Underdog Leader
In this edition of the Smart Investor newsletter, we spotlight a digital-trust powerhouse turning cybersecurity and financial wellness into a renewed growth engine – a high-margin compounder poised for re-rating. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖ Microsoft (MSFT) announced the launch of a dedicated team to pursue superintelligent AI called “Humanist Superintelligence.” In contrast to other tech firms already working on similar projects, Microsoft isn’t targeting an “infinitely capable generalist” machine; instead, it aims to achieve advanced AI systems designed to solve well-defined, practical problems – starting with medical diagnostics. According to MSFT’s AI chief, Mustafa Suleyman, autonomous and self-improving machines may be difficult to control, raising safety concerns. Microsoft, meanwhile, strives to develop technology that, while being incredibly advanced, keeps humans in charge and serves humanity – representing a strategic and philosophical shift toward controllable, specialized AI, rather than pursuing unrestricted AGI capabilities.
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❖ Taiwan Semiconductor Manufacturing, aka TSMC (TSM), reported a 17% year-over-year growth in its October sales, its slowest pace since February 2024, adding doubts to the sustainability of the ongoing AI rally. Still, that is on track with the average analyst estimate of a 16% sales increase in Q4, with the traditionally slow semiconductor season largely offset by AI-driven demand. Tech CEOs and most industry analysts remain optimistic about AI-driven growth as major tech firms are accelerating capex into data centers, infrastructure, and semis. Meta, Microsoft, Google, and Amazon together plan to spend over $400 billion on the AI buildout next year, a 21% hike from 2025, as competition heats up. One of the key spending pathways is advanced chips produced by TSMC for Nvidia and AMD, as well as many of the custom silicon designs by hyperscalers themselves. Nvidia’s star CEO Jensen Huang is an outspoken fan of TSMC, time and again praising the world’s largest foundry for its ability to keep up with soaring demand. Just in the past week, Nvidia ramped up its orders for Blackwell production at TSMC. Additionally, Nvidia is shifting production of its most advanced AI chips, specifically the Blackwells, to a TSMC-operated manufacturing facility in Arizona, citing the foundry’s indispensability in achieving U.S. critical-tech reshoring.
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❖ Oracle’s (ORCL) data center campus in New Mexico, a part of the Stargate Project – a $500 billion initiative led by OpenAI, SoftBank, and ORCL – has been granted a $18 billion project finance loan from a consortium of 20 banks, led by Sumitomo Mitsui, BNP Paribas, Goldman Sachs, and Mitsubishi UFJ. This deal is one of the largest recent debt financings in the tech sector and reflects the massive capital requirements for building AI infrastructure. Still, it pales in comparison to the previous such financing package for Oracle’s data centers in Texas and Wisconsin, valued at $38 billion and led by JPMorgan and Mitsubishi UFJ. With hyperscalers and AI leaders racing to build the massive infrastructure needed to support next-gen AI models, debt issuance – along with raising capital through stock offerings and convertible debt – is on the rise, which, among others, benefits the financial facilitators like JPMorgan Chase (JPM) and Morgan Stanley (MS).
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❖ Jones Lang Lasalle (JLL) reported its sixth consecutive quarter of double-digit revenue gains and eighth consecutive quarter of double- or triple-digit adjusted EPS growth, surpassing consensus expectations on both metrics. Revenue grew by 10%, adjusted EBITDA increased by 16%, and adjusted EPS was up by 29%. Transactional revenue grew 13% in the quarter, led by 26% growth in investment sales, debt, and equity advisory, indicating a strong recovery and momentum in the Transactional markets. Free cash flow reached its highest level since 2021, net leverage improved to 0.8x, and share repurchases totaled $131 million year-to-date. JLL plans to continue repurchasing shares as long as leverage remains low and no compelling M&A opportunities arise, with capital deployment focused on organic growth and productivity.
JLL’s successful integration of AI technologies is driving significant efficiency gains and productivity improvements across the organization, supporting the bottom-line expansion. Moreover, the software and technology solutions segment is expected to be profitable by the full year 2026 and will be integrated as a fifth business line within real estate management services.
