The Index Fund Trap

**Luke Guerrero** (0:00)
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**SPEAKER_2** (1:13)
This is Invest Talk from KPP Financial, helping investors make sense of the markets one day at a time. Here's your host, Luke Guerrero.

**Luke Guerrero** (1:28)
Good afternoon, fellow investors, and welcome to the Thursday, July 2nd, 2026 edition of Invest Talk.
I'm your host Luke Guerrero, and I'll be with you over the next 55 minutes or so as we round out the stories for the week, bring you issues that matter, and most importantly, most, that's not a word, most importantly, answer your finance and investment questions before we head off for the long weekend. Now, I've mentioned it earlier in the week. I'm sure Justin mentioned it as well. Tomorrow is a holiday as markets are closed, so we will be having a best of episode. Another issue I wanted to remind you about is that our newest Invest Talk Wealth webinar, Beyond the Yield, How to Invest for Your Income Needs, was a couple of days ago, and if you missed it, it is now available on the Invest Talk YouTube channel, so I encourage you to go check it out. Okay, in just a bit, we'll talk about today's market performance, as well as the show topics that I'm bringing to the table. But first, let's tackle this caller question.

**SPEAKER_3** (2:33)
Hey, Justin and Luke, wanted to give you guys a call. Wanted to ask about Cardinal Health. I've heard some good things about that company listening to your show over the years. Can you please give me your analysis of where they're at today?
Would that be a good choice in trying to get a little health care into my portfolio? Big fans of the show will listen to the podcast for your answer.

**Luke Guerrero** (2:58)
Thank you. Cardinal Health, a name that we do, we used to get pretty frequent calls about. Let's take her CAH, is actually the number two US pharmaceutical distributor just behind McKesson. They have 56 billion in quarterly revenue from their drug distribution, specialty pharma oncology and their at-home solutions. They also have their global medical products distribution. Think your medical and surgical products, your masks, your items that are used in surgery.
Year to date, this name is up about 16.2 percent. It's done really well over the past three months, up 11.63 percent.
It has, as health care has started to rally over the past couple months, done far better than the industry. I mean, the industry is still negative year to date. This thing is outperforming it by 19.3. Last year, it outperformed it by 27.2. It has perennially outperformed the industry coming out of the pandemic, and with the exception of 2024, it's a pretty strong outperformance relative to the S&P 500 Now, it's been a while since it has reported earnings. April 30th, it looks like, was the last time that it reported earnings. But earnings are pretty solid. Gross profits up 18% year over year. Operating earnings up 18% as well. They beat gap, rather non-gap EPS by about 12.6%. That came in as a 35% growth year over year. And top line, revenue up 11%. I mean, these are pretty, pretty solid numbers that led to a bunch of analysts raising price targets. It is probably the most consistent beat and raise name over the past couple years. I mean, this is not just a one-off event here. We've been seeing it quarter after quarter. And a lot of that is driven from their oncology and special revenue growth, which is up 30% year-over-year.
They also benefit from distribution of GLP-1s. And that contributed six points of pharma growth.
If you're comparing it to McKesson, I mean, I like both names. This one's a little bit cheaper. The balance sheet is, I would say, a little bit cleaner.
We talked about the other day why we don't have price targets as the gospel for anything. But for what it's worth, I mean, it's got 14 buy recommendations, zero sell. I mean, it's pretty pristine consensus. And free cash flows in the 3.3 to 3.7 billion at a $56 billion market cap. I mean, I'm not seeing a lot that's bad here. And so this name, which is now trading at about 19.8 times price for looking earnings looks cheap. I mean, it is a bit expensive relative to where it's been the past five years. From a technical perspective, it's solid. It's been a big run up in the past three months. I would look for a little bit of consolidation, maybe around the 220, but this is a great name. It's a great compounder, clean. I, in fact, like it. That is Cardinal Health, ticker CAH. We had a great show yesterday. We looked into a story that was really focused on a bit of a scorecard for the first half of the year. It was a look back at what actually worked and what the consensus predicted in January, because most of the time, those two things are pretty far apart. We also answered a listener question on ticker XMTR, a specialized in manufacturing on demand for high precision production parts as well as prototyping. That question was actually submitted via the comment section of our YouTube channel. If you happen to miss that show, I encourage you to go check it out and remember the best way to never miss an episode of Invest Talk is to subscribe wherever you get your podcasts. Alrighty, on to today where our main story is about the Index Fund Trap. As an example, when the Russell 2000 is up over 20% and the S&P is under 10%, saying I just own the index means very different things depending on which index you own. So this story will give me a bit of a chance to explain how Market Cap Awaiting has quietly concentrated listeners into a handful of names. Also, we'll touch on the Rotation Trade, which had another great week this week.