Dear Friends,
We are five months into 2025, and the stock market is still trying to digest a lot of uncertainty. The largest cause of recent volatility has still been the Trump administration’s tariffs. As it stands today, there is a 10% tariff on most imported goods, but a federal court has ruled that these sweeping tariffs are illegal. The 10% tariffs are still in effect, but this could change in the coming weeks, depending on how the court battle swings. The Trump administration also recently lowered its 145% retaliatory tariffs on China, back down to 10%. We like to see lower tariffs, but more importantly, we want to see more long-term solutions. When tariffs change every couple of weeks, that creates a lot of uncertainty for the market, companies, and individuals. Companies have shown an interest in investing back into the US, but they have noted that it is hard to commit billions of dollars to the US when the tariff environment is constantly shifting. We are hopeful for a quick resolution to the recent federal court case that is attempting to block the sweeping tariffs, so we can get a clearer picture of our economic landscape.
The markets performed well in May, with all three major indexes up between 3% and 5%. Earnings for software companies have been strong, which has helped the stock market. Software has become the most important segment of the American stock market, so it is encouraging that this area continues to perform well. Along with good earnings, tech companies have almost unanimously reported that they have not yet noticed any change in customer demand or behavior. This is a great sign for near-term earnings, but it also shows that most individuals have not yet adjusted their spending habits to deal with tariff policy.
The volatility in the market has created some opportunities to invest in high-quality companies at a discount. We have found new opportunities for both our Tortoise and Hare Stock Models. While periods of uncertainty and volatility are tough to work through, they often allow us to add some higher-quality growth to our investment models. Our general investment thesis has not shifted. Our focus is still to buy into growing companies and areas that will be systematically important to the US economy for the long term. We continue to hold a blend of active and passive strategies in our Fixed Income Model, as large active managers can exploit price inefficiencies in the fixed income area better than we can. The world economy is often volatile, and we need to be able to adapt and shift our strategies as necessary. We are doing everything we can to provide you with the best returns for the lowest amount of risk.
The following are our best current recommendations:
We are five months into 2025, and the stock market is still trying to digest a lot of uncertainty. The largest cause of recent volatility has still been the Trump administration’s tariffs. As it stands today, there is a 10% tariff on most imported goods, but a federal court has ruled that these sweeping tariffs are illegal. The 10% tariffs are still in effect, but this could change in the coming weeks, depending on how the court battle swings. The Trump administration also recently lowered its 145% retaliatory tariffs on China, back down to 10%. We like to see lower tariffs, but more importantly, we want to see more long-term solutions. When tariffs change every couple of weeks, that creates a lot of uncertainty for the market, companies, and individuals. Companies have shown an interest in investing back into the US, but they have noted that it is hard to commit billions of dollars to the US when the tariff environment is constantly shifting. We are hopeful for a quick resolution to the recent federal court case that is attempting to block the sweeping tariffs, so we can get a clearer picture of our economic landscape.
The markets performed well in May, with all three major indexes up between 3% and 5%. Earnings for software companies have been strong, which has helped the stock market. Software has become the most important segment of the American stock market, so it is encouraging that this area continues to perform well. Along with good earnings, tech companies have almost unanimously reported that they have not yet noticed any change in customer demand or behavior. This is a great sign for near-term earnings, but it also shows that most individuals have not yet adjusted their spending habits to deal with tariff policy.
The volatility in the market has created some opportunities to invest in high-quality companies at a discount. We have found new opportunities for both our Tortoise and Hare Stock Models. While periods of uncertainty and volatility are tough to work through, they often allow us to add some higher-quality growth to our investment models. Our general investment thesis has not shifted. Our focus is still to buy into growing companies and areas that will be systematically important to the US economy for the long term. We continue to hold a blend of active and passive strategies in our Fixed Income Model, as large active managers can exploit price inefficiencies in the fixed income area better than we can. The world economy is often volatile, and we need to be able to adapt and shift our strategies as necessary. We are doing everything we can to provide you with the best returns for the lowest amount of risk.
