I’m going to take advantage of today’s pop in Nvidia (NVDA) to sell the shares out of my very short-term Volatility Portfolio tomorrow, Tuesday, October 2. The shares closed up at the close today at $447.82, a gain of 2.95% on the day. I initiated the position in the Volatily Portfolio on Mach 25, 2023. It was up 66% as of the close today So why sell Nvidia here?
So what do you do with your portfolio for the rest of 2023? And what’s your best strategy to be prepared for 2024? In Part 1 of this Special Report I laid out the 10 developments that I thought would drive the financial markets for the rest of 223 and into 2024. Today, in Part 2, I’m going to give you the first 2 of 10 moves to take–with as much detail and as many specifics as possible–that you should be making now to position your portfolio for the uncertainties of the last quarter of 2023.
Now that Fed day is done and behind us, we return to our regularly scheduled programming. Back on September 15, I posted “A tough day for tech–Part 1” after news on Taiwan Semiconductor Manufacturing (TSM) reporting that the company was slowing orders with suppliers of chip making equipment because of sluggish demand for chips from its customers. Now onto Part 2 of bad news for tech stocks.
Today’s Quick Pick is Nvidia (NVDA)–Hold Through Earnings on August 23. Nvidia reports late in this quarter’s earnings season, and this report is expected to be very good. Wall Street’s expectations range from a low of 75 cents a share to a high of $1.75 but the consensus is $1.66 a share, up from 32 cents last year. Nvidia has been reporting 30% positive surprises in recent quarters, so there’s a good chance the results may be even better than expected. My suggestion is to hold the stock through this report in August, and then think about selling. I know, I know. Sell Nvidia!? That’s crazy! Here’s the thing. At some point, Nvidia’s growth rate is going to start to slow. When it does, people will look at the stock and decide the slower growth rate may not
I think a well-constructed portfolio should resemble an onion. (Yes, to continue the analogy, it may make you cry in the short term, but the end result after cooking time is yummy.) At the center of that onion is a core built of stocks with extremely high, risk-adjusted potential rates of return. These stocks won’t deliver the kind of huge gains you can reap from investing in a risky bet–if everything turns out right for that company and its stock. But neither are they likely to crash and burn because something goes wrong at the company. These core portfolio stocks will drop if the market as a whole heads south, but they will drop less and recover faster. These aren’t buy-and-forget, or hold-forever stocks. They can soar to unreasonable valuations at times and an active investor should take profits at some point of overvaluation. (I did a YouTube video recently (you can find it on any of my sites) on when to sell a very overvalued Nvidia, for example.) And they can trade at big discounts to fair value (which is, of course, when the steely-eyed among us will buy) because management has made a mistake or between the industry in which they do business is slumping, or because the market for the company’s goods and services has taken an unexpected direction. At that point, you’ll need to consider selling or adding to your positions depending on your analysis of how long the damage might last and how bad it is. But the point of this core to your stock portfolio is that these are companies that will deliver index-beating results with relatively small risks. Which will enable you, the investor, to plan how to achieve your financial goals with relatively less worry and uncertainty. So, without further ado, here’s my list of 10 stocks for a core portfolio–with the very important “whys” for each pick.
Today’s Trend of the Week is Should You Sell Nvidia? Nvidia (NVDA) has had a great run. Recently, post-earnings, the stock shot up even higher It’s up 44% in the last month, 67% in the last three months, and 166% year to date. The PE on trailing earnings is 203. (The average market PE for a well-liked growth stock is closer to 25-28.) That makes this an making this extraordinarily high-priced stock. However, the forward PE is “just” 84 times projected earnings per share over the next 12 months. That’s below very hefty projected earnings growth. The current growth projection for the second quarter is at 302%; the following quarter is 286%; and for the year as a whole, 132%. So at 84 times projected earnings this isn’t extraordinarily expensive–as long as those projections come through. It’s very hard for a company, even Nvidia, to maintain this kind of growth for very long. Growth in 2024 is only projected at 34%. If we get down to 50% or 30% growth, the market is likely to wake up one day and feel this is a really expensive stock. So keep an eye on guidance for 2024 as we get closer to 2024. (A rule of thumb is that Wall Street analysts tend to look about 6 months ahead in their buy/sell/hol calls on a stock. For now, hold on. Until you see growth projections start to drop below 100%. At that point, even if a stock growing by 50% a year is an amazing future story, a door might be a good thing to find.
