Portfolio Update: I Sold 3 Stocks and Bought a New One

Earnings results are a good opportunity to assess whether investment theses are still valid

As I expected and mentioned in my article about investment themes for 2025, the beginning of the year has been quite volatile. In this kind of situation, we want to be extra careful, as anything could happen.

In this article, I will discuss the 3 stocks I sold from my portfolio and explain why. Each sale was driven by an earnings report that fell short of my expectations, altering my investment thesis. This is one of the only reasons I sell: when an investment thesis no longer holds. I will also present my last addition.

And without further ado, let’s dive in!

Metrics evolution

The 3 sales and the new purchase changed the metrics. Here is how:

• Past growth: 18.8% —> 19.9% / Estimated future growth: 12.8% —> 13.1%

• Estimated EPS growth: 15.6% —> 16.0%

• Net profit margin: 28.5% —> 28.7%

• ROE: 40.1% —> 40.4% / ROIC: 24.0% —> 25.1%

• Debt leverage: -0.69x —> -0.71x EBITDA (so average net cash position)

• PE: 29.9x —> 29.7x / PE Y+2: 21.5x —> 21.4x

• FCF yield: 3.92% —> 3.78% / FCF yield Y+2: 5.84% —> 5.77%

• Dividend yield: 1.13% —> 1.16%

• Dividend growth: 8.8% —> 8.9%

• Buybacks: 0.73% —> 0.72%

• Expected TSR: 13.5% —> 13.8%

The 3 stocks sold

• MSCI – Slowing growth presented in the last earnings report makes its premium valuation harder to justify. While the company has strong qualities, I prefer to exit this small position to focus on higher convictions with higher potential total shareholder return. Performance: +15% + dividends.

• PayPal – Last earnings report was average. Growth is slowing, and the $15B share buyback program will depend heavily on debt to artificially boost EPS. Most of the EPS growth guidance comes from this buyback. This is not wise for a company with less than $6B annual FCF. The original thesis of steady, sustainable growth no longer holds, time to sell. Performance: +23% performance.

• Merck & Co. – The latest earnings report reinforced the company’s heavy reliance on Keytruda, with its revenue concentration growing even further. The initial investment thesis assumed that Keytruda’s 2028 patent expiry would become less significant over time. However, most growth still comes from it, while other potential blockbusters have even seen revenue declines. Performance: -12% + dividends.

I sold these three stocks after disappointing earnings reports, as they no longer aligned with my investment theses. Whenever a company's performance contradicts my expectations, I prefer to exit rather than hold on and hope for a turnaround.

By doing so, I can reallocate capital to higher-conviction investments, companies with stronger growth potential, solid fundamentals, and a clearer path to long-term performance.

The new stock I bought is a fallen angel, once a rising star, it has since dropped significantly. While its previous overvaluation may have been excessive, the current bearish sentiment seems just as exaggerated.

I decided to initiate a position, expecting an average 16% annual return over the next decade using my method to estimate total shareholder return (TSR). However, I anticipate an uneven trajectory, with the potential for a strong recovery in the early years driving higher returns.

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