Sell – Pfizer, Inc. (PFE)
Pfizer’s (PFE) recent earnings show signs of stabilization, with Q2 revenue up 8% year-over-year ex-COVID, and the stock screens cheap on earnings and cash flow multiples. Their COVID franchise now also makes up less than 15% of overall revenue (down from 56% at its peak) and investors are beginning to look past the materiality of that franchise. That said, the primary case for staying invested in PFE would be for a reversion to the mean trade on valuation, not conviction in the underlying business model. That is not how we’d like to invest. We prefer durable businesses with compounding characteristics at fair prices.

Pharmaceuticals are inherently capital-intensive, requiring constant reinvestment to replenish drug pipelines as existing products lose exclusivity. Billions are deployed each year into R&D and M&A simply to offset patent cliffs. Unlike higher-quality compounders, this business doesn’t build cumulative compounding advantages. They spend heavily simply to offset lost revenues. Additionally, the regulatory environment is becoming more hostile. The Inflation Reduction Act introduces Medicare price negotiations, reducing the long-tail profitability of blockbuster drugs. Approval hurdles remain high, while payer and political scrutiny further compress returns on capital. These are industry-wide risks, but we see PFE as structurally weaker in navigating them due to its reliance on acquisitions rather than internally developed innovation.

PFE has repeatedly leaned on M&A to fill its pipeline, rather than leading with organic R&D. Its R&D spend as a % of revenue (14-15%) lags key peers like Merck, Bristol Myers, Eli Lilly, and Roche (>20%) raising questions about the sustainability of its innovation engine. This approach introduces the risk of overpaying for external pipelines, often with disappointing outcomes. Their $5.4 billion and $11.4 billion acquisition of Global Blood Therapeutics and Array BioPharma in the last 5 years are key examples of acquisitions that did not live up to expectations, significantly eroding shareholder value.

PFE is also facing patent cliffs for several of their key drugs like Eliquis, Ibrance, Xtandi, and Xeljanz over the next 5 years. Together, these drugs make up 24% of PFE’s current revenue base and are expected to increase to 30% of PFE’s revenues. This would be approximately $17-18 billion worth of potential revenues lost annually between 2026 to 2028. Management touted that their recent acquisition of Seagen would add $10 billion of additional revenue by 2030, up from $3.4 billion currently. Still much of that revenue would be back-end loaded, not guaranteed, and would still fall relatively short to the loss of revenues from their existing drugs. This illustrates the continued challenge of pharmaceutical companies.

PFE’s business is stabilizing ex-COVID, and the valuation looks inexpensive. But the structural realities of its business model: capital intensity, dependence on acquisitions, and regulatory headwinds limit its long-term compounding ability. In our opinion, this is not a business that fits our philosophy of owning companies with self-reinforcing competitive advantages at fair prices. Staying invested would be a bet on a temporary multiple rerating, not durable quality. We prefer to exit now and allocate capital toward businesses with stronger moats, better capital discipline, and more consistent long-term growth potential.

Sell – Clorox, Co. (CLX)
Clorox is a well-established household name with over a century of operating history, strong brand recognition, and a proven track record of consistent dividend growth. The company has long appealed as a low volatility, income-oriented stable investment. However, despite these strengths, we believe the investment case for Clorox has weakened considerably.

We acknowledge and continue to like their Health & Wellness segment leadership- where cleaning and hygiene products like bleach and Clorox wipes dominate. Secular tailwinds for the category remain as consumers and institutions have structurally elevated their standards of cleanliness and have shown a higher baseline demand for disinfecting wipes, sprays, and cleaners since the Covid pandemic. Net sales were +3% year over year in their last report, highlighting the only bright spot in what has been an overall weak Clorox portfolio performance. Other Clorox segments like Household (Glad trash bags, cat litter, grilling) and Lifestyle (Condiments, Brita water filtration, Burt’s Bees) continue to face significant pressure without much innovation or differentiation to offset the weakness. Clorox’s Health & Wellness segments make up 38% of their overall revenue while the other segments make up the remaining 62%.