The company is intentionally exiting its low-margin property management contracts, primarily in Asia Pacific, which is temporarily dampening segment growth and is expected to weigh on the Real Estate Management Services top-line growth through the first half of 2026. However, U.S. property management continues to show mid-single-digit growth, and the broader facilities management and project management businesses remain strong with high single to double-digit growth.
JLL increased the low end of its full-year 2025 adjusted EBITDA target range by $75 million, now expecting $1.375-$1.450 billion, and is on track to achieve the low end of its mid-term adjusted EBITDA margin target range (16-19%) this year, ahead of its original timeline.
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❖ Parker Hannifin (PH) saw its stock jump after the release of stellar fiscal Q1 2026 results, beating both earnings and sales expectations. The firm posted record revenue of $5.1 billion (reflecting 5% organic growth) and adjusted EPS of $7.22 (up 16.5% year-over-year). Adjusted segment operating margin expanded by 170 bps to 27.4%.
The Aerospace Systems division remained a key growth driver, posting a 13% jump in sales and a record adjusted operating margin of 30%. Industrial North America and International segments showed positive organic growth for the first time in two years, with gradual recovery in construction and off-highway, continued challenges in transportation and agriculture, and selective capex spending by customers. Meanwhile, PowerGen and Data Center Cooling are highlighted as emerging strong growth verticals.
Total company backlog increased 8% to a record $11.3 billion, with international orders rebounding to a 6% increase and aerospace orders rising by 15%. Cash flow from operations was a record $782 million, while Parker repurchased $475 million worth of its own shares during the quarter. The company completed the acquisition of Curtis Instruments, adding $235 million to FY26 sales guidance. Integration is well underway, and Curtis is expected to be EPS accretive despite being slightly margin dilutive.
Parker-Hannifin raised its full fiscal-year 2026 organic sales growth guidance from 3% to 4% at the midpoint and reported sales growth midpoint to 5.5%, while adjusted EPS outlook was lifted to $30, reflecting a 10% increase year-over-year. Free cash flow is now seen at $3.1-3.5 billion with conversion of more than 100%.
Additionally, PH is currently in talks to acquire Filtration Group from Madison Industries in a transaction valued at approximately $9 billion, which, if completed, would be its second-largest acquisition to date. Filtration Group specializes in industrial, automotive, and HVAC filters, aligning well with Parker’s industrial and aerospace equipment business.
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❖ KKR & Co (KKR) reported strong third-quarter 2025 earnings, topping analyst expectations with an adjusted EPS of $1.41 versus the forecasted $1.30, and total revenue reaching $5.53 billion. The company’s real AUM rose 14% year-over-year to $186 billion, driven significantly by infrastructure fund inflows and organic capital raising. Total AUM increased 16% year-over-year to $723 billion, bolstered by fresh capital raised during the quarter. KKR raised $43 billion in new capital, marking its second-highest fundraising quarter, driven by record demand for its credit products. The firm aims to grow assets to $1 trillion by 2030.
Fee-related earnings, or FRE, reached a record $1 billion, or $1.15 per share. Management fees grew 19% year-over-year to $1.1 billion, reflecting successful fundraising across asset classes. Capital markets fees reached $276 million, while fee-related performance revenues increased by nearly 30% year-over-year to $73 million. All figures, including the adjusted EPS, are among the highest reported in KKR’s history.
KKR’s insurance and credit businesses showed particularly strong growth in Q3, as the firm continues to evolve its insurance business by originating longer-duration liabilities, expanding globally, increasing third-party capital, and integrating more alternative investments, with total insurance-related economics up 16% year-over-year and expectations for further growth as accrued income matures. Meanwhile, transaction fees from capital markets declined 35% year-over-year to $276 million, contrasting with strong growth in other fee categories and reflecting the volatile nature of the segment’s private-equity and infrastructure fee income.
Realized performance and investment income totaled $935 million. KKR has a record $126 billion of dry powder and roughly $17 billion of embedded gains, positioning it well for future opportunities. Looking forward, KKR is optimistic about meeting its 2026 guidance targets, citing strong momentum in fundraising and monetization activity. These include achieving over $4.50 in fee-related earnings per share and more than $7 in after-tax net investment income per share.
