Earnings forecasts are falling as we get close to the end of the quarter on September 30 and the start of earnings season in early October. Aggregate earnings per share estimate for companies in the Standard & Poor’s have dropped 5.5% in the past two months, according to Credit Suisse.
Lithium producer Albemarle (ALB) closed up 2.71% today after hitting an all-time high of $298.17 in intraday trading. The shares closed at $295.68. The gains for Albemarle, and across the lithium sector, came as Goldman Sachs upgraded lithium battery maker Freyr Battery (FREY) on projected higher demand for lithium batteries after the Inflation Reduction Act. Albemarle is a member of my Jubak Picks Portfolio where it is up 200.18% since my August 10, 2018 stock pick. The stock is also a member of my long-term 50 Stocks Portfolio where it is up 221.67% since February 17, 2017.
My one-hundred-and-sixty-eighth YouTube video Trend of the Week: “3 Tech Stocks for the Next Wave of Products” went up today. Tech has been hammered as of late, but there will always be new innovations and new products emerging to give these companies in this sector a long and profitable future–after this Bear Market is over. In this video, I look at why AAPL, AMD, and QCOM have solid growth stories based on new products in the pipeline.
First, it was Nvidia (NVDA) cutting its guidance for revenue and earnings due on August 24. Today, August 9, it was Micron Technology (MU) warning that its revenue for the fourth-quarter revenue may come in at or below the bottom end of a forecast range provided in the company’s earnings call on June 30. Micron is scheduled to report on September 27. All this comes as the market is on edge anyway ahead of tomorrow’s report on CPI inflation. As of the close on Tuesday, August 9, shares of Micro Technology were down 3.74%. Shares of Nvidia were down another 3.97% after closing down 6.30% yesterday.
After looking like it was over earlier in the week with a significant pull back on Tuesday, July 26, stocks have rallied in the last two days, gaining 3.85% by the Thursday, July 28 close from that Tuesday low. And right now all the ducks are lined up in a row for a strong move higher. (But you know what they say about Bear Market rallies right? They’re really hard to trade and they’re even harder to sell into.)
Those ducks?
We’ve had a great one-week rally/bounce/whatever in chip stocks. Nvidia, for example, was up 17.42% for the week that ended on Thursday, July 21. Advanced Micro Devices (AMD) was up 8.71% in that same period. But I think there are good reasons for thinking that this move was just a very short-term gain in a long-term Bear Market that remains in place. So today, I’m taking some chip money off the table.
In the last week Technology stocks, and chip stocks in particular, have staged a very impressive rally off of a really low base. Nvidia (NVDA), for example, is up 17.43% in the week that ended on July 21. That still leaves the stock down 39.43% for the year. Advanced Micro Devices (AMD) is up 15.36% in the last week. And it’s still down 37.85% for 2022. Qualcomm (QCOM) is up 1.85% for the week. And down 16.26% for the year. Impressive. But I’d be more inclined to see this as a sustainable rally if stocks were rising across the board–with tech and chips leading the way, perhaps.
Instead what I’m seeing is a rotation from safe and less risky stocks
The Chips for America Act looks headed to a cloture vote in the Senate on Thursday. As the $52 billion bill now stands, it includes $39 billion for semiconductor companies to “build, expand, or modernize domestic facilities.” Here are the winners as I see them.
The Standard & Poor’s 500 was on track for a decent day–the index was up 0.79% at 12:43 p.m. New York time–and then Bloomberg broke a story, picked up everywhere, reporting that Apple (AAPL) intended to slow hiring and reduce spending growth next year. The S&P 500 finished the day down 0.84% and Apple shares closed down 2.06%.
Analysts at New York investment house Cowen now expect worldwide mobile phone shipments this year to decline by 6% from a year ago to 1.36 billion. In 2023, the company projects shipments will dip by another 2% to 1.33 billion units. Perhaps most worrying for investors is Cowen’s analysis of where the market problems lie: In weakness in the high-end smartphone market.
My second Fundamental Value Pick in my Special Report 5 Fundamental Value Picks is Applied Materials (AMAT). Let’s go to the classic formula for calculating fundamental value of an asset, the Capital Asset Pricing Model, known affectionately by generations of MBA students as CAPM. Don’t worry. I’m not going to force you into the sometimes arcane mathematics of CAPM. Instead I’m going to use the formula as a framework for understanding what matters in calculating a fundamental value for a stock–as well for understanding how these factors fit together.
Taiwan Semiconductor Manufacturing (TSM), the world’s largest independent chip producer, expects revenue to grow about 30% in 2022. Sales growth this year should accelerate from 2021’s 24.9% (in dollar terms), Chairman Mark Liu said at the company’s annual shareholder meeting on Wednesday, June 8. That’s a bump higher on company guidance in April of growth topping mid- to high-20% in 2022.
