Congress Bought These 7 Stocks as the Market Nears All-Time Highs

In the last month, we've seen the stock market rise to record highs. And you might look at that and think there cannot be much left to buy. But look beneath the index. Nvidia, Apple, Meta, and a handful of other giants have carried an enormous amount of the upside. While parts of the market, they're still deeply in the red. And this is the exact same market shown in a different way. The first one, well, that shows us what happened over the last month. This one asks us how far each stock remains below its own high. It's almost entirely red. So, the useful question today is not whether the S&P 500 is near record. It's which companies are worth buying at the prices that we're seeing today. And there's also a second reason these seven names caught my eye. Members of Congress or their households have disclosed purchases in them. Some are obvious AI beneficiaries. Others have had painful sell-offs. One just reported earnings, one is up more than 200% this year. And the last one is exactly why copying a trade without checking the prices, well, it can be very dangerous. So, I'm going to rank seven of the names from the one I'd be most careful with to the one that looks most interesting to me. Today, we're going to look at the actual business, recent catalyst, the valuation, what would change my mind. Remember, congressional disclosure is where the research starts. Is not my buy signal. And one ground rule, a trade can be reported in fact after the purchase. House rules require many covered transactions to be reported within 30 days of notice and no later than 45 days after the transaction. The filing can describe a household trade and reported values arranges. And a new published filing is not necessarily yesterday's trade. And these performances of Congress against the S&P 500 really highlights why we like to dedicate episodes on this nature from time to time. they continue to not only outperform the S&P 500, but they do so by such a significant margin. And also remember as we're going through these, if you're copying purchase week later of members of Congress, you're more than likely going to pay a completely different price. I'm asking today whether I would own these businesses at the prices we saw on Friday's close. And the cap weighted index, that's near a high while the equal weight index has lost ground relative to it for years now. It doesn't forecast a crash. owning the average company. Well, it's felt different from owning the Giants. And we've also got a genuine bullish case on this Goldman chart. Trailing S&P 500 earnings, they're growing strongly. It's one reason the index can stay resilient even when bond yields and oil are unsettling investors. Strong earnings, they can support a high index. The catch, though, is that higher expectations give individual companies much less room to disappoint. And we've got forecast for the next earnings around the corner. Q3 has technology revenue growing nearly 40% against low single digits in some defensive sectors. Now, it's not reported results, but it explains to us why money keeps returning to AI while other stocks feel weak. And then we got the S&P 500, but this is on the basis of their forward valuations. It stops us from treating the market as one asset with one price. Some tech names now have much lower forward multiples than you might expect. Other fast growers still require several years of exceptional execution. A stock down 30% can remain expensive. Another can be only a few% off its high and still be better valued. And as you know, the biggest immediate challenge we have to the bullish case is rates. We've got a snapshot that the 10-year Treasury yield sits around 5.2% substantially above a level a year earlier. Bonds. So what they're doing now, they offer real competition for investor money, but they raise financing costs. And those costs hit businesses very differently. And we even have bond volatility, which has climbed while stock volatility is quieter. It doesn't predict a full next week. But rates can change what investors pay for earnings before the companies report weaker results. >> They'll look at stocks. They'll look at the earnings yields on stocks compared to what you can get in the bond market. There's a lot of competition there right now. >> That's the practical issue. A higher bond yield makes a promised stall of earnings 5 years from now less attractive today. It particularly matters when a company is to borrow or issue shares to build the capacity that will eventually generate those earnings. Remember that distinction when we reach Oracle and Marvel later in the episode where at the same time estimates can look excellent early in a hiking cycle and be cut later. I'm not predicting a replay of 2022, strong current earnings and future downgrades. They can coexist. Yet the market will finish this week higher despite the yields in oil volatility. If rates settle, there is fuel for another rally. If rates keep climbing, a number of these stock valuations become harder to defend. Those are the two life scenarios for next week. And the seven companies, they'll react to them differently. And now we have a maximum hawkish