Pieter Slegers — Portfolio Update: May 2026 (Compounding Quality)

One-line take: the month's de-rating argument, converted from a complaint into an arithmetic. The portfolio's forward P/E is 17.1x, so the earnings yield is 5.8%; adding 12% expected EPS growth via Terry Smith's rule of thumb gives an expected yearly return of 17.8% — "the highest it has ever been for Our Portfolio", and a doubling every four years. The gap that produced it is restated from 19 May: intrinsic value +8.6% in 2025 against a -6.6% price and +8.3% expected in 2026 against -17.2%, so the book became 40.7% cheaper while the S&P's valuation rose 5% — "Our Portfolio's relative valuation declined by almost 50% compared to the index. That's just ridiculous." The stated conclusion is unusually forward: "I truly think now is the time to swing heavily. The odds are in our favor." Three holdings are singled out. Constellation Software — down almost 50% in a year while revenue grew 20%, net income went from $136m to $367m and free cash flow available to shareholders rose 44% last quarter. Novo Nordisk — "trades at the same price than before it launched Ozempic", with the Wegovy pill reaching 170,000 patients in four weeks and over 1 million by the end of Q1, better weight loss and fewer side effects than Lilly's Foundayo, against a US price cut from over $1,000 to as low as $149 and lost semaglutide exclusivity in Canada and India. Zoetis — down nearly 40% in a month on flat Q1 revenue and an 11% decline in US companion animal, but at 10.6x earnings, with a stated fair value of $180 (20x on $9 of 2030 EPS) = 142% upside, over 25% a year. No holdings table or weights are published in this issue.

1. Stocks & names mentioned

Three holdings given full write-ups, plus the competitors and the businesses named in the opening Buffett anecdote. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis. Written post with no timestamps — the At link opens the article.

Ticker	Name	Research	View	What he said	At
CSU.TO	Constellation Software	QT · SA · STK · FA	Positive	Highlighted as one of three "absolute steals". "Constellation Software is the best serial acquirer in the world, focusing on Vertical Market Software (VMS) companies. The stock has consistently compounded at +30% per year." The divergence is the thesis: "the stock has dropped almost 50% in the past year" while the business grew — revenue +20%, net income $367m against $136m, cash flow from operations +9%, and the metric that matters, Free Cash Flow Available to Shareholders up 44% last quarter. The three market objections are named and left unanswered rather than rebutted: AI disruption, size limiting growth, and life after Mark Leonard. "If Peter Lynch is right, the stock price will need to rise a lot before it catches up to how well the business is doing." Consistent with the 7 May STRONG BUY at 62.1% undervalued — the largest gap in the portfolio.	read ↗
NVO	Novo Nordisk	QT · SA · STK · FA	Positive	Highlighted as a steal, with both sides stated. "Novo Nordisk now trades at the same price than before (!) it launched Ozempic." The three market fears are listed in full: a US government agreement cutting Wegovy and Ozempic from over $1,000 to as low as $149 for some doses; loss of semaglutide data exclusivity in Canada and India; and messy, expensive manufacturing scale-up pressuring margins. Against them, the launch data: the Wegovy pill reached over 170,000 patients in four weeks and more than 1 million treated by the end of Q1 — "the biggest, most successful drug launch ever" — while Eli Lilly's oral Foundayo "is selling at much lower volumes", and "new data shows that people taking Novo's pill lose more weight and have fewer side effects". The framing: "investors are punishing Novo for pricing their pills so low… The company is winning the race for the obesity pill market."	read ↗
ZTS	Zoetis	QT · SA · STK · FA	Positive	The issue's most quantified idea. "The stock of Zoetis dropped nearly 40% in the past month" on flat Q1 2026 revenue, with the US companion animal segment down 11% as pet owners turn price-sensitive and Elanco takes share on promotional pricing. The moat argument: ROIC above 20% "while Elanco is still loss making"; more than 1,700 researchers and $6bn spent on research, with 12 products in development aimed at animal cancer and kidney disease; and insider buying — "Frank D'Amelio recently bought over $500,000 worth of shares". The valuation is stated explicitly: "You can buy Zoetis for just 10.6x (!) earnings… If we assume a fair Forward PE of 20x and $9 in EPS by 2030, a fair stock price would be $180. This implies 142% (!) upside… a yearly expected return of over 25%." Described as "cheaper than it's ever been since its IPO", with the next product wave due in 2027.	read ↗
LLY	Eli Lilly	QT · SA · STK · FA	Neutral	The other half of the GLP-1 duopoly, and here the losing half in one specific race: Lilly's oral pill Foundayo "is selling at much lower volumes" than Novo's Wegovy pill, and "new data shows that people taking Novo's pill lose more weight and have fewer side effects than people taking Lilly's pill". Conclusion drawn: "Eli Lilly will have a hard time catching up." No view on Lilly as an investment.	read ↗
ELAN	Elanco Animal Health	QT · SA · STK · FA	Negative	Named as the source of Zoetis's share loss and simultaneously used to argue Zoetis's superiority: "competitors like Elanco are gaining market share through aggressive promotional pricing and a wave of new product launches" — but "Zoetis… has a ROIC above 20% while Elanco is still loss making." The implication is that the share gains are bought rather than earned, and are therefore not durable.	read ↗