Household categories like trash bags, wraps, cat litter, and charcoal face intense private label competition and are perceived as commodities with limited pricing power and low differentiation. With inflation being top of mind, retailers have been aggressively pushing private labels and maintaining price pressure on commodity-like categories. This resulted in Household net sales being significantly down -11% year over year, with earnings down -18% in their last earnings report. Consumers have not shown any momentum in switching back to more premium products like Glad or Kingsford Charcoal despite inflation abating over the last several quarters, further challenging Clorox’s recovery efforts. Within their Lifestyle category, products have been losing relevance against newer, more innovative brands, and are competing in a mature and slow growing category. For example, Burt’s Bees has stalled against beauty challengers that focus on cleaner, healthier, and more prestigious brands. Brita faces newer filtration competitors (ZeroWater, PUR) that offer new formats like subscription filter deliveries and reusable bottles. Smaller, digital-first competitors have also been able to capture consumer niches more quickly by leveraging the internet, social media, and influencer marketing. Consequently, we believe this significantly undermines Clorox’s historical advantage of scale and retailer shelf space that used to contribute to their business moat.

The company’s IGNITE strategy has delivered cost savings and margin stabilization (10 consecutive quarters of margin improvement) but has not addressed the structural issue of owning businesses in stagnant categories and weak product innovation (ex-Health and Wellness). Without meaningful innovation or portfolio reshaping, the core 62% of revenue in Household and Lifestyle segments are likely to remain challenged. We see limited growth prospects, intensifying competitive pressures, and changing consumer preferences that undermine Clorox’s long-term value creation.

Sell – Keurig Dr. Pepper (KDP)
Keurig Dr Pepper (KDP) business is split into two segments: Refreshment Beverages and Coffee. They have a separate International segment as well but is immaterial for now. We continue to rate KDP’s Refreshment Beverages franchise highly. Brands like Dr Pepper and recently acquired equity stake in GHOST energy drinks have been taking share in their respective categories, supported by a scaled direct-store delivery (DSD) network that KDP keeps expanding. That combination of brand equity plus delivery execution is a durable moat that is hard for competitors to replicate. This was evident in KDP’s most recent earnings report- where Refreshment Beverages saw a 4% organic net sales growth (+10.5% when including GHOST energy drink acquisition), with an operating margin of 29.4%. This contrasted with their Coffee segment where sales declined -0.2% driven by a -3.8% decline in volumes and offset by a +3.6% increase in price. K-cup pod volume declined -4% and Coffee gross margin contracted by approximately 110 basis points year over year. This highlights the ongoing softness in core coffee demand and pressure by inflation and cost dynamics.

In our opinion, the Coffee segment looks more commoditized, more contested, and lacks a defensible moat. The recent decision to double down on Coffee with their acquisition of JDE Peet’s Coffee for $18 billion materially increases the risks for the overall company. KDP has fully committed bridge financing of $18billion to finance their acquisition and would bring their leverage post-acquisition from 4x to mid-to-high 5x debt/EBITDA. This puts the dividend growth and potentially its level at risk as management prioritizes de-leveraging over returning cash to shareholders. Management has also indicated that they are going to split KDP into two separate businesses (Coffee and Refreshment Beverages) once the acquisition is finalized. We see this as logical, allowing each business segment the autonomy to leverage its strengths. Nonetheless, even if management executes the acquisition perfectly, investors must first absorb elevated financial risk, integration risk, and a complex separation across regions and listings. The company is targeting $400M in run-rate synergies, but those are back-ended and far from guaranteed amid volatile coffee input costs and tariff noise. In our view, the risk-adjusted timeline to value is long, while near-term balance-sheet strain is immediate.

We do not want to wait for the separation while remaining invested in the company. For starters, the debt sits on the combined entity’s balance sheet before the spinoff. If macro or execution wobbles, all equity investors bear the de-rating. We do not need to be around for that. Additionally, Coffee is likely to set the narrative until the split. Headlines, guidance, and rating actions are likely to be coffee-centric given the size of the deal. That could cap multiples for the whole company even if Refreshment Beverages continue to execute well. Finally, opportunity cost of remaining invested is high. We can always re-evaluate KDP’s Refreshment Beverages post-spinoff when the balance sheet, dividend policy, and governance are clearer. Meanwhile, we can own other high-quality assets today.

KDP remains a good company with a great beverages business, but the coffee segment lacks a defendable moat, recent unit trends are weak, and the JDE Peet’s acquisition tips it over the edge. We believe the risk/reward deteriorates into the separation, with leverage (5.5 – 6x Debt/EBITDA) and rating pressure placing the dividend at risk. We prefer to redeploy capital into other opportunities, and revisit Refreshment Beverages after the split, when balance sheet and policy are clearer.