fed that could walk back. And so I I think it is all the ingredients for a face ripper. >> That is the upside argument. And I do not dismiss it. Earnings have been strong enough to absorb a great deal of bad news. But a short-term market bounce is not the same thing as a 10-year investment case. I want companies where I can explain how the cash flows back to shareholders, even if the next bounce takes longer than expected. And we have nearly every technology earnings call now mentioning AI is a measure of how pervasive the theme has become. Not evidence that every company mentioning deserves an AI premium. TSM, Broadcom, Oracle, and Marvel. They all touch the AI buildout, but they sit at different points in the chain and carry very different valuation risks. >> We learned in July is be careful because these ideas are all correlated. Whether you're talking the, you know, the compute power, the memory, the AI uh names, the chips, the uh, you know, the the data centers, it's all a correlated trade. So when there's an unwind like in July, you better own some financials, healthc care, they uh they carried the weight in uh in July and now what we're seeing in September is just the reverse. >> That is my final point before the rankings. Four AI related tickers do not automatically mean full independent ideas. Costco, McDonald's give us very different consumer exposures. Netflix gives us a different business. again, although it has its own serious question about viewing time. I want to know which of the names I'd actually defend if the entire AI trade reversed next week. And we can see this chart. It covers January through June, not last week. Microsoft Leads, Broadcom, and Netflix have six disclosed purchases a piece. So, it's not a collective congressional recommendation. And we're going to get into the rankings where we've actually got the updated disclosures most recently from just a few days ago. And at number seven is the most tempting trap in the entire list. Marvel. The congressional tracker here has substantially more reported buys than sales. Now, it sounds persuasive until you put the trades beside the share price chart. The stock is up around 28% so far this year. And the company in their most recent quarter reported revenue of 2.7 billion. That was up 37% year-over-year. Data center grew 46%. The AI demand is visible in reported numbers which explains the interest. Now over last year is also done very well over the last five up 315 although the bulk of the strong performance has come in the more recent period. Now it's trading towards the upper end of the 52- week range where we get a strong buy from Wall Street, weak buy from seeking Alpha. The difficulty here though is the price that you're being asked to pay for their growth and this is a company with a forward PC around 48. The market is essentially expecting Marvel to be a much larger, much more profitable company. Their revenue was up 31% year-over-year, expected to be around 47%, so to accelerate with longerterm earnings around 46% compounding over the next 3 to 5. But look, with the 10-year Treasury above 5%, excellent performance may be needed merely to support such a high multiple. It lowers my expected return without predicting a collapse. And given the four pieces much above the 5-year, you could argue a potential overvaluation signal. Something that we see from the blue tunnel from simply safe dividends highlighting fair value intrinsic price is sitting much much higher. Massive disconnect on the upper end. I mean if we zoom out to the last 5 years, you can see how cyclical the company is. It goes through cycles trading at a premium then trading in fact at an undervalued level sometimes also in a reasonable signal. Now we're seeing what looks to be an incredibly large premium. And Wall Street, whilst they gave the strong buy rating, they only anticipate around 10% upside over the next year. Average target price 289 at the higher end those sitting at $400. And my DCF, well, it comes to $25 today against a share price of $261. So, we're talking around a 27% premium, no margin of safety. Even in my most optimistic scenario where we can see here 20%, we're talking a value of around $300. So, yes, upside, but very minimal. Look at what the middle case already asks. We're talking for free cash flow to come around 15%. And that means a jump to 3.5 billion although this is based on analyst estimates and continuing that growth for a decade. If the business delivers this spectacular path and the shares are still above the middle value, the margin of safety is simply not there for me. With the reverse DCF also being very demanding, sitting at 18%. Now, in the not too distant future, October the 6th, there's an investor day. That's the next checkpoint. Management could change my estimate. Today though, I need a lower price before following a disclosed purchase. Marvel ranks last despite tremendous growth. And then we move on to sixth place. Oracle is almost the mirror image. Here we've got a company where the stock has fallen dramatically. The forward earnings multiple looks more ordinary and the reported congressional buys are easier to understand. But a falling price by itself does not tell us