Despite the strong results and optimistic outlook, KKR’s stock gave up most of the post-earnings increase following a disclosure that it must refund $350 million in fees due to underperformance in its Asia private equity fund, which is slated to lower Q4 net realized performance income by $0.18 per share. Despite this one-time hit and the ongoing investor concerns over industry headwinds that have been weighing on stock performance recently, analysts’ reaction was broadly supportive, focusing on fundamental business model strength and long-term positives.
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❖ Pfizer (PFE) has officially won the legal fight over the acquisition of Metsera, securing a deal valued at approximately $10 billion. This resolution comes after a competitive bidding war with Novo Nordisk, which withdrew due to U.S. Federal Trade Commission antitrust concerns about the competitive consolidation posed by Novo Nordisk’s offer structure. After PFE matched the higher offer, which Metsera viewed as superior based on price, the company’s board unanimously recommended Pfizer’s amended merger agreement as it delivers the best outcome for shareholders, balancing value with legal and regulatory certainty.
Metsera is a private U.S. company that has shown progress on its pipeline of GLP-1 anti-obesity drugs. The transaction provides Pfizer access to MET-097i, a weekly and monthly injectable GLP-1 receptor agonist in Phase II trials, and MET-233i, an early-stage monthly amylin analog. With an early clearance already granted by the FTC, PFE’s acquisition of Metsera is expected to proceed smoothly, securing the pharma giant a strategic position in the obesity drug market.
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Portfolio Stocks Under Review
❖ We are keeping Cisco Systems (CSCO) under review despite its strong stock outperformance since mid-September.
CSCO is actively reinventing itself – moving from legacy networking to becoming a major enterprise AI infrastructure player. Its scale – 35 million devices and 1 billion clients – and unified hardware, software, and cloud stack create a strong foundation for AI workloads. Innovations such as Cisco Data Fabric and Splunk Federated Search for Snowflake highlight its push toward a unified AI-ready data architecture.
Splunk is delivering accretive revenue and solidifying Cisco’s leadership in cybersecurity and observability, with CSCO’s security business growing over 20% year-over-year and more than offsetting declines in legacy networking hardware. The incremental income from Splunk is expected to continue accelerating, reaching $4 billion in annual recurring software revenue contribution during the ongoing fiscal year. Moreover, the integration of Splunk’s AI-powered capabilities deeply into its security operations delivers significant breakthroughs, such as the newly announced AI security model with 17 billion parameters, expected to be released in 2026, designed to both detect threats and advise on steps to mitigate those risks.
The company is ramping up its AI-integrating networking and security solutions portfolio, with over 20 new AI-centric products introduced over the past several months. These include the new Silicon One P200 chip and the Cisco 8223 router system, designed specifically to address the intense AI workload traffic between data centers, enabling synchronization of geographically separated AI clusters. This gives Cisco a competitive edge in the AI data center interconnect market.
The revitalized tech giant has also unveiled N9100 – the first data-center switch based on Nvidia’s Spectrum-X Ethernet switch silicon, delivering immense bandwidth, high scalability, and exceptional performance, supporting AI backend and frontend networks for large-scale AI workloads. Additionally, CSCO announced the Cisco Secure AI Factory with Nvidia, addressing key AI security concerns, as well as the Nvidia Cloud Partner-compliant architecture offering, supporting massive GPU deployments and AI data-center scalability.
Cisco continues to expand its partnership ecosystem, which already includes the U.S. tech leaders like Nvidia and Microsoft and sovereign players like HUMAIN, becoming a key fixture in the global AI buildout. UAE Stargate – a part of the massive $500 billion UAE AI data center infrastructure project, where CSCO is a key tech partner alongside Nvidia and Oracle – continues to progress at a fast clip. In October, CSCO expanded cooperation with an Emirati AI investment firm, G42, in a deal to power, connect, and secure a large-scale AI cluster developed under UAE Stargate – further embedding itself as a trusted partner in high-value, sovereign AI infrastructure roadmaps, and establishing its technology standards as foundational in the region.
