5 Stocks Offering Value in an Expensive Market

I keep reading that investors think we're in a bubble, that the market is extremely overvalued, and that we should sell our stocks and move to cash. So, as someone who has pretty much always invested in the stock market, I wanted to make this video and share a lot of different charts as to the valuation of the market, the current state of the market, and where I am personally finding value. I am also going to be sharing some stocks that I hold in my portfolio with some reasoning why, and also sharing some stocks that are currently on my watch list and I think are also looking quite cheap. So, this video is going to kind of be more like a highlevel macro video, plus some new stock ideas for you. And I think it's overall going to be pretty interesting. So, with that being said, let's just hop straight into it and look at our first chart. All right, so this first chart shows us that the S&P 500's forward price to earnings ratio is currently at 20.4, which is actually slightly below where it was at the previous peak in January of 2022 before we saw the market correction. Back then, the forward PE ratio was at 21.4. 4. So the market today is actually slightly less expensive than it was at the previous peak. And if we take a look at the peak of the dot bubble back in 2000, it was trading for a forward price to earnings ratio of 25.2. That is about a 23% higher multiple than what the market is currently trading for. And to put that in perspective, the S&P would need to be at 9,264 to match the forward price to earnings ratio that it was selling for back during the tech bubble. So, we still have a pretty far way to go before the market gets to bubble territory. But on this basis, overall, the market is not looking insanely expensive to me. It is on the higher end, but I don't think that it's really in bubble territory. Now, this next chart shows us more of the ranges of the S&P 500's historical forward PE and where it is currently sitting. And we can see that it is on the higher end today, sitting at about 20.4x once again. and the long-term 30-year average forward PE is 17.2. So, we are about 20% above the historical averages right now. But I also think that there is a pretty strong argument that a higher price to earnings ratio is actually justifiable for the S&P right now because the quality of the stocks in the S&P have increased so much and its growth outlook is also pretty dang high right now. Historically though, when the market has sold for a forward price to earnings ratio that's this high, the future returns are pretty low. The right chart in this screenshot shows us that historically when the market has traded for this multiple, the following 5-year returns are about 5% annually, which is not very high returns. You can also see that there is a very clear trend between the price multiple that the S&P trades for and the returns that it sees over the following 5 years. And as the market gets more and more expensive, the following five-year returns go down further and further. And when you think about it, this makes complete sense. And the lower the price you pay for your investments, the higher future expected returns that you can get. So while the multiple of the market as a whole continues to expand, the forward future returns have been continuing to come down. And this is something that Howard Marks has also been talking about. All right, now moving on to the next chart. This one shows us that the S&P 500's earnings per share growth is projected to be a whopping 24% this year, then 17% next year, and then 15% in 2028. Now, a lot of the earnings per share growth in 2026 has been coming from margin expansion. It actually looks like the majority of the earnings per share growth has been coming from company margins continuing to expand. And I think that a lot of this margin expansion is due to the artificial intelligence buildout. So I am kind of wondering how durable this margin expansion and earnings per share growth is. For example, on this same chart, we can see that in 2001, margins caused the S&P's earnings to drop by 16% once the spending slowed for the telecom buildout. And I don't think that the AI capex buildout is going to continue lasting forever. So, I do wonder if we will see a whipssaw back in company margins eventually and if that will act as a headwind for the overall S&P 500's earnings growth. All right, now moving on to the next chart. I find this one very interesting. It shows us the forward price to earnings ratio of the top 10 companies in the S&P 500, then the overall S&P and the remaining 490 stocks. And what you can see here is that the forward PE of the top 10 companies has fallen dramatically, especially over the past year. I also discussed this in my last video where I did a full deep dive on Amazon and why I think that it is looking like one of the best buys in the market right now. But to put it simply, the premiums for the hyperscalers is pretty much gone. Meta and Microsoft specifically still trade below 20 times forward earnings, which is below the S&P 500. And I believe that they are some of the best businesses in the world. And this chart really backs up why Amazon and Meta have been some of my largest buys over the past year and why Amazon has become the second largest position in my portfolio at around 10% now. All right, moving on to the next chart. This one shows us that the Magnificent 7 have seen no return so far in 2026 as a whole. Their returns so far in 2026 year to date have literally been 0%. The remaining 493 stocks on the market have been 15% and the S&P overall is up about 10% year to date. Now, what's also interesting is the Magnificent 7 is projected to grow their earnings per share by 38% this year, which is double the remaining stocks in the S&P 500. So, think about that. The Mag 7 is now trading almost in line with the S&P 