whether the company's become cheap. And at around $137, Oracle is down almost 30% this year and more than half below it September 25 high. That is a dramatic reversal for a company reporting extraordinary AI demand. and they reported their earnings recently Q1 2027 their revenue was up 30% to 19 billion cloud infrastructure grew 121% the revenue is arriving now that is the strongest bull argument and they also reported 664 billion of remaining performance obligations now contracted commitments expect to be recognized over time not cash already earned and timing and execution they matter so why only sixth the DCF middle value, we get $154, which implies around an 11% margin of safety. If we take a look at the sensitivity range, well, we can in fact see here in the lower end of 5%, we get $116. The cash needed to fulfill cloud contracts is immense. 12% here in terms of potential upside, that's not a huge cushion. And the model as we can see based on analyst estimates will it projects negative free cash flow for multiple years before a sharp improvement to roughly 31 billion in 2030. Yes, it may happen but it requires delivery of data center capacity, power chips and customer deployments on an ambitious scale. We've got the low and high outcomes between 116 and 199 which is probably a better way of looking at the company. Now, Oracle also completed roughly a 20 billion common stock sale during the quarter to support its investment program. Existing shareholders have to account for that dilution. A very large backlog can coexist with years in which building the capacity consumes more cash than it ultimately produces. And a power related delay reported at New Mexico's project Jupiter shows why execution matters. It doesn't mean the whole project was canceled. earlier free cash flow, less financing and on-time capacity. That would change my view. And at roughly 16 times Ford earnings, Oracle could become a bargain, then earnings multiple cannot capture years of heavy investment. The current price has not removed enough financing and execution risk for me. And we can see when look at the blue tunnel, we get a slight undervaluation signal. This was one when we were looking at stocks that were worth trimming or considering selling was right up there trading around the $300. the mid 250s over the last five years. Yes, the underlying fundamentals have been increasing. It's also one where investors were happy to pay more than a premium. Today, we are seeing a slight undervaluation signal where Wall Street really disagree. They see this as a strong one for consideration. 74% upside over the next year. Average price target $238. We then move into number fifth place, which is Costco. And I need to be especially precise here, the Congressional Tracker. We can see two buys and three sells. So, Costco qualifies because purchase were disclosed, but I'm not going to present it as a one-way vote of confidence from Congress. We can see though the most recent movement was a buy and Thursday's earnings were the catalyst. Shares closed around $923 on Friday, up around 3% on the day. Costco is a superb retailer. The question is whether these results justify buying after the move. Year to date up 7% over last year down 2% up over the last 5 years pretty much a double train towards 52- week lows just one buy rating from Wall Street seek Alpha with the hold in its 16-week fourth quarter net sales rose 11.2% to 93.9 billion total revenue reached 96 billion and membership fees rose to 1.85 85 billion. That fel line matters. Millions of customers paying to access the warehouses gives Costco a recurring stream that most retailers just do not have. And we can see here globally adjusted comparable sales rose 6.7%. We can see stronger adjusted US comparable sales. Existing warehouses are contributing alongside new openings. Now, there is a catch to using the headline EPS. fourth quarter earnings of $6.75 per share included about 15 cents of non-recurring benefit from tariff refunds net of summary reinvestment. So I'd separate that from recurring earnings when deciding what multiple to pay. And when we get to the updated DCF based on their latest earnings closing out the year, we can see we get to $1,67. We're talking 16% upside, a 14% margin of safety. Now it sounds attractive for a high quality business but the model when we take a look it assumes that free cash flow can grow 14% a year for a decade is a demanding path for a company already this large. Now yes you can argue over the last 5 years it's been higher even over the most recent year but when we zoom out to the 10-year KGA it does sit lower at 9%. The reverse DCF well it's telling us the market price implies around 12% annual cash flow growth using the model's discount rate. Now, there is some room between 12 and 14, but not a vast margin if membership growth slows, store economics soften, or interest rate rise. And Wall Street's average price target comes to $1,058. We can see implying around 15% upside, not too dissimilar, in fact, from our DCF. So, Costco, it's a wonderful operator priced for many good years. I'd move it higher after a better entry point. Today is a patient watch list name ahead of Oracle because the cash generation