These innovations and partnerships are expected to continue serving as important catalysts, leading some industry analysts to declare CSCO a “must-hold stock” in the AI era, as the company is actively repositioning along key growth drivers – AI infrastructure, secure cloud deployments, and telecom innovation – which are expected to contribute to Cisco’s top-line acceleration and strengthen its competitive position. Just recently, Raymond James and UBS lifted CSCO from “Hold” to “Buy” and raised its price target to a new Street high, citing its gigantic AI order backlog of $2 billion, along with a multi-year growth cycle driven by AI infrastructure demand, large-scale corporate refresh cycle, and strong momentum in its security business.
Wall Street expects Cisco’s fiscal Q1 2026 revenue to reach $14.78 billion, growing by about 7% year-over-year, and adjusted EPS to increase by nearly 8% to $0.98. While appearing unspectacular, this steady growth is a stark comparison to the jolts-amid-stagnation pattern of the years before the giant embarked on the AI and security-led revitalization journey. We are inclined to hold CSCO in the Smart Portfolio, but want to observe the reaction to its earnings to see whether market participants are prepared to wait for the expected longer-term benefits amid moderate near-term growth.
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❖ We are keeping Keysight Technologies (KEYS) under review, as the stock performance still seems to lag the company’s sound fundamentals, despite the strong rally over the past month.
We have added KEYS to the Smart Portfolio on October 1, building our investment case on the company’s pivot to AI infrastructure, 6G research, and quantum computing.
Keysight is the world’s largest provider of electronic design and test solutions, serving as a critical enabler of innovation across communications, aerospace, automotive, AI, and emerging fields like quantum. While commercial deployment of quantum computing remains years away, KEYS’s AI-enabling tech has already become a meaningful contributor, expanding faster than the company overall, as the company’s measurement and validation tools are also deeply embedded in the AI hardware value chain, supporting accelerator, processor, and memory performance in systems designed for training and inference.
At the same time, KEYS is making strides in advancing quantum engineering technologies. At Nvidia’s GTC conference, the AI chip leader announced a collaboration with Keysight aimed at developing hybrid quantum-AI computing through combining Nvidia’s NVQLink architecture and KEYS’ Quantum Control System, which integrates with NVIDIA’s CUDA-Q software platform to support hybrid quantum-classical systems. Moreover, in end-October Keysight revealed the Quantum System Analysis tool – a breakthrough EDA solution enabling quantum engineers to simulate and optimize entire quantum systems at the system level.
Keysight’s leading role in the development of the next-gen quantum-AI computing is one of the key reasons for analysts viewing the company as one of the main beneficiaries of surging AI-related investments. Hyperscalers are currently spending a record high 60% of their operating cash flow on capex, with data center and AI infrastructure expansion not likely to slow anytime soon. Goldman Sachs has recently named KEYS a top pick for tech capital expenditure and R&D in 2026, boosting the growth outlook. UBS initiated KEYS with a “Buy,” saying that the company is at an inflection point towards growth acceleration, driven by AI infrastructure, synergies from recent acquisitions, and a continued rebound in the core business. These are expected to induce margin expansion and a re-rating of the stock.
However, the stock remains volatile, torn between a favorable outlook and worries over its relatively high valuation. Thus, Jeffries said that although KEYS is a high-quality business, the current valuation already reflects mid-single-digit organic growth expected in the next couple of quarters, limiting near-term upside. On the other hand, institutional investors appear unfazed by the price, having increased their holdings from under 85% in Q1 to nearly 89% in Q2 2025, reflecting a rise in institutional investment and interest in the company.
Keysight has never underperformed EPS consensus, but its latest three quarterly reports – the ones that reflected its return to growth, no less – have been met with muted market reaction. Its next earnings report on November 24 will drive our decision regarding its place in the Smart Portfolio. While a small earnings beat probably wouldn’t suffice, given the market anxiety over the stock’s valuation, a set of significantly better-than-expected results may provide a new re-rating benchmark for KEYS, giving its stock a leg up.
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Portfolio Earnings and Dividend Calendar
❖ The Q3 2025 earnings season is well past its peak but still rolling, with Cisco Systems (CSCO) scheduled to report today after close, and Aecom Technology (ACM) expected to post its results on November 18.
