Hello reader, welcome to the latest issue of HX Weekly!

Each week we bring you a new edition of HX Weekly that includes three distinct sections.

In the first section, Thoughts on the Market, we'll offer insights into current economic and market news or timeless insights.

In the second section, HX Daily Redux, we'll revisit investing concepts, tactics, and more from past issues of HX Daily.

And in the third section, Market Wizard’s Wisdom, we’ll share thoughts, quotes, and theories from the greatest investing minds of all time.

Now, let's dive in!

Thoughts on the Market

One Financial Metric to Rule Them All

In last week’s issue we discussed the “Father of Value Investing”, Benjamin Graham and his legacy.

One of the most popular value strategies is to find great brands with stocks that are out of favor.

This plays into the contrarian nature of the value strategy.

Recently, some of the most famous American company’s stocks have been crushed.

Those companies are McDonald’s Corporation (MCD) and NIKE, Inc. (NKE).

These are two of the biggest brands in the world and, over time, have been incredible stocks.

Here is the long-term chart of McDonald’s stock price…

If you had bought MCD in 1990 and held through the recent higher earlier this year, you would have made over 80 times your money on the stock…

Counting dividends (and if you reinvested them), you would have pushed that return to 120 times!

That is a compound return of over +15% compared to +11% for the S&P 500 over the same time.

Here is Nike’s chart…

If you had bought NKE in 1990 and held through its peak in 2021, you would have made over 400 times your money!

That is almost a +21% compounded annual return – MUCH better than the S&P 500 over that time.

These are not only great American brands, but have also been great American stocks!

Recently, though, the results have not been so great.

You can see it on the charts above.

Since reaching that all-time high in February 2026, MCD stock is down -30% and hit a new 52-week low this week. It is trading at the same share price as it was five years ago.

The story for NKE is much uglier.

Since the peak in 2021, the stock is down an astonishing -80%!

Why are the stocks down so much?

…and more interestingly, should you be buying these great American brands right now?

If you read the financial press (or run an AI query) on why the stocks are down, you will hear about pressures on the American consumer, competition and competitive missteps by both companies.

This is all true.

You will also read about both companies engaging in efforts to reverse these trends.

These are all the “fundamental” reasons for why the stocks are down.

While this is all true, we like to focus instead on a qualitative, or hard measure, of what is happening with the business.

The measure explains the move in the stocks, and it also will tell us when it is time to buy these stocks.

It is also our favorite metric to use when deciding whether to own a stock NOW.

That metric is called “earnings revisions”.

We have explained it in the past, but it refers to the changes being made in the estimates for earnings (or other metrics) that are put together by the Wall Street analysts.

For example, MCD is covered by a total of 41 analysts. Each of those analysts puts together an earnings model and works to predict the future results of the company.

They publish those estimates and then data services (like Bloomberg) go and take all those numbers and calculate the average, or “consensus” number.

Here is the list of analysts that cover MCD stock…

The absolute number that is calculated is interesting, but MUCH more interesting for the stock price is the CHANGE in that number.

Why is it more interesting?

Take a look at this chart of the changes to the Fiscal Year 2027 Earnings per Share (EPS) for MCD…

The blue line is the EPS estimate, and the white line is the stock price.

Although this metric (earnings revisions) is almost never discussed by the financial media nor mentioned often by analysts, it IS the strongest correlation to the near-term share price.

You can see that in the MCD chart of EPS estimates, and you can see it even more in this chart for the same number (FY2027 EPS) for NKE…

Eek! This explains why NKE has been such a terrible stock!

Three years ago, they were expected to earn roughly $5.75 per share. NOW they are expected to earn $1.65 per share. That is a -70% reduction.

Guess how much the stock is down over that same period? The SAME -70%!

Think of this number as the “scoreboard” for the fundamentals of the company.

Just like in sports, while it is nice to see how you play the game or put up big stats, the only metric that REALLY matters is the score.