path is easier to underwrite. And when we look at the blue tunnel, we can see is right there towards the bottom. A potential undervaluation signal. As we've said when looking at this company, it's very, very rare to see it in an undervalued level. Just something worth pointing out. And then number four, we had TSM. A crucial manufacturer in the AI supply chain. It builds leading chips for customers, reshaping data centers. investors. They've already been rewarded handsomely and we can see year to date the shares are up 48% this year. We are seeing whether phenomenal fundamentals can outrun a share price that has already climbed over the last year up 63% over the last five up 288 trading around 52- week highs where we get a strong buy from Wall Street buy from seeking Alpha and the business case is not hard to make. TSM's Q2 revenue reached 40 billion at the top of its guidance. The most advanced manufacturing nodes account for a substantial and growing share. Very few businesses can provide the scale, yield, and manufacturing sophistication its biggest customers require. And high performance computing made up 66% of its second quarter revenue. That is how AI demand reaches TSM, not just through one chipmaker's results, but through a broad set of customers ordering advanced production. The near-term question is whether this mix and its margins can stay as strong as investors now expect. The company reported a 67.7% gross margin and 60.3% operating margin for Q2. Those are extraordinary manufacturing economics. The Q3 guidance sits around 45 billion is why it ranks above Costco for growth and above the more capital hungry Oracle for proven profitability. Now the valuation itself is no gift. The fall inward multiple sits around 23 around its own 5-year norm slightly above 21.4 the yield below the historical norm. So great business is not automatically a great entry price where actually when we look at the blue tunnel we still see it within the reasonable signal but sitting right there towards the upper end. If we got the last 5 years you had an opportunity to buy this undervalued around mid2025. And in the DCF, we get to $415. Against the current price of $450, we get around an 8% premium today. No margin of safety. When we look at the model, followed in fact by analyst targets, free cash flow jumps from 32 billion to 45 billion in 2026, then 15% growth moving forwards. Even with this robust path, the model does not give me a margin of safety at Friday's price. It is possible the assumptions undersshoot future AI demand, but that is the bet a new buyer has to make. Where Wall Street, they anticipate $552 as the average price target, implying upside of 23%. Now, not too long, October the 15th, they're going to report Q3 earnings. That is the checkpoint for margins, capacity, and spending. I love the business more than this entry price. TSM is my buy on meaningful weakness candidate. And at number three, we finally leave the AI buildout behind. McDonald's is down around 23% this year. The congressional tracker is mixed. Six buys versus eight sells. So, the case has to stand on the economics, the dividend, and a new company announcement. Most recent movement though we can see was in fact a buy. Now, the shares, they sit around $236, putting the forward earnings multiple in the high teens, substantially below the 5year average. The yield also 3.3% is a very different starting point from the McDonald's many investors have known over the last year down over the last 5 years. I mean if you invested say $10,000 5 years ago without reinvesting the dividends you'd have less than you did then as we can see pretty much at 52- week lows where we get a double buy seeking out on Wall Street around the four out of five. Now the high yield is not free if the operations are slowing. McDonald's latest global comparable sales rose 1.3% US comparable rose8% positive yes but the turnaround it's not complete and this we would typically say where the forward PE much lower than the 5year in fact at the lowest in the last 5 years yield highest in the last 5 years could be a potential severe undervaluation signal for which the blue tunnel pretty much pointing at the same thing over the last 5 years last time we saw this was actually towards the end of 2024 so about 2 years ago and its restaurant network franchise income and global marketing are powerful yet customers can visit less often or trade down. A cheaper stock does not fix traffic. Sales must improve beyond menu price increases. And this week gave us an actual new catalyst. McDonald's unveiled its next restaurant strategy and said it plans around 8.5 billion support to franchises through 2036, including around 5 billion by 2030. Think rent relief and capital support for modernization operations, not an instant 8.5 billion increase in profit. The bull case was that the investment improves services, restaurant economics, and eventually traffic. Management targets about $250 basis points in gross restaurant level efficiency, equivalent in its estimate to roughly $100,000 of annual cash flow benefit at an average US restaurant. The bare case is that needing so much support reveals pressure on franchises and near-term cash