Buy – Agree Realty Corporation (ADC)
Agree Realty Corporation (ADC) is a triple-net lease REIT that has built a reputation for resilient and predictable cash flows by focusing on properties leased to high-quality, investment-grade tenants. Under the triple-net structure, tenants pay taxes, insurance, and maintenance, which reduces landlord operating risk and provides highly durable income streams. As of mid-2025, the portfolio is 99.6% leased, with approximately 68% of annualized base rents coming from investment-grade tenants such as Walmart, Tractor Supply, Dollar General, and CVS. Walmart remains the largest tenant at about 6.2% of rents, reinforcing portfolio stability given the retailer’s recession-resilient business model. These fundamentals form ADC’s ability to steadily grow Funds From Operations (FFO) and dividends. In Q2 2025, Core FFO per share rose 1.3% year over year, Adjusted FFO per share grew 1.7%, and the dividend was raised by 2.4% year over year. Full-year 2024 results also reflected healthy growth, with AFFO per share up 4.6% and the annual dividend up 2.8%. Although these growth numbers may seem low, ADC is not designed to provide double digit FFO growth but rather designed to protect and steadily grow income over time.

Nonetheless, growth remains an important component of the ADC story. The company invested nearly $1.1 billion in 2024 across acquisitions and development, followed by over $400 million in the first quarter of 2025 alone. Its portfolio has scaled meaningfully in both size and geographic reach, now spanning nearly 30 states across more than 20 retail categories. Recent growth in ground leases, which now account for roughly 10% of rents, adds another layer of security and long-term cash flow visibility. A ground lease is when a landlord (like ADC) owns the land only and leases it to a tenant, who then builds and owns the building or improvements on top of it during the lease term. At the end of the lease (often 20–99 years), ownership of the building typically reverts to the landowner unless the lease is renewed or extended. Ground leases tend to have longer lease term durations and tenants are more incentivized to stay and pay their rent due to the sunk costs of upfront capital investments. The secular backdrop for ADC is also favorable. US retail continues to evolve toward omni-channel models, with large, well-capitalized retailers investing in physical stores to support e-commerce distribution and customer convenience. Tenants like Walmart, Home Depot, and Dollar General continue to expand their store footprints, particularly in suburban and rural markets that benefit from demographic growth, population shifts, and lower real estate costs. This creates a steady pipeline of acquisition and development opportunities for ADC to deploy capital at attractive returns, driving FFO growth and dividend expansion.

Balance sheet strength further supports the investment case. ADC carries a BBB+ credit rating with stable outlook, net debt to recurring EBITDA of only 3.1x, and over $1.9 billion in liquidity as of early 2025. This conservative financial posture provides flexibility to fund new investments, manage through interest rate cycles, and protect the dividend. Looking ahead, a potentially more dovish Federal Reserve who is expected to cut rates over the coming year would be positive for ADC. Lower borrowing costs reduce interest expense on new and existing debt, improve acquisition economics, and increase the relative attractiveness of ADC’s dividend yield compared to fixed-income alternatives. REIT valuations in general tend to benefit when rates decline and given ADC’s high-quality income stream and steady growth profile, we would expect it to attract incremental investor demand in a falling-rate environment.

ADC combines the predictability of a triple-net lease model with the financial strength of an investment-grade balance sheet and the growth runway offered by secular retail trends. Its ability to steadily compound cash flows while protecting income across economic cycles makes it a high-conviction holding for an income-oriented portfolio.

Buy – Motorola Solutions Inc (MSI)
Motorola Solutions (MSI) combines the resilience of a government-anchored business model with the growth characteristics of a software and services company. MSI’s core foundation is its land-mobile radio (LMR) business, which provides mission-critical communications tools to first responders and government agencies globally. These systems are deeply embedded, contractually long dated, and generate recurring service revenues that make them difficult for competitors to displace. This creates a strong base of cash flow that supports the rest of the company.

Over the past decade, Motorola has successfully repositioned itself toward higher-quality, recurring revenues. In 2024, software and services contributed approximately 36% of total revenue, and management has guided that this will approach 40% in 2025. Importantly, growth in this segment remains robust: excluding temporary regulatory headwinds in the U.K., recurring software and services grew by about 15% last year. This shift toward subscription-like revenues is structurally improving the company’s earnings visibility and lowering volatility. The company is also broadening its opportunity set beyond the public sector. Through acquisitions such as Avigilon, Openpath, Ava, and Theatro, Motorola is building a comprehensive platform spanning video security, access control, cloud-based command center applications, and AI-enabled workforce communications. These businesses are gaining traction not only with governments but also with enterprises in education, healthcare, transportation, utilities, and retail. We view this diversification as a meaningful secular driver that expands Motorola’s total addressable market well beyond its traditional radio communications base.

