Where to Find Undervalued Stocks Now
Summary
Daniel Pronk provides a macro analysis of the S&P 500, noting that its forward price-to-earnings (PE) ratio of 20.4 is below the January 2022 peak of 21.4 and significantly lower than the 25.2 seen during the dot-com bubble. While Daniel Pronk acknowledges that valuations are 20% above the 30-year average, Daniel Pronk believes this is justified by the higher quality and growth outlook of modern index constituents. Daniel Pronk notes that while high multiples often lead to lower five-year returns (historically around 5% annually), the current earnings growth projections of 24% for the S&P 500 suggest continued resilience.
Daniel Pronk highlights a disconnect in the market where the "Magnificent 7" hyperscalers are trading at multiples similar to the broader index despite growing earnings twice as fast. Furthermore, Daniel Pronk observes that small and mid-cap stocks are trading at a rare discount compared to large-cap stocks. Daniel Pronk also emphasizes the massive multi-trillion dollar demand for global infrastructure, power, and AI-related hardware, which Daniel Pronk believes will serve as a long-term tailwind for asset managers and construction firms.
Mentioned Stocks
Reasoning: Daniel Pronk believes Amazon is one of the best buys in the market because the valuation premium for hyperscalers has largely disappeared. Daniel Pronk notes it is his second-largest position at 10% of his portfolio and argues it offers superior value relative to its growth projections.
Reasoning: Daniel Pronk identifies Zeta as an attractive mid-cap growth stock with 32% revenue growth and accelerating fundamentals. Daniel Pronk highlights that the company is projected to double its free cash flow by 2028, which Daniel Pronk believes makes the current valuation compelling.
Reasoning: Daniel Pronk explicitly states that he took a position in the stock at $95 per share yesterday. Daniel Pronk argues the 32% sell-off is unjustified because the company recently raised its guidance and is trading at the lower end of its historical EBITDA multiple range (10x forward).
Reasoning: Daniel Pronk is invested in Brookfield Asset Management because it owns the physical infrastructure—data centers and power generation—required for the AI buildout. Daniel Pronk highlights management's expectation of 20% annual growth for the next five years due to massive global infrastructure funding gaps.
Reasoning: Daniel Pronk views Constellation Software as a high-quality compounder trading at its lowest price-to-free-cash-flow multiple (15x) in over a decade. Daniel Pronk appreciates the company's zero share dilution policy and its 20% annual fundamental growth rate, which Daniel Pronk believes is unaffected by AI disruption.
Reasoning: Daniel Pronk has this on his watch list, noting that while it has underperformed the S&P 500 recently, its revenue is growing over 30% annually. Daniel Pronk points out that the price-to-free-cash-flow of 23.2 is near all-time lows while the company has begun buying back shares.