500's price multiples. Yet, this group of companies is projected to grow their earnings twice as fast, which basically means that they are trading for similar price multiples at the same time as their growth outlook is twice as high. And I think that this is why these companies are looking like they're offering so much value in the market today. And I do not think that this is going to last forever. Now, these next charts shows us that the hyperscalers in specific are down 5% year-to date and software stocks in the S&P are down 20% year-to- date. Now, hyperscalers are also projected to see 28% AI related earnings growth and software is sitting at 19% now and software specifically has been seeing their AI related earnings accelerating and I believe that this suggests that a lot of software stocks are looking cheap in the market today. But I do think that some will be impacted by artificial intelligence over the longer term. But I think that these charts are really showing us that hyperscalers and software stocks are looking like they're offering value in the market today. At least in my opinion. And one of these software stocks that I own in my portfolio and I have been buying the dip on is Constellation Software. Now this company is not actually in the S&P 500 and it is a Canadian company, but I do think that this is one of the highest quality software stocks in the entire market. Its price to free cash flow is now all the way down at 15. And you can clearly see that this is the lowest multiple the stock has traded for in over a decade and it's well below the company's historical averages. And this is at the same time as the company's revenues are continuing to grow very strong and at a 20% compounded annual growth rate. I mean, when you take a look at this chart, it doesn't seem like Constellation is being impacted or affected by artificial intelligence in any way. This is the exact same story for the company's free cash flows. And its free cash flow is hitting an all-time high of over 2.7 billion in the trailing 12 months now. And free cash flows are continuing to compound by about 20% annually. And one of the main reasons why I like Constellation Software stock so much is because they do zero stock-based compensation and zero dilution. This company IPOed with 21.19 million shares all the way back in about 2006 and today it has the exact same share count. It has not increased or lowered its share count by even one. This is because the management is paid cash bonuses and then they are incentivized to reinvest that cash bonus back into buying shares of the stock to increase their ownership and alignment with public shareholders. The culture at Constellation Software I think is absolutely top tier and as we saw the business is continuing to grow its fundamentals by about 20% annually and again its price to free cash flow is only 15 now. So this company is one of the ones where I don't think it's going to be disrupted by artificial intelligence. I think that its price is very low today and I think that it will continue to compound its underlying fundamentals over the longer term and for all of these reasons this is one of the top software stocks that I have continued to buy in the market. All right, but now let's get back over to our charts. And this next chart shows us the inflation contributors. And over the past 3 months, we can really see that energy has been pushing inflation up. However, dining and recreational services are also starting to uptrend again. And I think that this could be due to higher gas prices putting pressure on food industries because when fuel prices are higher, it causes inflation pretty much everywhere else. And the longer energy prices remain high, the more inflation could trickle throughout the remainder of the economy. All right. Now, this next slide shows us the US infrastructure funding and funding gaps out to 2033 and where the US is projected to spend a lot of its money. And the main thing that I want to point out here is that the US's power funding needs are sitting at 1.9 trillion over the next about 7 years and that there's currently a gap of about $600 billion. and the private markets will have to supply the funding for these gaps. And this is one of the main reasons why I am invested in Brookfield Asset Management. And if we take a look at the right-h hand chart, it shows us that infrastructure investments out to 2040 will be 12.4 trillion for the United States, 14.8 trillion for Europe, and about 30 trillion for the rest of the world. These are absolutely massive numbers and there's a significant amount of capital that will be needed to build out all of the infrastructure globally. Now, as I just said, this is one of the main reasons why I am invested in Brookfield. And this screenshot comes from Brookfield's most recent shareholder letter from their last quarter. And here they wrote, "An infrastructure where digitalization, rising energy demand, and delization are all creating sustained demand for capital. We continue to see exceptional client interest and a very large opportunity set. The concerns regarding AI disruption are equally balanced by accelerating AI adoption. That is not a headwind for Brookfield. It is a very significant tailwind. AI requires enormous physical infrastructure, data centers, power generation, transmission, fiber, computing, cooling systems, and industrial capacity across the supply chain. We are already deeply invested across those areas. We have leadership positions in data centers and renewable power. We can combine real estate, infrastructure, and energy into integrated solutions at scale. And increasingly, that is exactly what the largest hyperscalers, governments, and enterprise customers are looking for. This is also why all of our infrastructure, energy, and AI infrastructure strategies are seeing such significant interest. As AI adoption accelerates, Brookfield's