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 Trend of the Week is Watch Nvidia. NVIDIA (NASDAQ) reports earnings today, August 23. The consensus is that the company will report $1.69 a share, up from last year’s $0.32. And that revenue growth will come in with 65% growth.
This stock has been one of the big gainers this year and has effectively led the market. The shares recently hit a bit of a plateau until Monday, when the stock popped 8% on earnings optimism. The stock trades at a trailing PE of 238 but the big earnings jump should help with that. So what do you do with this stock that is leading the market, but is also known to be overpriced and therefore somewhat risky? You go with the momentum. Follow the market to see if investors start to sell and take profits after earnings, or if people continue to buy, even at a high price, with hopes for even greater gains. This will be an indicator of how momentum in the market is going, especially for the booming AI sector.
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.
How Long Can a Dangerously Narrow Market Run? Certainly not forever. But longer than you might imagine. The Nasdaq 100 and S&P 500 have increasingly diverged. The week before last, the NASDAQ 100 (which includes the largest technology companies), was up 3.15% and the S&P was up only .28%. Over the last three months, the NASDAQ 100 was up 18.88% and the S&P was up 6.14%. For 2023 to date through May 29, the NASDAQ was up 31%, and the S&P was up 10%. NASDAQ tech stocks, like Nvidia (NVDA), are driving the index up and that is pulling the rest of the market with it. The remainder of the market, however, is weighed down by warnings of a tough retail economy, companies reporting negative growth, and inflation problems. At the moment, investors are betting on technology’s big growth to avoid problems from a slowing economy, prolonged high inflation, and the Fed’s rate hikes. The result is a very narrow market, with a small number of specific stocks propping it up. History says, that eventually, the market rally will either expand, with more stocks participating, or it will fail because you can’t sustain an upward trend with fewer and fewer stocks. Narrow markets can run for longer than you might think. But it’s not too early to locate the exits.
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.
They’re still talking. Which is good. It looks like there might be a deal. Which is good. It would be based on kicking all the tough line item decisions on what programs to cut down the road to the August and September budget and appropriations process in Congress.
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.
Certainly, we can all understand the attraction. Back on May 14, 2013, shares of Nvidia (NVDA) closed at a split-adjusted $3.60 a share. On May 1, they closed at $289.53. That’s a gain of 7943% in 10 years. Can we find the next Nvidia? 20/20 foresight would help, of course. But we can learn something about how to find the next Nvidia by examining the history of the current Nvidia. In Parr 1 of this Special Report I established some of the parameters that will guide my search for the next Nvidia. It’s necessary groundwork, I believe. I’ll start the task of building my list of 10 picks for finding the next Nvidia in Part 2.
