Title: Portfolio Update May 2026 Show: Compounding Quality (Substack, paid post — compoundingquality.net) Guest: Pieter Slegers / Team Compounding Quality (author; byline "Compounding Quality") Date: 2026-05-24 URL: https://www.compoundingquality.net/p/portfolio-update-may-2026 Length: written post — no timestamps Note: Paid-subscriber post captured via Stephen's logged-in session. Body text verbatim; UI chrome removed. Fiscal.ai and investor-relations chart panels noted inline as [Image — ...]. This monthly Portfolio Update carries no position/weight table — the images are charts, not a holdings grid — so no per-position weights or ratings are published in this issue. Three holdings are singled out for a detailed write-up.
Another month, another Portfolio Update.
What's going on with our companies? And which companies are the most attractive right now?
Let's dive in right away.
Stocks? Or Companies?
Warren Buffett is the best investor in the world.
In this interview, he said that he tried to pick stocks when he was 11 years old:
He paid attention to the price
Read books on technical analysis
He thought the most important thing was to be able to predict what the price would do
Then he read Ben Graham's book 'The Intelligent Investor'.
From that point on, he never bought another stock.
It sounds crazy.
Warren Buffett is the best investor in the world.
He is known for buying stocks like Apple, Coca-Cola, and American Express.
But since he read The Intelligent Investor...
He stopped buying stocks and started buying businesses.
Some of these companies, like Apple, Coca-Cola, and American Express, ... just happened to be traded on the stock market.
This is an important mindset shift.
In the short term, there are a lot of random things that will drive the price of a stock.
Things like:
Changes in interest rates
Sentiment
Analyst ratings
Headlines
...
But in the long run, the underlying performance of the business will drive the stock price.
Just listen to Peter Lynch:
"There is 100% correlation between a company's earnings and what happens to the stock."
The important lesson?
Over short periods of time, a stock's price can jump up or drop down because of things that aren't really about the company at all.
But given enough time, a strong business will lead to a strong stock.
In the long term, stock prices always follow the evolution of the intrinsic value:
[Image — intrinsic value versus stock price over time]
Let's dive in and see how our businesses are performing.
Our Portfolio
Fundamentally, our businesses are doing great.
Our companies are healthier than the ones in the S&P 500.
And this while they are substantially cheaper than the index.
As you can see we own better companies that are 23% (!) cheaper than the S&P 500:
[Image — Our Portfolio versus the S&P 500 on quality and valuation]
The intrinsic value of our companies has grown by nearly 20% (!) per year.
[Image — intrinsic value growth]
Almost every company we own remains undervalued right now.
Right now, the market seems to care mostly about stock prices and the short term.
Let's dive into the numbers for a second.
Our Portfolio in 2025
Intrinsic value: +8.6%
Stock price: -6.6%
As a result, Our Portfolio became 15.2% cheaper.
Our Portfolio in 2026
Intrinsic value: +8.3% (expectations)
Stock price: -17.2%
As a result, Our Portfolio became 25.5% cheaper.
Our Portfolio since the beginning of 2026
If you combine 2025 and 2026, Our Portfolio became 40.7% cheaper (!)
Over the same period, the valuation of the S&P 500 increased by 5%.
This means that since 2025, Our Portfolio's relative valuation declined by almost 50% compared to the index.
That's just ridiculous.
While the market will remain irrational in the short term, it will be a weighing machine in the long term.
I truly think now is the time to swing heavily. The odds are in our favor.
I wrote an extensive summary about this.
Partners of Compounding Quality can read it here: Extensive market update
Just let me make it clear: today is a great day to buy quality stocks.
[Image — Source: CNBC]
I feel very confident that Our Companies will be fine.
Even while our performance is struggling right now.
Why?
Because we own companies with durable competitive advantages.
The expected return of Our Portfolio has never been higher than today.
Just think about it for a second...
Our companies are fundamentally way healthier than the index
Our companies are cheaper than the index
The current Forward P/E for Our Portfolio equals 17.1x.
This means the earnings yield is 5.8% (100/17.1x).
Terry Smith says there is an easy rule of thumb to calculate your expected return:
Your expected yearly return = Expected EPS growth + Earnings yield Your expected yearly return = 12% + 5.8% = 17.8%
An expected yearly return of 17.8% would be amazing.
It's the highest it has ever been for Our Portfolio.
This would mean you double your money every 4 years.
If you invest $10.000, the evolution would look as follows:
[Image — Source: Investor.gov]
There are three companies in Our Portfolio that I specifically want to focus in on today.
The ones that could be an absolute steal today.
Constellation Software ($CSU)
How does the company make money?
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.
Why should the company be highlighted?
Constellation Software is a great example of how a company and its stock price can go in opposite directions.
Even though the business itself is doing well, the stock has dropped almost 50% in the past year:
[Image — Source: Fiscal.ai]
The market tells a lot of stories about why the stock price is down:
AI will disrupt Constellation's business
Constellation is too big to keep growing at attractive rates
The company can't keep performing well without Mark Leonard
...
