and operating expenses, and this restructuring should help offset the loss of revenue.
The stock was flat last year and continues to be range-bound so far this year, but things are turning around for the company as all of its restructuring efforts start to pay off. The company did not buy back any stock during the year, but its dividend yield has increased to 3.3%. It ended the quarter with $10.3 billion in cash, $18.3 billion in debt, and $4.5 billion in cash flow.
Our Target is $52, and our Sell Price is $35.
Welltower (WELL: $147, down 1%)
HEALTHCARE PORTFOLIO
Leading healthcare REIT Welltower released its fourth quarter results recently, reporting $2.3 billion in revenue, up 29% YoY, compared to $1.7 billion a year ago. It posted a profit, or FFO, of $720 million, or $1.13 per share, against $530 million, or $0.96. For the year, the company reported $8.0 billion in sales, up 20% YoY, with a profit of $2.6 billion, or $4.32 per share, against $1.9 billion, or $3.64.
Welltower had a strong quarter on the operations front, with same-store operating income growing 24% YoY, marking its ninth consecutive quarter of 20-plus percentage gains. The occupancy rate stood at 87%, rising by an impressive 310 bps YoY and 120 bps sequentially, which management noted was during the time of year when move-ins often moderate, hinting at a growing broad-based momentum.
The company has over 750 healthcare facilities in the U.S., Canada, and the U.K.
During the quarter, Welltower deployed $2.4 billion across 21 different transactions, with $2.2 billion in acquisitions and loan funding and $230 million in development funding. This is a 20% decline YoY from $3.0 billion a year ago, but it marks an end to a tremendous year of investment activity, with YTD acquisitions totaling $7.0 billion, up 19% YoY, compared to $5.9 billion during the same period last year.
The company is also off to a great start this year, with $2 billion in gross commitments under contract within the first six weeks. Management attributes this to favorable market dynamics, with the over-80 population rising quickly and limited new supply owing to high interest rates and rising material costs, coupled with a new immigration policy making it harder for competitors.
Welltower is pursuing a renewed approach to capital allocation, focusing on ‘Local Clustering,’ which involves ‘going deep, not broad.’ Thus, the company will allocate more capital in each region, aiming for more properties and density instead of diversifying across many areas. This allows for plenty of cost synergies, which can be beneficial as the new RIDEA structure gains steam.
The RIDEA structure allows Welltower to participate in the operating profits of its facilities, as opposed to merely earning rent. This can be a game-changer for the entire industry, particularly senior housing. The stock is off to a great start, rallying 17% YTD, and the firm maintains a robust balance sheet as it enters a lucrative period, with $3.5 billion in cash, $16.8 billion in debt, and $2.3 billion in cash flow.
Our Target is $155, and our Sell Price is $115. It hit $157 a few weeks ago and has pulled back an inch. We’re raising our SP to $130 and can’t wait to raise the Target to $180 in another few weeks as it passes $150.
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The Bull Market Report High Yield Investor
Fed meetings has gotten shorter and sweeter lately: no change in interest rates, thus minimal reaction from the market. Once again, Powell and company hit "pause" while they wait to see what trade policy does to consumer prices. If inflation edges up a bit, that pause will lengthen or force the Fed to tighten again in response.
But if the economy takes a sharp enough downturn to shake the job market, you can bet that the rate cuts will start up again fast and furiously. That's never been far from Powell's mind or commentary in recent years. He's willing to tolerate a mild recession in order to kill inflation but anything that aspires to the catastrophic levels of 2008 or 2020 will trigger massive retaliation.
As it is, the now-notorious "dot plot" that telegraphs the Fed's sense of its next moves remains clear. Three months ago, Powell and company thought the economy would expand at a healthy 2.1% rate this year. Now that GDP growth number has come down to 1.7%, which is not "better" but still a long way from the apocalypse. The Fed doesn't really think that growth will get much lower or much higher than this in the long run, so this is roughly as good AND as bad as it gets. This is normal.
Likewise, the Fed doesn't see unemployment rising or falling much from here. Again, in their view this is normal. Remember, they get all the macro data the government produces. When they make a forecast, it's usually pretty good. And they see inflation going down on its own, which gives them leverage to make as many as two rate cuts this year and then another two next year. Not a quick race back to the zero-rate world, but guess what? That world, created in the long shadow of the 2008 crash, was never normal. From here, rates may edge up and down but barring an extreme economic surprise, this is the world we live in now.
In this world, cash is unlikely to pay more than 4% and even long-term Treasury yields may have peaked. To earn a higher rate of return, you need to reach beyond the federal bond market into areas that have been neglected or even actively shunned. Muni bonds, for example, have been under serious pressure as some regions of the country teeter closer to recession and maybe even default, but that's an opportunity if you know how to pick the people who can pick the best bets in the field. Here's one of our favorites:
Invesco Municipal Trust (VKQ: $9.73, down 1%. Yield=7.3%, the equivalent of 10.3% taxable)
HIGH YIELD PORTFOLIO
The Invesco Municipal Trust is a closed-end fund that primarily invests in tax-free municipal bonds, making it very appealing to conservative, income-seeking investors. The fund still goes the extra mile in the relatively risk-free muni space. Further, it diversifies its holdings while actively managing and rebalancing them to drive additional value for investors, making it perfect for risk-averse investors.
Muni bonds had a modest year in 2024, with total returns of just 1.05%. It was an election year with major consequences for the debt markets and started with relatively high interest rates. We saw a jump in late 2024, right after the election, in anticipation of pro-growth policies by the incoming administration, with high-yielding munis ending the year with over 6% in gains.
In 2025, the year has been a mixed bag for the segment, starting with yields dipping in January in response to cooler inflation readings. However, this was followed by rising yields in February and March, with new issuances pressuring muni prices. Right now, yields are at their highest in over 2 years, with the Fed’s ‘higher-for-longer’ policy bias keeping volatility in the segment elevated.
Last year, we saw record new issuances worth over $500 billion, which marks a YoY increase of 36%, and most analysts expect the market to surpass these figures in 2025. The good thing is that there is plenty of demand for muni bonds to soak up these new issues, with the asset class now being deemed the most attractive among its fixed-income peers when weighing it on an absolute yield basis after tax.
With plenty of uncertainties surrounding global equity markets and the potential implications of a trade war and other geopolitical tensions, munis are a much-needed safe haven that will see billions of dollars in new inflows over the next few months. As long as their tax-exempt status remains, we expect the asset class to continue going strong with plenty of new issuances and inflows.
One of the reasons for the uptick in activity is the ongoing talks of altering the tax-exempt status of munis in Washington. This has led to the front-loading of issuances before any such policy changes. However, we firmly believe that any such changes will be fairly limited, such as capping the deductions for wealthy investors. None of this should matter for long-term investors, especially with a fund such as the Invesco Municipal Trust, given its illustrious track record for several decades.
Our Target is $13, and our Sell Price is $9.
Good Investing,
Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998