flows. And we can see here net debt to EBIT D that sits around 3.2 and the free cash flow dividend payout that sits near 70%. There is room but not infinite flexibility if sales remain weak or modernization cost rise. My reason for stopping at third, the pure cash flow model comes out around $246, only around 4% higher than the share price today. The other values when blended comes to 296, but they are different models with different assumptions. I'm not going to headline 25% upside and 20% margin of safety while hiding the much smaller DCF margin. This is a dividend recovery idea. I like the low multiple and high yield. I need better comparable sales and cash returns before ranking first. This is one that dividend investors should investigate. And Wall Street, well, their average price target continues to be lowered now sitting at $300, while the implied upside does look respectable at 27%. But as always, this is something that continues to change. At number two, we've got Broadcom. The AR results are so strong that it'll be easy to make this my automatic winner. The tracker also has more reported buyers than sales, but the real reason it ranks near the top is what customers are paying it to deliver. Now, we can see shares trading around $350 is up, although barely year to date, even after posting spectacular AI semiconductor growth. Share price, I would say, hasn't followed the business in a straight line. Creates a much more interesting starting point than buying Marvel after a rough 200% year-to- date advance. over the last year up barely over the last five though strong performance up 600% sitting towards 52- week lows respectable buy from seek Alpha double strong buy from Wall Street and Quan and Broadcom say Q3 AI semiconductor revenue reach 17 billion up 221% year-over-year more important for the near-term debate the company expects Q4 semiconductor revenue of 22 billion and this is a business benefiting from both custom AI accelerators and the networking needed to connect the machines It also has infrastructure software cash flow. The blend gives me more than one source of earnings. Although all of the AI demand can still be hit by the same customer cab cycle. The bull case is growing deployment and cash flow. The bare case is concentrated customers and tough comparisons. So we can't extrapolate this year's 200% growth into a 10-year forecast. And we can see forward P sits around 20 which is below the 5year average of 24. Potentially an undervalued signal for which this is confirmed when we look at the blue tunnel. Nice to see in just the last year massive massive rise in terms of underlying fundamentals as well as being below. I mean interesting thing to point out here is the last time that we saw an undervalued signal for Broadcom. Well, you'd have to go towards the end of 2022. So we're talking around 4 years ago today. And for the DCF in the middle level, we get $456. That's a 29% upside or a 23% margin of safety. If we take a look though at the ranges between 10 to 20%, 15 being the middle. Well, it's very wide. We get 320 on the low end, pretty much double that at the higher end at 644. Now, these are in fact appealing upside, but the range is the honest part of the analysis. Broadcom is in no way immune to a change in AI spending expectations and well in fact analysts are expecting massive growth free cash flow 27 billion in 2025 48 billion in 2026 and this well it is exceptionally large if it proves too optimistic the apparent discount to $456 well that narrows quickly so I'd validate this when we do get the company's next filings before essentially treating the estimate as a hard buy price and analysts well they like this one clearly 51% projected upside average price target 532 higherend 715 lowerend 216 and also worth highlighting here that the recent entries their small reported purchase ranges not proof of a $1 million betcom's my favorite AI name here because of the business and scenario upside provided cash flow assumptions hold now number one might surprise you it is Netflix it has fewer neat AI sound bites than the chip names no divid appeal to the income side of this channel. But the question today is what the market price asks me to believe. At around $71 after a difficult year, Netflix offers the most interesting gap between operating performance and market expectations in this particular group. The shares where they're down 24% year to date and they're down much further from their earlier peak. We saw six purchase appear in January to June as well. But I can't say that Congress all believe Netflix is a buy. What I can say is from the disclosed purchase. It makes the sell-off worth investigating. I mean over the last year they're down 41% over the last five up only 20 sitting towards 52- week lows. Respectable buy from Wall Street buy from C alpha but on the weaker side. But here is the serious bare case. Two analyst downgrades in a week focus on engagement. Are subscribers spending less time watching Netflix while YouTube takes more viewing time in the living room? If audiences have less reason to open the app, the company may find it harder to retain customers, push prices, and grow advertising. This is not a risk to wave