Financially, MSI remains exceptionally strong. The company consistently delivers operating margins of nearly 30%, generates more than $2 billion of annual free cash flow, and requires relatively modest capital reinvestment (2.5% – 3.5% capital expenditures as a % of revenue since 2020), making it a capital-light compounder. Its balance sheet has strengthened significantly, with Fitch upgrading its credit rating for two consecutive years and net leverage reduced to below 2x EBITDA as of June 2025. This gives the company ample flexibility to pursue bolt-on acquisitions and continue returning capital to shareholders without compromising its financial resilience.

Looking ahead, MSI is expected to experience multiple secular growth catalysts in its business. These include the modernization of 911 call centers and emergency command infrastructure, the continued upgrade cycles in global LMR systems, the migration of physical security and access control systems to cloud-based platforms, and new opportunities such as high-speed mesh networking for defense and unmanned systems. We believe that MSI offers a rare combination of predictability in a mission-critical government-anchored business with the upside of secular growth in security, enterprise software, and AI-enabled services. The business is highly capital-light, attractive margins, and strong management financial discipline. This balance makes it a high-quality long-term holding for the portfolio.

Buy – Chubb Limited (CB)
We are investing in Chubb Limited (CB) because it combines best-in-class underwriting with diversified global scale and attractive secular tailwinds in the property & casualty (P&C) insurance industry. Chubb has long distinguished itself with a multi-point combined ratio advantage versus peers, consistently reporting underwriting profits well below 90% while global competitors such as Travelers, AIG, and Zurich typically run in the low-90s. For FY 2024, Chubb’s consolidated P&C combined ratio was 86.6% and improved further to 85.6% in Q2 2025, underscoring the firm’s strong risk selection, pricing discipline, and claims management. A combined ratio of 85% meant that Chubb earned $0.15 in underwriting profits for every policy underwritten. Being 5-8% stronger than peers means that Chubb is 5-8 cents more profitable per premium dollar underwritten than peers. This structural underwriting edge translates into superior profitability: every percentage point of combined ratio advantage adds hundreds of millions of dollars in underwriting income on Chubb’s premium base.

The P&C industry is traditionally seen as recession resistant because insurance is not discretionary: businesses and households must maintain coverage to operate legally, protect assets, and satisfy lenders. Even during downturns, renewal rates remain high, and premium inflows continue. Chubb’s leadership in commercial lines, personal lines, and reinsurance, along with its scale in over 50 countries, positions it to benefit from this resilience. Its Private Client business focusing on high-net-worth individuals is another differentiator, insuring luxury homes, art, and collectibles with bespoke coverage. This client segment tends to be less price sensitive and offers sticky, recurring relationships that support pricing power and margins.
Chubb also enjoys meaningful secular tailwinds. A “higher-for-longer” interest rate backdrop, even if the Fed begins cutting, supports elevated investment income as maturing assets roll into yields far above the 2010s. Net investment income has already reached record levels, providing a powerful second earnings engine on top of underwriting profits. Meanwhile, global exposure offers long-term growth potential as rising middle classes in Asia and Latin America drive insurance penetration (Q2 2025 earnings reported +13% and +17% growth in those regions respectively). In addition, Chubb’s acquisition of Cigna’s accident, health, and life operations in Asia expands its consumer footprint and fee-based income streams. The continued growth of global wealth also plays directly into its high-net-worth personal risk segment. On top of that, structural risks such as climate change and more frequent catastrophes, while posing near-term volatility, increase awareness of underinsurance and support demand for coverage, especially from corporate and high-net-worth clients who value financial strength and claims certainty.

In the last quarter, Chubb produced record core operating income of $2.48 billion (up +13% year-over-year) and core operating EPS of $6.14, up +14%. Net premiums written was up +6.3%, while combined ratio improved to 85.6%. Capital efficiency is robust, with book value per share up +6.1% and tangible book per share up +8.0% quarter-over-quarter. Return on tangible equity (ROTE) remains strong at 21.0%, indicating excellent capital deployment. Their dividend track record is also reliable with 32 consecutive years of dividend raises. Notably, Chubb raised its dividend during the 2008-09 Financial Crisis and during the COVID-19 selloff. It has not cut its dividend during bear markets or recessions, a testament to its underwriting and balance sheet strength.

With a durable business model, stable investment income outlook, and exposure to secular growth trends in high-net worth clients and emerging markets, Chubb offers a compelling mix of defensive quality and growth optionality. We believe this positions the stock for continued strong performance over the long term.