marketleading position and a very large portion of our assets become increasingly valuable. So what Brookfield is saying here is that there is a massive amount of demand and need for the types of assets that they own, which are specifically infrastructure assets. And as I have shared on my channel previously, this is the main reason why I invested in Brookfield's ecosystem with Brookfield Asset Management being one of the larger positions in my portfolio now. And this is simply because the heart and foundation of Brookfield's entire ecosystem is building, owning, operating, and investing in real physical assets that make up the backbone of the global economy. These are things like data centers, real estate infrastructure, energy infrastructure, oil and gas companies, pipelines. And I agree with Brookfield that in our current world where energy is so constrained and it's becoming the limiting factor for continued technological innovation, these types of assets will become more and more valuable, which ultimately means that Brookfield's underlying assets and the returns on them should continue to go up. And since there is also so much demand and need for power, I believe that more and more funding will go into the types of strategies that Brookfield has been running and being successful with for decades. So, I believe that they will be able to continue raising more capital and deploying more capital and seeing significant tailwinds as we continue building out power and our need for power grows. In Brookfield Asset Management's most recent investor presentation, they also said that the business is expecting to see 20% annual growth for at least the next 5 years due to how much demand their business is currently seeing. All right, now getting back over to our charts. This next slide shows us the return dispersion between assets over the past decade. And here we can see that large cap stocks are pretty stable with strong returns over the past decade. Bonds have completely sucked, offering 2% to 0.1% returns, so basically nothing. Private credit has also been more volatile, offering 4.8 to 12.2% returns. And private equity has actually produced the highest returns over the past decade, but it has also been more volatile. And on the low end, it has actually done pretty poorly. And what I have learned about the private equity industry by being a Brookfield shareholder is that there are so many players in it. And some of them are truly not very good. The best private equity managers do very very well. But there are very bad ones out there who stain the entire industry and like to clog up the headlines and create a lot of fear. But the best ones do seem to continue getting better and are still growing their earnings very well. All right, now moving on to the next slide. This one shows us the rolling 20-year returns of stocks, bonds, and a 60/40 portfolio since 1950 all the way out to 2025. And what I notice here is that over all of the 20-year periods, stocks did not lose money as a whole. And this is why index investing is so powerful. If you give it time, it's pretty much guaranteed to work. Stocks have also produced the highest returns versus bonds and a mixed 60/40 portfolio. Stocks have been far more volatile in the short term, though, but in the long term, they have consistently produced the best returns by far. This one single chart shows you why staying invested for the long term is really what matters as an investor. All right. Now, this last chart shows us the current forward price to earnings ratio of large, mid, and small cap stocks. And in this chart, we can see that large cap stocks are trading for a huge premium right now, which historically has not been the case. Small and midcap stocks used to trade for a premium back from 2010 to about 2020, but since 2020, that has completely flipped. And now large cap stocks trade for a huge premium relative to small and midcaps. And I have found this when I am analyzing stocks as well. I have been continuing to find a lot of value. And my largest position right now, which has also produced my highest returns in the stock market ever, is a midcap stock. I also made a full video on my channel dedicated to my investment thesis on this stock. So, if you're interested in checking it out, then I will leave a link in the description and in the comments, or you can find it on my channel here. But ultimately, yes, I think that there is a lot of value in small and midcap stocks right now. So, I'm going to show you a few mid and small cap stocks that I think are looking very interesting right now. And the first one is Global E Online with the ticker symbol GLBE. Now, this stock IPOed all the way back in 2021. And it initially saw a huge run up of about 200%. But since its IPO now, it's only produced about 40% returns over the past 5 years, which means that it has underperformed the S&P 500. However, the stock is now trading for a price to free cash flow of about 23.2, which is right around the lowest it has ever traded for. And if we go take a quick look at its financials here, its revenue has been consistently growing by over 30% annually. And it just hit an all-time high of about $1 billion in trailing 12 months revenue as of its most recent quarter. The company's free cash flow has also been growing tremendously and hit $280 million in the trailing 12 months as of the most recent quarter. Here you can also see that its stock-based compensation is only at about $40.5 million in the trailing 12 months and stock-based compensation hasn't grown over the past three years. So while the free cash flow of the business has been exploding, the stockbased compensation has not been keeping up and in fact they've actually started buying back shares and the share count is now declining. So this is a business that has been growing its revenues by well over 30%. It is producing a significant