In the meantime, Constellation Software keeps growing at attractive rates:
Revenue: +20%
Net Income: $367 million, up from $136 million
Cash Flow from Operations (CFO): +9%
The most important metric for Constellation Software is Free Cash Flow Available to Shareholders (FCFA2S).
This number increased by 44% (!) last quarter.
[Image — Source: Constellation Software Investor Relations]
Constellation has been steadily growing FCFA2S for years:
[Image — Source: Fiscal.ai]
If Peter Lynch is right, the stock price will need to rise a lot before it catches up to how well the business is doing:
[Image — Source: Fiscal.ai]
Novo Nordisk ($NOVO-B)
How does the company make money?
Novo Nordisk is a pharmaceutical company, focusing on drugs for diabetes and obesity. They're part of a duopoly with Eli Lilly in GLP-1 drugs.
Why should the company be highlighted?
Novo Nordisk is another example of a company in a ridiculous situation.
Mr. Market seems to be very very pessimistic about the company right now.
It's yet another case that proves you should focus on the business rather than the headlines or the stock price.
If you only looked at the stock chart recently, you'd think the company was in trouble.
Novo Nordisk now trades at the same price than before (!) it launched Ozempic.
[Image — Source: Fiscal.ai]
The market is panicking over a lot short-term troubles:
Pricing Pressure: An agreement with the U.S. government cut the price of Wegovy and Ozempic from over $1,000 to as low as $149 for some doses.
Patent Expirations: The company lost data exclusivity for semaglutide in markets like Canada and India, leading to concerns about generic competition.
Manufacturing Growth: Scaling up to meet demand has been a messy, expensive process that put pressure on margins
A lot of challenges. That's for sure.
But if you look at the underlying business performance, the situation looks different.
Novo Nordisk just pulled off what many experts call the biggest, most successful drug launch ever.
I'm talking about the launch of the Wegovy pill.
Within just four weeks of the launch, it reached over 170,000 patients. By the end of Q1, that number was over 1 million people treated.
Compare that to their main rival, Eli Lilly.
Their oral pill (Foundayo) is selling at much lower volumes.
[Image — Source: Peter Torngren on X]
It turns out that Eli Lilly will have a hard time catching up.
New data shows that people taking Novo's pill lose more weight and have fewer side effects than people taking Lilly's pill.
[Image — Source: Novo Nordisk Investor Relations]
Novo Nordisk didn't just launch first... It looks like they also have the better product.
Right now, investors are punishing Novo for pricing their pills so low, and the stock price is dropping.
But over time, Novo is becoming the go-to treatment for millions of people who would never agree to give themselves a shot.
The company is winning the race for the obesity pill market.
Sooner or later, the stock price will have to catch up to that.
Zoetis ($ZTS)
How does the company make money?
Zoetis makes money by selling medicines, vaccines, diagnostics, and other health products for livestock and pets to veterinarians, farmers, and distributors worldwide.
Why should the company be highlighted?
Is Mr. Market offering us an amazing opportunity once again here?
The stock of Zoetis dropped nearly 40% in the past month.
Why? The company reported flat revenue for Q1 2026.
Don't get me wrong... In the short term, the business definitely will face some difficulties.
The U.S. companion animal segment declined 11% in the US last quarter:
[Image — Source: Zoetis Investor Relations]
Pet owners are becoming more price-sensitive due to macroeconomic pressures.
At the same time, competitors like Elanco are gaining market share through aggressive promotional pricing and a wave of new product launches.
Meanwhile, Zoetis is in a temporary trough between major product launches.
Despite these short-term headwinds, the company's moat remains intact:
Strong profitability: Zoetis earns strong, steady profits on the money it invests. They have a ROIC above 20% while Elanco is still loss making.
Strong pipeline: Zoetis employs more than 1,700 researchers and has spent $6 billion on research. It's now developing 12 products that could become huge hits, aimed at new areas like cancer and kidney disease in animals.
Insiders are buying: Frank D'Amelio, recently bought over $500,000 worth of shares.
We wrote a detailed report comparing Zoetis to its competitors.
You can read it here: Download the Full Report on Zoetis Here
Right now, Zoetis is playing defense.
It's cutting costs and moving into stores and home delivery to stay strong until its next big wave of new products arrives in 2027.
For an investor who's willing to wait, this looks like a great company whose stock is cheaper than it's ever been since its IPO.
You can buy Zoetis for just 10.6x (!) earnings.
If we assume a fair Forward PE for Zoetis is 20x earnings and that Zoetis will generate $9 in EPS by 2030, a fair stock price would be $180.
This implies 142% (!) upside. This equals a yearly expected return of over 25% (!).
[Image — Source: Fiscal.ai]
Conclusion
We feel completely confident about the companies we own.
Short-term price drops can feel scary, but in the end they're just temporary distractions from what really matters.
Our companies are fundamentally strong and growing at nearly 20% every year.
As long-term investors, we know the stock price will eventually catch up to how well these companies are actually doing.
With an expected return of 17.8% per year, we've never been more sure that our companies will do exceptionally well over the long run.
Everything in life compounds Team Compounding Quality