❖ The ex-dividend date for Visa (V) is today, while for Jabil (JBL) and KKR & Co (KKR) it is November 17.
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New Buy: Gen Digital (GEN)
Gen Digital Inc. is a global leader in consumer cyber-safety and digital privacy, protecting millions of people and devices through trusted brands such as Norton, Avast, LifeLock, Avira, and AVG. Its integrated platform spans antivirus defense, identity-theft protection, privacy software, and financial-wellness tools – capabilities that place it among the most comprehensive players in the field. Gen Digital plays a pivotal role in the everyday security of the digital world, enabling users to navigate an increasingly connected environment with confidence and control.
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Safe Reboot
Gen Digital’s origins trace back to the early 1980s, when Symantec began as a small software research firm that would soon become synonymous with computer protection. Its defining moment came in 1990 with the acquisition of Peter Norton Computing and the launch of Norton Antivirus – one of the first mass-market tools to protect personal computers from emerging digital threats. That move positioned Symantec as a pioneer in consumer cybersecurity long before the internet became mainstream.
Over the next two decades, Symantec grew through a long series of acquisitions, expanding into enterprise security, storage, and data management. Yet this rapid diversification often diluted its focus. By the late 2010s, a string of strategic missteps, uneven execution, and shifting leadership left the company sprawling and underperforming. Recognizing the need for reinvention, Symantec sold its enterprise security division to Broadcom in 2019 and refocused on individual and small-business protection. The remaining business rebranded as NortonLifeLock – marking the start of a more coherent consumer-centric strategy.
The real transformation began in 2022 with NortonLifeLock’s merger with Avast, a move that created one of the world’s largest consumer-cyber-safety companies. This combination unified several leading brands – Norton, Avast, AVG, Avira, and LifeLock – under a single operating model, improving efficiency and global reach. The company adopted the name Gen Digital to signal a fresh start built on integration rather than accumulation.
Since then, management has concentrated on execution, margin expansion, and technology renewal. The 2024 acquisition of MoneyLion extended Gen’s reach into financial wellness and digital identity protection – a logical next step in an era when cybersecurity and personal finance increasingly overlap. The company has also embedded artificial intelligence into its threat-detection and scam-prevention systems, aiming to stay ahead of new digital risks rather than merely respond to them.
This period marks a clear shift in character. After years of inconsistency, Gen Digital is behaving like a focused, disciplined operator. The company’s leadership has streamlined its structure, rebuilt credibility, and redefined its purpose – to protect users’ identities, privacy, and finances in one connected platform. From a fragmented past, Gen has emerged as a more stable and forward-looking force in consumer cybersecurity.
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Lock and Ledger
Gen Digital today operates as a dual-engine platform for cyber safety and digital trust – protecting identities, data, and now financial lives for more than half a billion users worldwide. Its model blends subscription-based software, AI-enabled protection, and digital-finance integration, creating a recurring-revenue structure that scales efficiently across geographies and customer tiers. From antivirus and identity protection to financial wellness and scam defense, the company’s offerings are unified by a single proposition: safeguarding the connected consumer economy.
Roughly 70% of Gen Digital’s revenue comes from its Cyber Safety Platform, the core business that houses Norton, Avast, and LifeLock. This segment covers endpoint and mobile protection, privacy tools, and identity monitoring. Norton remains the industry’s most recognized name in consumer cybersecurity, while LifeLock has grown into the leading brand in identity theft protection. Together, these assets give GEN a commanding share of the global consumer cyber market – around 44% – and one of the largest installed bases in the sector. Growth here is driven by innovation rather than reinvention: new AI-powered tools such as Norton Genie Pro and Avast Scam Guardian extend real-time protection into fraud and deepfake detection, now operating across more than 40 languages.
The remaining 30% of revenue stems from Trust-Based Solutions, an emerging business that integrates digital security with financial well-being. The centerpiece of this expansion is MoneyLion, the consumer-finance platform Gen acquired to anchor its push into financial wellness. MoneyLion contributes rapid growth – with revenues more than doubling on a pro forma basis – and transforms Gen into a two-pillar company spanning cybersecurity and personal finance. The logic is straightforward: the same customers who rely on Norton or LifeLock to safeguard identity and privacy can now access tools that help protect and grow their financial health within the same trusted ecosystem.