The following are our best current recommendations:
HARE Portfolio
(Growth Companies)
Applied Materials Inc (AMAT)
Applied Materials is the world's largest supplier of wafer fabrication equipment (WFE) for semiconductors. Wafer fabrication machines are highly specialized and necessary for building complex chips. Semiconductor manufacturing is a challenging and lengthy process, often taking weeks for companies to produce a single chip. This is why AMAT’s strong product design is valuable for chip manufacturers like Intel, Taiwan Semi, Samsung, and Micron Technology. Following the pandemic, chip demand has surged, driven by the growth of artificial intelligence. AI solutions require significant computing power, which stems directly from robust chips. As AI continues to evolve in complexity, semiconductors will need to advance as well, leading to increased demand for AMAT’s wafer fabrication equipment. AMAT has a wide moat rating and leading market share in its industry. A wide moat rating indicates that a company has built a 20-year competitive advantage over most of its competitors. AMAT has been able to expand its business network because its products are considered to be more general and all-encompassing in the WFE industry, allowing AMAT to serve a large variety of customers. Since Trump’s second term has started, there has been a lot of uncertainty around international trade, and specifically semiconductors, but AMAT has stated so far that it has not seen any significant demand deterioration and that it expects strong long-term growth.
Key Financial Information
Stock Price
$157.51
Fair Value Calculation
$193.00
Potential Gain
22.53%
Morningstar Rating
4 Stars
CFRA Rating
Hold
Argus Comp Rating
Buy
Schwab Equity Rating
B
TORTOISE Portfolio
(Dividend Paying Companies with a Stable Business Model)
Caterpillar Inc (CAT)
Caterpillar Inc. is the world’s largest manufacturer of construction and mining equipment. Its product portfolio includes diesel and natural gas engines, industrial turbines, and diesel-electric locomotives. The construction segment accounts for roughly 40% of sales and is the most domestically focused segment for CAT. Throughout its 100-year history, CAT has been recognized for its quality and reliability. Its goal has been to provide customers with the lowest total cost of ownership for its equipment. This means that while CAT’s equipment may have a higher upfront purchase price, the savings in maintenance and repairs, along with longer total product life cycles, result in a lower cost of ownership over time. Caterpillar’s strong brand recognition and excellent reputation contribute to a wide moat rating. CAT also excels in its distribution network, with 2,800 global locations where dealers can sell Caterpillar equipment. The interests of dealers align with CAT because they generate substantial business, benefiting both parties. Additionally, CAT operates a captive finance business, allowing it to generate interest on the products it sells. Industrial sales can be cyclical, but we believe the direction the US is heading will benefit CAT, as increased industrial production is expected to raise demand for CAT's equipment in the coming years.
Key Financial Information
Stock Price
$351.51
Fair Value Calculation
$422.00
Potential Gain
20.05%
Forward Dividend
1.60%
Morningstar Rating
4 Stars
CFRA Rating
Buy
Argus Comp Rating
Hold
Schwab Equity Rating
A
Growth ETF Pick of the Month
Invesco Aerospace & Defense ETF (PPA)
The Invesco Aerospace and Defense ETF holds 52 companies in this segment. Most of PPA’s holdings are reliant on long-term government and commercial contracts, ensuring that their revenue is protected. The US is the world’s largest spender on defense and there is always a need to protect our country, so we feel that defense spending will only increase as time goes on. PPA’s holdings are generally companies that are profitable and have strong business fundamentals. Nearly 42% of holdings have wide moats and 21% have narrow moats, ensuring these companies have long-term competitive advantages.
