On May 31 I made Taiwan Semiconductor Manufacturing (TSM) the first pick in my new Special Report: Fundamentals are back, Baby! 5 Fundamental Value Picks. The stock is already a member of my long-term 50 Stocks Portfolio (where it is up 98.75% from my October 7, 2019 buy as of the close on May 31). On June 1 I will add it to my Millennial Portfolio (for investors with more time than money).
There are bargains in this market. But how do you find them? Not, clearly, by looking to see what is cheaper than it was. The fear that’s stopping so many investors from loading up the truck now on Nvidia or Disney or Microsoft or Johnson Controls–all stocks that I really, really like for the long term–is that today’s “cheap” stocks will be tomorrow’s even “cheaper” stocks. So it’s time to dig into your investor’s toolbox and dust off those tried and true techniques for using company fundamentals to figure out the value of a stock. And for separating the real values in this sell off from those cheap stocks on the road to being cheaper.
Nvidia (NVDA) reported fiscal first quarter 2022 earnings after the after the bell close today, Wednesday, May 25, of $1.36 a share against Wall Street projections of $1.30. Revenue of $8.29 billion beat projections of $8.10 billion. Revenue fromm the data center unit was $3.75 billion, topping estimates of $3.63 billion. Game revenue of $3.62 billion beat expectations for $3.53 billion.
But the company guided lower for the fiscal second quarter with revenue of just $8.1 billion against Wall Street projection of $8.4 billings. The war in Ukraine and COVID lockdowns in Chia will cost the company $500 million in revenue, the company said.
In after-hours trading Nvidia shares were down 6.62% as of 5 p.m. today, May 25.
Lithium producer Albemarle (ALB) has been staging a very important experiment over the last few days. Here’s the question being tested: The overall market is in a serious decline–a bear or almost bear market depending on what index you track–that looks likely to go on for a while. In this environment can any individual stock deliver enough good news to buck the market trend and post gains for more than a day or two? On May 4 Albemarle raised its sales guidance for 2022 when it reported first quarter earnings. And then Monday, May 23, the company raised estimates again to a range of $5.8 billion to $6.2 billion. That was up from a previous estimated range of $5.2 billion to $5.6 billion. In total, the midpoint for the company’s estimate of 2022 revenue 38% higher than it was a month ago. And what happened to the shares?
Of course, there’s nothing even vaguely normal about a day when a stock falls 43% and takes much of the market with it.Snap’s (SNAP) plunge did take some surprising candidates along for the ride. Tesla (TSLA) dropped 6.93% on yet more bad news on production in its Shanghai factory. Disney (DIS) fell 4.01% just because. SentinelOne (S) was lower by 8.11% since everyone knows that cybersecurity stocks are just a fad.
But on balance, on the green side (and yes, there was a green side to the market) the market did what markets are supposed to do in the face of bad news and an increase in fear.
The most important indicator of market direction and sentiment this week will be Nvidia’s (NVDA) earnings report for the quarter that ended in April on Wednesday, May 25\ Wall Street analysts and expect earnings of $1.09 a share. Last year Nvidia reported 78 cents for the quarter so hitting the analyst target this year would represented year over year earnings growth of 39.7% That kind of earnings growth is what investors expect from a stock trading at 43.76 times trailing 12-month earnings per share. In a normal market I’d expect traders to bid up Nvidia shares and Call options ahead of earnings
I’m actually surprised that shares of cyber-security company Palo Alto Networks (PANW) rose only 10.7% in after-hours trading after the company reported adjusted fiscal third quarter earnings of $1.79 a share. That was ahead of the adjusted earnings of $1.68 a share expected by analysts and it was up from $1.38 a share in the fiscal third quarter of 2021. Revenue of $1.39 billion, up from $1.07 billion a year ago, was ahead of analyst projections of $1.38 billion. Billings rose to $1.8 billion from $1.27 billion in 2021. But the big news, the news that powered the after-hours gains, came when executives at Palo Alto raised their full-year outlook for the third time in as many quarters
Barclays has suspended sales of 30 ETNs including the iPath Series B Bloomberg Agriculture Subindex ETN. That has increased the volatility of the ETN and so I’m selling it out of my Jubak Picks Portfolio and replacing it with the Invesco DB Agriculture Fund ETF.
My one-hundredth-and-thirty-seventh YouTube video “Quick Pick Invesco Agriculture ETF” went up today. My Quick Pick this week is the Invesco DB Agriculture ETF. If you follow me my JubakPicks.com and JubakAm.com sites, you’ll know I’ve been looking for good vehicles to ride the increases in commodity prices due to inflation and the war in Ukraine. I’m switching in this ETF to replace commodity ETNs managed by Barclays currently in my portfolio because of some really bone-head mistakes by Barclays that have increased volatility in an already volatile asset. I don’t need more volatility, thanks!
Back on April 11 when I sold Wells Fargo (WFC) and the Invesco KBW Bank ETF (KBWB) out of portfolios to reduce my exposure to a slowing economy caused by the Federal Reserve interest rate increases, I kept my position in U.S. Bancorp (USB) because I wanted to collect the dividend due to be paid out on April 15 (and because I thought super-regional U.S. Bancorp, as one of the best managed banks in the country, was less exposed to the downward trend in the sector.) Well, as of May 19, I’ve certainly collected my quarterly dividend (the stock current yields 3.75%) and the downward trend in financial stocks has picked up speed with the Fed announcing (well, as close to “announcing” as the Fed ever does) interest rate increases for the June, July and September meetings of the central bank, so I’ll be selling U.S. Bancorp out of my Jubak Picks Portfolio tomorrow May 20.
Ok, the bad news on profit margins from Target (TGT) was a big deal. No argument. When you’re operating margin falls to 5.37% when Wall Street was projecting 9.5%, it’s a big deal. And after yesterday’s earnings miss from Walmart (WMT), it’s reasonable to extrapolate and say the entire economy and stock market has a cost, inflation, and margin problem. But that doesn’t mean that every company has the same degree of problem. And it certainly doesn’t justify selling everything–and selling to the tune of big losses–shares of every company that sells stuff to consumers. And tomorrow, or the next day, I expect a little more analysis and discrimination in the market. Some of the stocks hit hardest today should rebound handily on that rethink. I’d put PepsiCo (PEP) and Coca-Cola (KO) at the head of that group.
As of 3:30 p.m. Wednesday May 18 shares of Target (TGT) were down 25% for the day after the company reported a big earnings miss for the first quarter. Let’s be clear. The sales picture at Target was very positive for the quarter. Same store sales were up 3.3% in the quarter. That was about three times higher than Wall Street analysts had expected. Revenue was up 4%. Here again Target’s $25.2 billion in revenue beat expectations for $24.3 billion in revenue. But earnings were terrible at $2.19 a share versus forecasts for $3.05 a share.