Artificial intelligence really is a paradigm-breaking, transformative technology. Right now, investors are so enthusiastic about the sector, especially the obvious leader Nvidia (NVDA), that we’re looking at a potential bubble that will collapse with much gnashing of teeth and I-told-you-so “wisdom” casting doubt on the reality of the entire endeavor. I think a bubble is indeed possible. Nvidia did trade at a trailing twelve-month price-to-earnings ratio of 196 on May 31, after all. But I think you do want to own the sector now–because the breaking of the bubble, if it does break is, in my opinion, two quarters or more away. And you want to own the sector for the long run–say, 10 years or more–because it is such a game changer for so much of the economy. But what to own? I’ve put together a list of the 10 stocks that I think are the best way to participate in the AI gold rush.
Nvidia (NVDA) shares were up 19.68% at 4:45 p.m. New York time today, May 24, after the company reported beating analyst estimates on earnings and revenue. The company also told analysts to expect second-quarter revenue way, way above pre-announcement projections. For the three-month period ending April 30, Nvidia earned $1.09 per share, excluding one-time items, as revenue came in at $7.19 billion. Analysts were looking for the company to report earnings of 92 cents a share and $6.28 billion in revenue.
Today’s topic is Is This the End of Momentum? One Last Momentum Blowout. This has been a great market for very specific stocks. We’re seeing a very narrow momentum market. A few stocks are overperforming the index and propping it up. An example is Meta Platforms (NASDAQ: META), formerly known as Facebook. Meta is up 102% this year and it’s up about 14% in the last month. The S&P is up 9.5% year to date and just 1.5% in the last month. We’re seeing a large divergence between the index and a narrow group of a few rallying stocks, like Meta, Netflix, Microsoft, and Nvidia. These stocks are outperforming the index, but they’re up based on very recent history. Meta’s recent earnings jolted the stock upwards, but it’s still a company that is bleeding money to develop its virtual reality products, with billions of dollars ($13.7B in 2022) lost by its Reality Labs program. The company had staked its future on the Metaverse but has yet to create a viable product from the project. As the momentum of these few stocks starts to slow, Meta could take a big hit because of these fundamental factors. In my opinion, we’re near the top of this momentum market and it’s time to start taking profits from companies like Meta, Microsoft, and Nvidia.
In Step #3 of my Special Report: 5 Moves for the Next 5 Months, on March 24 I added three Big Tech stocks–Microsoft (MSFT), Adobe (ADBE), and Nvidia (NVDA) to my Volatility Portfolio ahead of earnings season. My theory, explained in that post was that we were facing a tough earnings season for most stocks and that reliable earnings growth from Big Tech would make those stocks look like a safe haven in a period when the Standard & Poor’s 500 as a whole was projected to show a drop in earnings. (I also owned up to my mistake in selling Nvidia back on February 16. That was just wrong. More on why I was wrong and why I’ve changed my mind on that in a post tomorrow or so.)
You can understand the gold rush: One AI stock is up 105% (and 78% in the last month) in 2023 as of the February 17 close.
But are shares of that company, the software artificial company C3A (AI), the stock you want to own, or is this stock simply a beneficiary of hot money jumping on anything that sounds like artificial intelligence? As one market observer put it on Seeking Alpha recently, “The ticker is more valuable than the company.” This doesn’t mean that the current revolution in artificial intelligence isn’t real. And here I give you my 7 picks for investing in the latest AI revolution
The rally on February 15 sure looked like a speculative blowout of the kind that often signals a market top. For me, it was the last straw and I’m selling into the rally. This post tells you what I’m selling and how I arrived at these decisions. But first, a few words on Wednesday’s move.