That is what revisions are for stocks and why it is the FIRST metric I look at when looking to get involved in a stock.

So, coming back to MCD and NKE, what should you do with the stocks?

Our advice – STAY AWAY.

In fact, NKE reported numbers last night and the numbers have continued to deteriorate. The stock is quoted down -10% before the stock market open. Again, this is AFTER it is already -80% from it’s high.

We would not touch either of these stocks until we see at minimum a stabilization in these revisions (the blue line) and, preferably, see them going higher.

You might ask, don’t stocks ANTICIPATE these kinds of move? Won’t the stock be higher before the numbers flatten it and move it higher?

The answer is “yes”, but we don’t care.

We would much rather pay 20% or 50% more for the stock with the proof of the turnaround already underway than try to predict it.

This is because when these companies DO turnaround, and we think they will, you will be looking at doubling, tripling or even making ten times your money.

These great American brands will once again be great American stocks. The key is to focus on this single metric that counts the most!

In this week's issue we shared our thoughts about when to buy great brands when they sell off based on one of the most important stock metrics - earnings revisions.

Here is a note we wrote back in June 2024 going through that metric in more detail.

HX Weekly Redux

The Only Metric You Need To Know

If you listen to the financial media and the "smart" money, they will run you through many complicated metrics they say drive a stock's success.

We have been active in the financial markets now for over three decades. During that time, we figured out that a stock's performance really only comes down to just a few key metrics.

Those readers who have followed us for the last few years are familiar with those metrics.

Today, we wanted to highlight THE single most important of those metrics.

If we were asked to look at only ONE metric to figure out what a stock will do – THIS would be the metric we would want.

The metric is EARNINGS REVISIONS.

Let's define what we mean by that term.

First, let's focus on the second part of that term – the "revisions."

You may be familiar with it, but most stocks of a reasonable size have a group of analysts covering the stock. These analysts work for the various brokerages and investment banks.

People who work for those companies are called "sell-side" analysts. They "sell" their services to the "buy-side" or buyers of the stock who run the mutual and hedge funds.

Depending on the size and liquidity, there might be just a few analysts or many.

Let's discuss everyone's favorite stock – NVIDIA Corporation (NASDAQ: NVDA).

Right now, 72 (!) analysts cover the stock. Not all of them will have full financial models with all the metrics, but most will have one.

“Revisions” refers to the change in those estimates.

Let's focus on the first part of that term – the "earnings."

Most larger companies are driven by their revisions to their earning per share or "EPS."

Some industries, though, may key off another measure of "core" profitability called earnings before interest, taxes, depreciation, and amortization" or "EBITDA." This is a decent proxy for the earnings of the core business without considering the balance sheet.

Finally, there are even some companies where the revisions that count the most are revenue.

We use the term "earnings revisions" because 90%+ of stocks key off an earnings metric, but it could also be termed "the most closely followed metric revisions." That one doesn't exactly roll off the tongue, though!

Returning to NVDA, let's look at a chart of the earnings revision for 2024 EPS and the stock price. Here is that chart…

The blue line is the estimate for 2025 EPS, and the white line is the stock price.

Want to know why $NVDA stock has been +333% since a year ago?

The analyst's earnings estimates across that time have gone from $0.60 for 2024 to $2.70 today. That is an upward revision of +350%.

The stock has gone up pretty much one-for-one with the earnings revisions!

Want to see another example from recent history?

Here is the same chart for Meta Platforms, Inc. (NASDAQ: META) – the parent company of Facebook, Instagram and WhatsApp.

Again, the blue line is the estimate for EPS, and the white line is the stock price.

This example shows you both the impact of negative AND positive earnings revisions. META got crushed as their earnings estimates were cut in half in 2021/22. Then, the stock recovered all of that and more as the estimates recovered.

A critic would say this is great, but this is all backward-looking data.

We agree, but focusing on the earnings revisions is a great place to start if you are trying to figure out where a stock will go.