Top 10 Holdings
Holdings
Portfolio Weighting
Morningstar Rating
RTX Corp
6.68%
4 Stars
Lockheed Martin Corp
6.61%
3 Stars
Northrop Grumman Corp
6.22%
3 Stars
Boeing Co
6.01%
3 Stars
General Electric Co
6.00%
3 Stars
General Dynamics Corp
4.87%
3 Stars
Honeywell International Inc
4.53%
4 Stars
L3Harris Technologies Inc
4.50%
4 Stars
TransDigm Group Inc
3.68%
3 Stars
Parker Hannifin Corp
3.45%
3 Stars
Key Financial Information
Current Price
$90.20
1 Year Performance
18.41%
3 Year Performance
12.05%
5 Year Performance
13.62%
Morningstar Rating
Expense Ratio
0.58%
Fixed Income ETF Pick of the Month
BlackRock Flexible Fixed Income ETF (BINC)
BlackRock’s Flexible Income ETF is an actively managed strategy that is allowed to invest in a variety of income sectors. BINC currently invests in government, corporate, and securitized investments. This fund is expertly managed, and the fund managers work tirelessly to take advantage of the inefficiencies in the bond market. This strategy adds exposure to areas of the fixed income market we would not normally have access to, and it provides great diversification and yield to our fixed income portfolio. BINC is currently yielding 6.48% over the trailing twelve months.
Top 10 Holdings
Holdings
Portfolio Weighting
Federal National Mortgage Assoc
3.82%
Federal National Mortgage Assoc
2.63%
Ireland (Republic Of)
1.19%
ICE Bond
0.73%
Spain (Kingdom Of)
0.66%
Italy (Republic Of)
0.64%
France (Republic Of)
0.53%
Federal National Mortgage Assoc
0.48%
Secretaria Do Tesouro Nacional
0.43%
Key Financial Information
Current Price
$52.37
1 Year Performance
7.25%
3 Year Performance
n/a
5 Year Performance
n/a
Morningstar Rating
Silver
Expense Ratio
0.40%
Yield
6.48%
Bond Picks of the Month
Wells Fargo
Yield
4.470%
Maturity
06/03/2026
Rating
BBB
The Walt Disney Co
Yield
4.403%
Maturity
06/30/2028
Rating
A-
Goldman Sachs
Yield
4.558%
Maturity
06/15/2030
Rating
BBB+
CDs
Wells Fargo – 1 Year CD
4.30%
Morgan Stanley – 3 Year CD
4.20%
Morgan Stanley – 5 Year CD
4.25%
Author's Perspective
Tariff policy continues to be the main driver of volatility. It is difficult for companies to effectively plan when the policies keep changing. For example, after Trump’s inauguration, Apple announced it was going to invest $500 billion into building up its infrastructure in the US. This investment was encouraging, as it showed that huge tech players were going to be working intimately with the Trump administration. Since that announcement, though, Trump has said he still plans to place a tariff on a lot of products that Apple manufactures overseas and imports. Apple was still punished even though it had already committed to the US. This specific tariff policy has yet to be implemented, but it creates more uncertainty for one of the world’s largest companies.
The real problem, though, is that other manufacturers will see this and wonder if it makes sense to invest back in the US, especially considering that tariff policy seems to be shifting every couple of weeks. More consistent messaging around tariffs would go a long way to help companies effectively plan for this transitional time. We are actively following all of your investments, and while we work through the uncertainty of the economy, we are focused on providing you the best possible returns for the least amount of risk.
As always, if you have any investment questions, please do not hesitate to contact us and we will be happy to assist.
The real problem, though, is that other manufacturers will see this and wonder if it makes sense to invest back in the US, especially considering that tariff policy seems to be shifting every couple of weeks. More consistent messaging around tariffs would go a long way to help companies effectively plan for this transitional time. We are actively following all of your investments, and while we work through the uncertainty of the economy, we are focused on providing you the best possible returns for the least amount of risk.
As always, if you have any investment questions, please do not hesitate to contact us and we will be happy to assist.
Yours Truly,
Alan Locke, President
Locke Investment Management
Alan Locke, President
Locke Investment Management
About Alan Locke
Alan Locke, BS, MBA, CGA, CFP is the President of Locke Investment Management. After a successful financial management career, Mr. Locke founded Locke Investment Management, a registered investment advisory firm, in 1994. His credo has always been to build the best possible portfolio for each client in order to help that client achieve his or her financial goals.