amount of free cash flow. Its balance sheet is also strong. The stockbased compensation is low and its price to free cash flow today I think is pretty low at only 23.2. But full disclosure, I do not own the stock in my portfolio, but it is one that I am actively researching and learning more about. But I have not pulled the trigger yet. But I think that it is looking interesting at its current price and that is why I wanted to add it to your watch list as well. Now, the next stock that I want to talk about is Construction Partners Inc. with the ticker symbol road. This business, I think, has one of the most simple investment thesis in the market. To put it simply, they maintain and build new roadways across the southern United States. And they also acquire more road maintenance companies to expand. So, as long as roads in the United States need to be maintained or new roads are being built, then construction partners will have business and will continue to grow. Now, this stock is currently in a correction of about 32% from its recent all-time highs. And personally, I don't think that this is necessarily justified. And full disclosure, I have taken on a smaller position in the stock at $95 per share yesterday because again, I don't think that the selling has been justified because the company in its most recent earnings report actually increased its guidance because they are seeing so much demand and they're executing so well. And the best way to value road is on a price to ibeta basis. Now I know that IBIDA is not the company's true cash profits, but IBIDA has been the most consistent metric for this business historically and it seems like this is what the market has traded it off of. And right now road is trading for about 12 times trailing 12 months Ibida and about 10 times forward IBIDA. And if you take a look at how the stock has traded over the past 5 years, you can clearly see that it is trading on the lower end of its range. And again, this is at the same time as the business is actually increasing its guidance and it is projecting to double its business by 2030. So while this stock has sold off at the same time as its underlying fundamentals are continuing to grow and its outlook was just raised, I think that it is offering a compelling price and again I have taken on a position in the stock at $95 per share. Now the third stock that I want to bring to your attention is Zeta. This is a $5.26 26 billion market cap company that has been growing its revenues by about 32% annually and is trading for a price to free cash flow of about 29 today. Now that price to free cash flow does sound on the higher end. But if you take a look at this business's underlying fundamentals, its revenues have been growing tremendously well and its revenue growth rates are actually accelerating right now. The company's free cash flows have also been compounding extremely well and just hit an all-time high of $178 million in the trailing 12 months. Zeta is also projecting to roughly double its free cash flow by 2028 to $371 million. So, the company is projecting to see further margin expansion. The revenue is projected to continue growing by over 20% and free cash flow is projected to grow significantly over the next few years. And if they can achieve this, then I think the stock price today is actually looking undervalued. So now let's do a quick summary of everything that we covered in this video. And the first bullet point here says the forward PE of the S&P is below previous highs and well below that of the tech bubble. And ultimately, I believe that this is showing us that the market is not in bubble territory yet. The earnings growth of the overall S&P is also projected to continue being very strong and is now at over 20% for this year. The hyperscalers are trading for similar price to earnings ratios as the overall S&P now. However, the hyperscalers are projected to grow their earnings by 38% this year, which is double that of the overall market. And I believe that this is suggesting that the hyperscalers are actually undervalued today. Small and midcap stocks are also trading well below their historical average multiples. And they are trading well below the multiples of the large caps, which has not historically been the case. Again, historically, small and midcaps were actually trading for a premium, but now they are selling for quite the discount. And I ultimately believe that this is suggesting small and midcap stocks are offering some value today. Historically, stocks also haven't produced negative returns over any 20-year period, at least tracking since the 1950s. And over the long term, stocks produced the highest returns out of stocks, bonds, and a mixed portfolio. So, for myself as a long-term investor, I plan on just continuing to hold stocks, not try and time the market, and remain fully invested in stocks for as long as I possibly can. Then, the last point says that infrastructure spending is projected to continue being high for years to come. And I think that this is an important point because I continue to see some fears in the market that some infrastructure spending is going to slow down and stocks sell off and, you know, these construction companies get hit pretty dang hard. But I think that this AI buildout in conjunction with the overall infrastructure spend that countries just simply need to continue growing is going to provide tailwinds for asset managers and construction companies for a very long period of time. But with all that being said, that is going to wrap up today's video. And I would love to discuss what you have to say in the comment section below. And also, if you enjoyed this video, then please remember to leave a like on it and subscribe to the channel if you would like to see more videos like this. As always, thank you so much for tuning in. I truly do appreciate it and I hope to see you again in my next