This integration gives Gen Digital a structural advantage over traditional fintechs. Where others spend heavily to acquire users and build trust, Gen already possesses both. It’s 75 million paying customers form a captive audience for cross-sell and upsell, lowering acquisition costs and expanding customer lifetime value. Management expects sustained momentum from this model as the platform matures and new AI layers increase personalization and efficiency.
Growth opportunities extend across multiple fronts – AI-driven threat detection, scam protection, digital identity, and secure financial wellness. With a unified technology stack and expanding recurring revenue base, Gen’s business has shifted from product-led to platform-led. The company is no longer just selling protection software; it is building a trusted infrastructure for digital and financial life.
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Fully Charged
Gen Digital’s second quarter of fiscal 2026 showed the power of a high-margin, largely recurring business model. Over 80% of the company’s revenue is subscription-based, giving it visibility and resilience even in uneven markets. Total revenue reached $1.22 billion, slightly above consensus – up 25% year-over-year – driven by the first full-quarter contribution from MoneyLion within the Trust-Based Solutions segment. That segment’s revenue more than doubled from a year earlier, underscoring MoneyLion’s strong integration and rapid scaling.
The Cyber Safety Platform, anchored by Norton, Avast, and LifeLock, grew at a steady pace of 5% year-over-year, extending its lead in the global consumer security market. The larger segment is expected to continue seeing strong support from cross-sell momentum between MoneyLion’s financial-wellness platform and Gen’s core cyber-protection suite.
Profitability remains solid. In FQ2 2026, Gen’s adjusted EPS rose 15% year-over-year to $0.62, marking the seventh straight quarterly earnings beat and the fifth consecutive revenue beat. Non-GAAP operating margin remained robust at roughly 51%, with Cyber Safety near 61% and Trust-Based Solutions around 30%. Gross margin held near 86%, underscoring the structural profitability of Gen’s subscription base.
Margin pressure tied to MoneyLion’s mix and ongoing AI investments was modest, and the company expects leverage to rebuild as synergies and automation scale through fiscal 2026. Management also highlighted early productivity gains from AI-driven marketing and customer support, which should support incremental margin recovery later in the year.
Free cash flow softened temporarily due to tax and interest timing, but operating cash generation stayed strong. The balance sheet remains controlled, with ongoing debt reduction and continued investment in AI and customer-acquisition infrastructure.
Management raised full-year guidance across key metrics. Fiscal 2026 revenue is now projected at $4.92-4.97 billion, up from $4.80-4.90 billion, marking a sharp acceleration. Following two years of low double-digit revenue growth in fiscal 2023 and 2024, Gen slowed to just 4% in fiscal 2025 as it absorbed the Norton-Avast merger and paused for integration. Now, two strong quarters have restored momentum and validated Gen’s business strategy, making the company’s 25% top-line growth target for the year appear well within reach.
The company also lifted its adjusted EPS outlook, targeting $2.51-2.56 (versus prior guidance of $2.49-2.56) and implying annual EPS growth of over 14% at the midpoint. EPS growth will continue to trail revenue for a few more quarters as MoneyLion’s high-growth, lower-margin model temporarily weighs on profitability, and AI investments are temporarily raising costs. Revenue growth is front-loaded, and profitability will follow by late FY26 or early FY27, when synergies and automation begin to lift margins.
In short, fiscal 2026 stands as a reset year for Gen Digital – proof that disciplined integration, recurring revenue, and smart expansion can reignite the growth investors once thought lost, while keeping fundamentals firmly intact.
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Encrypted Upside
Gen Digital’s peer group spans the spectrum of large-cap cybersecurity and digital-trust leaders. Fortinet sets the scale benchmark with a global platform spanning network and endpoint protection, while CrowdStrike (CRWD) – a Smart Portfolio holding – defines the high-growth frontier through its AI-driven threat-detection cloud. Palo Alto Networks represents the mature, full-stack enterprise security model that commands premium multiples, while CyberArk anchors the identity-protection niche most comparable to LifeLock and Norton. Together, they frame a field where Gen’s balance of scale, profitability, and renewal potential stands out.