Two notes. (1) No holdings table this month. Unlike the 7 May Buy-Hold-Sell issue and the 2 August update, this Portfolio Update publishes no per-position weights, conviction ratings or valuation rows — the images are charts. Only three holdings are named. (2) Apple, Coca-Cola and American Express appear only inside the opening Buffett anecdote about buying businesses rather than stocks, and carry no view, so are not given rows.

2. Talking points

Stocks or companies — the framing device

The Buffett anecdote: at 11 he watched prices and read technical analysis; after The Intelligent Investor, "he never bought another stock" — only businesses that happened to be listed.
Lynch supplies the mechanism: "There is 100% correlation between a company's earnings and what happens to the stock."
The purpose is to set up the whole issue: prices have fallen, intrinsic values have not, and the two must eventually reconverge.

The de-rating, in three blocks

2025: intrinsic value +8.6% against a -6.6% price → 15.2% cheaper. 2026: intrinsic value +8.3% expected against -17.2% → 25.5% cheaper.
Combined: 40.7% cheaper, against an S&P 500 whose valuation rose 5% — "Our Portfolio's relative valuation declined by almost 50% compared to the index."
The comparative claim alongside it: "we own better companies that are 23% (!) cheaper than the S&P 500", with intrinsic value growing "nearly 20% (!) per year".

Terry Smith's rule of thumb, and the 17.8%

Forward P/E 17.1x → earnings yield 5.8% (100/17.1). Plus 12% expected EPS growth = 17.8% expected annual return.
"It's the highest it has ever been for Our Portfolio. This would mean you double your money every 4 years."
Worth noting the method: no exit-multiple assumption at all, unlike the Earnings Growth Model used on the 7 May list. That makes it more conservative — and it still produces the highest number the portfolio has printed.

"Now is the time to swing heavily"

The most directional sentence in the batch: "I truly think now is the time to swing heavily. The odds are in our favor."
Followed by "today is a great day to buy quality stocks" — and, four days later, by a position switch that funds two additions by selling a holding rather than by adding new money.
The confidence is grounded in the quality claim rather than in a timing view: "Because we own companies with durable competitive advantages."

Constellation: business up, stock halved

The numbers: revenue +20%, net income $367m from $136m, operating cash flow +9%, and FCFA2S +44% last quarter — against a share price down almost 50% in a year.
FCFA2S is named as "the most important metric for Constellation Software", which matters because reported earnings understate a serial acquirer's cash generation through amortisation.
The bear case is listed without rebuttal — AI disruption, size, the Mark Leonard succession. Recording the objections and not answering them is honest, and also leaves the thesis resting on the cash-flow trend alone.

