- The tech boom drives global markets in the first half of 2024, and the S&P500 puts in its fifth best semester in 25 years, gaining nearly +15%.
- For the first time since the beginning of its operational phase, the Everest Formula underperformed the U.S. index, registering +6.5% and +0.7% in the 3- and 10-stock strategies, respectively, caused by the boom of mega caps and growth factor for the six-month period.
- In this article we are going to comment on the performance of the first half of 2024, also analyzing the best stocks uncovered by the Everest Formula.
Performance over the past six months
In the first half of 2024, the Everest Formula 3-stock strategy had a performance of +6.5%, turning a hypothetical portfolio of $10,000 invested on January 1, 2024 into $10,655 on July 1, 2024. The Everest 10-stock strategy had a return close to parity, registering a performance of +0.7% and turning the same amount into $10,067.
This result is certainly disappointing, given that the Everest Formula has now accustomed us to having an average annual gain of over 30% and consistently outperforming the market. How has this been possible?
The main factor has to be found in the reason for the market boom: technology stocks, particularly those in the high-growth artificial intelligence (AI) sector, led the rally in the first half of the year, as investors rushed into these companies with growing revenues and bright long-term prospects.
In contrast, the Everest Formula tends to select value mid-cap companies whose good fundamentals are not at that moment recognized by investors, and ready to explode when that happens. It is physiological that at times of euphoria like this, when the market follows the fads of the moment such as AI, there may be temporary underperformance.
Another point to make is that, according to the J.P. Morgan report, only four stocks accounted for more than half of the first-half increase in the S&P 500: Nvidia, Microsoft, Alphabet and Amazon. This is because these are among the most heavily weighted stocks in the index, which rose by double digits (or triple in the case of Nvidia). 30% of the S&P’s returns this year have been generated by Nvidia alone.
This means that in this six-month period the performance of the S&P500 has not reflected the performance of the overall market. In fact, if we look at other broader indices, such as the Russell 2000 or the S&P500 itself but with each of the 500 companies having the same weight, we find that the situation for the six-month period was not so rosy:
We are in a situation where the top 6 stocks in the S&P500 (Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta) weigh more than 30% within the index itself. This imbalance can lead to incredible results if these companies do better than expected, but also to drastic declines if their valuations return in line with the past.
Finally, as repeatedly reported, we must always look at the medium/long term to appreciate the benefits of the Everest Formula, which in the single six-month period may have returns in line with or (rarely) below the market, but in the long run proves to be a winning strategy. As a matter of fact, the following chart reports the performance of the Everest strategies since the end of the training phase of the algorithm, that is, since the beginning of the operational phase started in October 2020:
The Everest Formula is not a way to make “easy and quick money” but is an effective tool for value investors who want to grow their wealth over time.
The best companies selected by Everest Formula
This semester Everest Formula brought in some excellent companies in its top 10 that are worth analyzing to see if they are still good buys.
Mueller Industries Inc. – MLI
Mueller Industries, Inc. is a basic industrial manufacturer. It manufactures and sells copper, brass, aluminum, and plastic products in the United States and internationally. It operates through three segments: Piping Systems, Industrial Metals, and Climate.
The company has experienced massive growth in its segments since 2020, managing to sixfold its profits in the last four years. Despite this, the market has been slow to recognize the company’s actual value due to a complicated and pessimistic macroeconomic situation, which led to the company being placed by Everest Formula in the top 10 as of February 2023. Since then, the stock has posted an outstanding +77.5% in 1.5 years.
Current Outlook for MLI: Mueller Industries is still in the top 10 of the Everest Formula, at position 6, and is still one of the best stocks we like to have in this rising market. It is a stock that can have further room for growth in an expanding economy, thanks to its astounding balance sheet and very high profitability.
Dillard’s Inc. – DDS
Founded in 1938, Dillard’s operates department stores in the United States. The company currently has 273 Dillard’s stores open, 27 of which are clearance centers. This is a slow-growing or even stagnant industry, but one in which Dillard’s has been able to carve out an increasingly dominant role for itself, eventually becoming a stable and solid money-generating machine.
Investor uncertainties in this sector led the stock to have a very attractive valuation, and the company entered the Everest Formula top 10 in December 2023. Since then, the company has posted a healthy 12.8% gain and still seems to have room for growth.
Current outlook for DDS: Dillard’s is still in the top 10 of the Everest Formula, at position 4, so the formula still considers it one of the best stocks to own in 2024. Dillard’s enjoys excellent profitability, no net debt, and a distressed company valuation, although it has proven in recent years that it is solid and has become a cash flow machine.
Conclusions
This six-month period saw Everest Formula underperform the S&P500 index, albeit having a positive result. The reasons for this are 1) the boom of growth companies versus value companies and 2) the outperformance of mega caps that have an increasingly heavy impact on the S&P500, something not seen in more balanced indexes. Despite this, over the long term the Everest Formula continues to be one of the best strategies for beating the market and increasing investors’ wealth.
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