This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.
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Chip Stocks Monster Week, Plus Micron, AMD, Netflix, Visa and Microsoft
Believe it or not, the S&P 500 was up by about 3.25 percent for the week! An unexpected gain, with most of it coming on Friday. The semiconductor stocks ($SOXX) led the charge with the group up by nearly 5 percent, followed by Industrials ($XLI), and Biotech ($IBB). Outside of consumer staples ($XLP) and utilities ($XLU), it was a good week for all.
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Look at the chip stocks! Wow. We aren’t even though the first quarter and look at these significant gains. Micron, Microsemi, MKS Instruments, Qorvo, Nvidia, On, astounding, all up over 20 percent. Of the top 25 stocks in the SOXX ETF, only two are down for the year, Qualcomm and Broadcom.
I was surprised to see how poorly Micron performed today, after a strong week. The momentum has been strong, and one has to wonder why the momentum suddenly came out of it today?
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On the other end of the spectrum, AMD is a stock that has gone nowhere. Don’t be fooled by the stock being up by 16 percent in 2018. The stock is actually down nearly 12 percent over the past 52 weeks. The earnings growth appears to be present, with earnings in 2018 expected to rise by over 117 percent to $0.37, followed by $0.52 in 2018, and $0.58 in 2019. Even revenue is expected to grow from roughly $6.3 billion in 2018 to $7 billion in 2020. But the stock won’t budge. The only problem I see with it is that for a chip stock it is expensive at 22.6 times one-year forward earnings. That is a lot, for a stock in this space, especially for one that’s name is not Nvidia.
Microsoft Or Visa
Out of all the stocks that make up the SPY ETF top 25 holdings, I never would have guessed that Microsoft at 24.3 times one-year forward earnings estimates was the second most expensive stock behind Amazon. Followed by Alphabet at 24.06 and Visa at 24.03.
Microsoft is trading at all-time highs, but one has to wonder just how Microsoft is a better buy then say Visa presently, at the same earnings multiple. Microsoft is expected to grow its earnings by 8 percent in 2019 to $3.64 from $3.95. Meanwhile, Visa is expected to increase its earnings by nearly 17.5 percent from $4.41 to $5.18. If the bet for Microsoft is blockchain for example, and that is going to be a way to transact in the future, Visa and MasterCard are going to be involved in some way shape or form, don’t you think?
Amazon and Netflix
Amazon and Netflix continue just to lead the consumer names, and can you wonder why? These two companies are just loaded with future growth. But the pace they are both rising in 2018, just leaves me lost for words.
As I have said before I own Netflix, and I am more than happy for the stock to rise over time, but 72 percent in the first six weeks of the years, seems like a bit much. Keep in mind; I’m the guy that wrote Netflix was cheap after it reported results in the middle of January. Then I took it one step further and said shares could rise to $355. But the pace of the rise makes me feel uncomfortable, and you are right I could sell it. But I do believe this is a multi-year growth, and even at its current price, it likely has much further to rise over time. This a global growth story in a way that has never happened before. I’d take a month or two of sideways consolidation at this point.
Tomorrow we’ll take a look at the week to come.
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Michael Kramer and the clients of Mott Capital own shares of GOOGL, NFLX, V
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
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Tags: #sp500 #chips #micron #nvidia #amd #visa #microsoft #amazon #netflix