Novo: the pill launch against the price cut

The setup: the shares are back to their pre-Ozempic level, having round-tripped the entire GLP-1 era.
The three fears, stated plainly: a US pricing agreement taking some doses from over $1,000 to $149; lost semaglutide data exclusivity in Canada and India; and margin pressure from manufacturing scale-up.
The counter-evidence is volume, not price: 170,000 patients in four weeks, over 1 million by end-Q1, better efficacy and tolerability than Lilly's oral competitor. The bet is that a pill nobody has to inject wins a much larger market at a much lower price.

Zoetis: the most complete valuation in the issue

The fall: nearly 40% in a month on flat Q1 revenue, with US companion animal down 11% on consumer price sensitivity and Elanco's promotional pricing.
The moat evidence: ROIC above 20% against a loss-making Elanco, 1,700 researchers, $6bn of research spend, 12 candidate products in animal oncology and nephrology, and a director buying $500,000 of stock.
The maths: 10.6x earnings today; at a fair 20x on $9 of 2030 EPS that is $180, or 142% upside — over 25% a year. The bridge is a product cycle that resumes in 2027.
Note the honesty about the interim: "Right now, Zoetis is playing defense. It's cutting costs and moving into stores and home delivery."

3. In plain English

A jargon-free summary of the thesis behind each argued name. (Renders on each name's consolidated page.)

CSU.TO — Constellation Software Positive

Constellation buys small software companies that serve one specific industry — the systems a bus operator, a golf club or a public library runs on. These businesses are dull, nearly impossible to switch away from, and generate steady cash. Constellation buys dozens of them a year and has compounded at about 30% annually doing it.

The share price has halved over the past year while the business went the other way: sales up 20%, profit up from $136 million to $367 million, and the number that matters most for this kind of company — the cash actually available to shareholders after everything is paid — up 44% in the latest quarter alone.

The market's reasons for selling are listed here without being argued against: that AI will make this kind of software obsolete, that the company is now too large to keep finding enough acquisitions, and that it cannot repeat the record without Mark Leonard, its founder.

The counter-argument is simply arithmetic over time. If earnings and share prices eventually converge, and the earnings are rising while the price falls, the gap has to close in one direction.

NVO — Novo Nordisk Positive

Novo Nordisk makes the diabetes and weight-loss drugs Ozempic and Wegovy. Its shares now cost the same as they did before Ozempic launched — the entire boom has been given back.

Three things frightened the market. The US government negotiated the price down from over $1,000 a month to as little as $149 for some doses. The patent protection on the underlying drug ran out in Canada and India, so copies can be made there. And building enough manufacturing capacity has been expensive and messy, which squeezed profit margins.

What the share price ignores is the launch of the pill version of Wegovy, described here as possibly the most successful drug launch ever. It reached 170,000 patients in four weeks and over a million by the end of the first quarter. Eli Lilly's competing pill is selling far less, and new trial data shows Novo's version produces more weight loss with fewer side effects.

So the argument is that investors are punishing the company for cutting the price, while missing that a cheap pill nobody has to inject reaches a vastly larger number of people than an expensive injection ever could. Volume, not price, is where the value is.

ZTS — Zoetis Positive

Zoetis sells medicines, vaccines and diagnostic tests for pets and farm animals — to vets, farmers and distributors. The shares fell nearly 40% in a single month because revenue for the first quarter of 2026 was flat, and the American pet segment in particular shrank 11%.

The reasons for that are real but described as temporary: households are cutting back on discretionary spending for their pets, a competitor called Elanco is buying market share with heavy discounting, and Zoetis is in a gap between major product launches with the next wave due in 2027.

Three things suggest the underlying business is intact. It earns more than 20% on the capital invested in it, while Elanco — the company taking its share — loses money, which suggests the discounting cannot last. It employs over 1,700 researchers, has spent $6 billion on research, and has 12 potential products in development including treatments for cancer and kidney disease in animals. And a company director has just bought more than $500,000 of the shares with his own money.

The valuation is where the case becomes concrete. The shares cost 10.6 times earnings, the cheapest they have been since the company listed. If they eventually trade at a normal 20 times, and the company earns $9 per share by 2030, the shares would be worth $180 — 142% above today, or more than 25% a year.

Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.