Your view on whether revisions will be positive or negative could be based on a fundamental analysis of the business, its industry, and competitive positioning. We do a lot of this type of analysis.

We also, however, have a lot of respect for what we call “operational momentum.”

This means we look at what the company has already been doing.

Companies that have been seeing negative earnings revisions for an extended period will tend to continue to see them.

You can see in the META chart that the estimates did not see any material bounce from August 2021 until February 2023. Does this mean you buy the stock on that bounce in estimates?

Maybe. We usually would wait and want to see several more positive revisions. This is what happened in the next couple of months with META.

You would have missed the move from $100 to $200 in the stock or a double. With the stock now at $500, though, we don't think you would mind.

What does this mean for NVDA?

Right now – nothing. As long as estimates continue to increase, we think the stock will also go higher.

Watch out once these estimates flatten out and/or start going lower. Given the momentum in the stock, it could easily be down -20% or more from current levels.

The key to all of it is focusing on this ONE KEY METRIC.

Earlier this week famed investor Paul Tudor Jones celebrated his 72nd birthday.

Jones is not only one of the most successful traders in history, but an incredible philanthropist.

Finally, he also happens to be in the same fraternity as our founder, Enrique Abeyta. Here is a note we wrote a few years back about PTJ. Happy Birthday and go Phi Alpha!

Market Wizard’s Wisdom

Paul Tudor Jones: From Cotton to Charity King

There are some great stories in the history of great traders.

One is about legendary investor Paul Tudor Jones of Tudor Investment Corporation.

The story goes that after graduating from the University of Virginia in 1976, Jones asked his cousin William Dunavant Jr. to get him into the trading world. Dunavant was the CEO of one of the largest cotton merchants in the world and connected Jones with the famous commodity broker Eli Tullis in New Orleans.

Tullis hired and taught him to trade cotton futures on the New York Cotton Exchange. While he showed some promise, Tullis eventually fired him for sleeping at his desk after a big night of partying in New Orleans! Eventually, Jones would become the Treasurer and Chairman of the New York Cotton Exchange…

After working for several years at the famous brokerage house E.F. Hutton, Jones established Tudor Investment Corporation in 1980 with Dunavant and Tullis as two of his first investors.

Over the years, Tudor has managed billions and established one of the best track records out there. He focuses on using technical analysis and trading large macroeconomic assets. His trading acumen has earned him a fortune of over $5 billion and made him one of the richest people in the world.

In 1988, he also founded the charity Robin Hood Foundation. Robin Hood distinguishes itself by tying real “return” metrics to the organizations it funds. This distinctive approach has made it one of the most successful charities in history.

Here are some great quotes distilling Jones’ trading wisdom…

This is a powerful insight that is difficult for newer traders to grasp.

It is human nature to try to ascribe a "reason" behind price movements. The reality, though, is that we often don't know what motivates buyers and sellers.

While the reason eventually emerges, rationalizing the price move rather than simply accepting it as a fact is a major trading mistake.

Jones masters controlling his losses and managing his psychology as a trader.

He keenly understands the impact that losses can have on his trading psychology. He focuses first and foremost on managing his losses. This puts him in a winning mindset to make money.

This quote builds on the last one.

We like to use the analogy of trading as a dance to the music of the stock market.

Even with the best process, sometimes you simply are not in tune with the current market environment. You simply don’t have the tune.

When this happens, the best path is to step back and trade smaller. Wait until you catch the tune again and begin churning out positive returns to size back up.

This is not only true in trading but throughout all of life.

We can learn important lessons from our successes and try to improve them every time.

However, understanding and adapting to our losses is an absolute necessity to be a successful trader over time.

Again, Jones is a master of understanding and dealing with his psychology.

Remember that a negative stimulus has eight times the biological impact on your body as a positive stimulus. Dealing poorly with your losses can have a spiraling effect on your trading.

This is his most powerful insight. Manage your psychology and keep it positive to put yourself in a position to win.

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].