Gen’s stock has lagged most of these peers this year, strongly outpacing Fortinet while falling behind the enterprise darling Palo Alto and the growth champions CrowdStrike and CyberArk. Until recently, Gen was treated as a laggard – weighed down by its legacy missteps – yet the latest quarters are changing sentiment, and the market will eventually have to re-rate it if execution stays on course.
Meanwhile, Gen Digital is trading at ridiculously low multiples for its scale, fundamentals, and renewed growth. The stock’s trailing and forward non-GAAP P/E, EV/EBITDA, Price/Sales, EV/Sales, and Price/Cash Flow are half the peer averages at most and sit well below sector medians. Moreover, Gen’s forward PEG ratio of 0.83x is low in absolute terms and a fraction of its peers, suggesting a growth story still underappreciated by the market.
Adding to the value side of the equation, Gen has been a dividend-paying company since 2021. While payouts haven’t yet been raised, the current yield of 1.94% is already more than triple the sector average.
Gen Digital’s capital-return priorities are clear – prudent debt reduction, steady quarterly cash dividends, and active share repurchases – and it has been steadily acting on them. At the end of FQ2, Gen had $2.6 billion left under its repurchase authorization (with no expiration date), allowing opportunistic buybacks as market conditions warrant. Gen repurchased $272 million of its common stock in fiscal 2025 and $134 million in the first half of fiscal 2026.
As execution continues to rebuild credibility, valuation will eventually follow. With record growth, durable cash generation, and an overlooked yield, Gen Digital enters 2026 not as a recovery story, but as a cash-rich growth stock still priced like a turnaround.
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Investing Takeaway
Gen Digital offers investors a rare blend of scale, renewal, and cash discipline in a market crowded with single-focus players. The company has evolved from a mature cybersecurity vendor into a diversified platform spanning digital protection and financial wellness, backed by a massive recurring-revenue base and expanding AI capabilities. Its strategic pivot is translating into sustained growth, rising profitability, and expanding market relevance. At the same time, management’s steady balance between reinvestment, buybacks, and dividends reflects a commitment to both innovation and shareholder value. Positioned at the intersection of trust, security, and digital finance, Gen combines defensive strength with emerging-cycle leverage — a company once viewed as ex-growth now proving it can compound again, with re-rating potential still locked beneath its fundamentals.
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New Sell 1: Blackstone Group (BX)
We are exiting Blackstone after reassessing the risk/return balance in the current alternatives landscape. While the firm’s fundamentals are strong and its long-term franchise remains robust, elevated expectations, weakened investor sentiment, and increased sector headwinds make this the prudent step.
Blackstone’s core strength – scale, diversified platforms, and significant deployment capacity – remains intact. Recent Q3 results showed distributable earnings of $1.9 billion, up nearly 50% year-over-year, and assets under management reached a record ~$1.24 trillion. However, the stock now carries a premium valuation, and the market is far less forgiving of any misstep.
The broader industry backdrop is challenging. Investor sentiment in private markets has grown cautious – fundraising is slowing, deal pipelines are constrained amid macro and policy uncertainty, fees are under pressure, and competition is rising. Firms like KKR (KKR) – a Smart Portfolio holding – and Ares are rapidly expanding their corporate and institutional (C&I) lending operations, adding pressure on margins and deal sourcing for incumbents such as Blackstone. Meanwhile, regulatory scrutiny is increasing, particularly around fund transparency, tokenized assets, and liquidity structures – creating operational and compliance challenges across the industry.
Moreover, recent bankruptcies in the private credit space, including First Brands and Tricolor, have further rattled confidence, putting some market participants on high alert and reinforcing the broader risk-off tone across alternatives, despite the absence of any systemic risks. In this environment, even well-positioned firms like Blackstone are vulnerable to sentiment-driven volatility.
For BX in particular, the pain is already evident. The firm is offloading roughly 90 senior-living communities (~9,000 units) in a ~$1.8 billion portfolio, incurring losses exceeding $600 million, with some assets sold at discounts of more than 70% relative to acquisition cost. This highly visible misstep has amplified investor concern, as it coincides with the broader mood of caution in private markets.