away, but a falling stock and a weakening business are different things. Netflix reported Q2 revenue growth around 13% to 13 billion, operating margin, 33%, fullear guidance, 51 billion of revenue, and a 31.5% operating margin. The growth has moderated yes, but the company remains highly profitable. And management says total viewing hours rose 2% in the first half. Analysts asking a different question about viewing per subscriber and the strength of the content slate. Both can be true. I would not use aggregate viewing hours to declare the analyst concerns disproves. And I would not use one downgrade to claim Netflix reporter revenue and cash flow vanished. Look at the longer journey though. Netflix has moved from the period where streaming consumed enormous amounts of cash to a business generating billions in annual free cash flow. Return on invested capital has improved sharply. Share count has been coming down. That is a different business model from the Netflix and investors valued a decade ago. For 2026, management still expects around 12 billion of free cash flow and roughly 3 billion in ad revenue. Advertising gives it another way to earn from viewing, but it does not remove the need for programs people actually watch. The next late and the ad business have to show that monetization can offset softer viewing per member. The valuation is where the story becomes compelling. Netflix sitting around 20 times forward earnings versus 5 years sitting around 35. I'm not going to assume it has to return to 35. I asked whether a company producing this amount of cash and still growing revenue in double digits really deserves to stay at 20 if engagement stabilizes. Now the DCF comes to $96 at the middle value versus the current price of 71 gives us a 26% margin of safety. If we take a look well in fact free cash flow again has come from what analysts are expecting. The reverse DCF though that's implying only around 5.8% 8% growth under the model's 8% discount rate. Now, obviously, it doesn't make $96 hit a guaranteed destination. If, for example, weak engagement eventually undermines pricing, membership, and ads, the low scenario, well, at 5%, it could become much more plausible, indicating $67% downside. The reason this is my number one today is that I can articulate the bare case and still see a credible route to a good return without assuming AI style growth forever. The real test for Netflix arrives October 20th when they report Q3. I would watch revenue growth, operating margin, cash generation, and above all what Mandrin says about engagement and the upcoming releases. A strong quarter alone would not answer every question, but evidence that viewing stabilizes while ad revenue expands. That could change the market's mood very quickly. And Wall Street, they're expecting around 31% upside. Their ranges at 57 at the lower end, 93 mid-end, 135 at the higher level. So yes, if I had to pick just one of these seven at these prices, it would be Netflix with Broadcom very close. In fact, even interchangeable Netflix and Broadcom. It is a risk whereby thesis not a claim that the analysts have been proven wrong. For an income only investor, McDonald's may be a better fit. For an AI focused investor, Brocom is the much stronger alternative. My own ranking today is based on expected return against what today's price already assumes. So in terms of a recap from seven down to one, we've got seven plagues Marvel. The business is growing brilliantly, but after a roughly 208% run, even the ambitious cash flow model values it below today's price. I would wait for a better entry point. Then in sixth place, Oracle. The 664 billion backlog is remarkable, but delivering it requires years of spending and financing. I want more margin for the execution risk. In fifth place, Costco. Strong earnings reaffirm the quality of the business, but the valuation still assumes a long run of rapid cash flow growth. I would be patient after the post earnings rise. In fourth place, TSM. It may be the best business on the list yet around $450. The shares are above the middle cash flow value. I would rather buy meaningful weakness. In third place, McDonald's. The lower multiple and rough 3.3% yield makes its recovery worth examining. the sales and the returns from its new restaurant investment, they must improve. In second place, although you could argue interchangeable with number one, Broadcom is my preferred AI exposure here, supported by real orders and strong cash generation, the apparent upside depends on an aggressive jump in free cash flow. So, we're going to need to check that when the earnings arrive. And in number one, Netflix, around 20 times Ford earnings. The price leaves the clearest room for the market to be too pessimistic. The engagement concern is real. October 20 is the test of this thesis. Now, let me know your thoughts overall, whether any of these you're buying, whether you believe the ranking is slightly different in your opinion. And don't forget to sign up to the weekly newsletter by clicking on the pin comment below, fresh copy arriving tomorrow morning, where you can read all of these straight away. But more importantly, have a great day. I'll see you all on the next one.