Because sentiment is weak, bad news now bites harder. Even incremental earnings or asset-management misses will likely trigger outsized share-price moves. With valuation elevated and the optics around recent real-estate losses turned negative, the near-term upside is limited while the downside risk is asymmetric.
Meanwhile, another alternative-asset manager, KKR & Co., remains in the Smart Portfolio. KKR’s real-asset and credit strategies are less exposed to traditional commercial real-estate risk and more geared toward growth-oriented niches such as data centers, digital infrastructure, and real-estate credit. Whereas Blackstone’s real-estate exposure spans office, retail, and senior living – sectors subject to cyclical and structural headwinds – KKR’s platform emphasizes higher-yielding, collateral-based assets with more stable cash flows and clearer growth vectors. KKR also recently exceeded revenue and profit expectations and continues to highlight its expanding credit and real-asset pipeline as a key strength. This provides KKR with relative resilience in the current environment, supported by more attractive valuation multiples than Blackstone.
In summary, BX remains strong operationally, but the combination of premium valuation, heightened expectations, industry-sentiment fatigue, and a visible real-estate execution misstep is forcing our hand. Added pressure from negative sentiment following the private credit bankruptcies, intensifying competition, and tightening regulatory oversight further skews near-term risk to the downside. The exit is less about weakness in fundamentals and more about opportunity cost and risk management. We will revisit Blackstone if valuation resets, sentiment improves, or new inflection catalysts emerge – until then, capital is better deployed where the driver set is stronger and the risk/reward ratio is more favorable.
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New Sell 2: Visa (V)
We are exiting Visa after reassessing the risk/return profile in a maturing payments environment where the stock’s premium valuation leaves little margin for error. The company remains a best-in-class franchise, but with sentiment soft, growth decelerating, and new structural headwinds limiting upside, reallocating capital is the more efficient step.
Visa’s fundamentals are still exceptional. In fiscal Q4 2025, the company reported net revenue of $9.87 billion, up 8% year-over-year, and GAAP EPS of $2.53, up 13%. Payment volume rose 9%, cross-border volume increased 10%, and total processed transactions reached a record 70.5 billion. Full-year revenue climbed 9% to $39.1 billion, while operating margin held near 67%, underscoring Visa’s unmatched scale and profitability. The company also added a new $30 billion share-repurchase authorization and raised its quarterly dividend 16%, reflecting balance-sheet strength and disciplined capital returns.
Yet even stellar execution hasn’t translated into meaningful stock gains. Visa has underperformed the S&P 500 year-to-date, weighed by valuation fatigue and limited near-term catalysts. The recently announced $38 billion settlement with U.S. merchants – which trims interchange fees by just 10 basis points and caps consumer rates for several years – brings regulatory clarity and business stability but modestly tightens fee flexibility at a time when the market demands acceleration, not normalization.
Meanwhile, macro and industry headwinds persist. Regulatory scrutiny of network fees and fintech competition remains elevated, while transaction yields face mild pressure as merchants gain more leverage over card categories and surcharges. The payments sector’s premium multiples leave little room for slowing growth, and Visa’s guidance now assumes mid-single-digit revenue expansion versus double-digit averages of prior years.
This is not about weakness in operations – Visa continues to dominate global digital payments and benefits from cross-border recovery and secular cash displacement. But with the stock already priced for perfection, even a small growth headwind or earnings miss can drive outsized volatility.
We will revisit Visa once valuation resets or new catalysts – such as accelerated digital wallet adoption, real-time payments, or network expansion into stablecoin rails – restore asymmetric upside. For now, fundamentals remain strong, but the upside trade-off no longer justifies the opportunity cost.
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Smart Investor’s Winners Club
The 30% Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Market volatility has surged, but our Club ranks remained unchanged at 17 stocks: AVGO, GE, ANET, APH, HWM, TSM, EME, ORCL, IBKR, PH, CRWD, GOOGL, VRT, IBM, RTX, BK, and UBER.
The first contender for the Club’s entry is now MS with a 29.39% gain since we purchased it on June 4. Will it enter the ranks of the Winners, or will another stock outrun it to the finish line?
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