May 23 – Stock Mentions: TSLA, INTC, NVDA, AMD, ACAD

Michael Kramer and the clients of Mott Capital own TSLA and ACAD

Well, we knew things were going to heat up today, the chart of the S&P 500 told us that it would happen. The only thing we weren’t sure of was the direction. So blame it on the trade war if you want, the action today was baked-in into the charts, and I am not surprised. The only place I went wrong was the direction. Hey, you can’t get everything right all the time, 1 out of 2 isn’t bad. I should have realized yesterday when the S&P 500 failed at 2,863.

Hey, trade tensions are even helping people in the US buy homes with mortgage rates going down. When in doubt blame it on trade worries. Why not, it sounds good.

Forget about those weak PMI’s today across the US and Europe, they don’t matter at all!

I’m still scratching my head in terms of what the potential impact of a trade war would be on S&P 500 earnings estimates? I spent about 3 hours this afternoon trying to come with a hard number. I get the sense that nobody has a clue, and I’m not saying I do either. I have no way to actually to assess the impact on earnings. The actual impact on the economy based on the import numbers and GDP, I believe will likely be minimal, there are actual numbers I can use to think that through.

The best I could come with regarding earnings is roughly a 4.5% hit to earnings estimates, assuming all the tariffs go into place.  Let’s have some fun and see what we come up with.

Operating earnings estimates for 2019 would fall to $158.20 from $165.52, and 2020 would fall to $175.56 from $185.03. That would leave the S&P 500 trading at 17.8 times 2019 estimates, and 16.1 times 2020 earnings estimates. Still, that is below the S&P 500 historical one-year forward earnings of 17.4 going back to 1988. Even at 17 times 2020 earnings, the S&P 500 gets to 2984, at the historical average of 17.4 it goes to 3054. So do I feel the trade stuff is overblown, yes!

Does that mean the market can’t fall further? Of course, it can, at 15 times 2020 estimates with 4.5% discount, we get to 2,633.  But with rates on the 10-year 2.32%, I find it unlikely.  I mean the S&P 500 SPDR (SPY) yields 1.85%, keep that in mind. As prices fall, yields rise.

S&P 500 (SPY)

The good news is that the S&P 500 closed well of its lows, and the index managed to hold last weeks lows. The other piece of good news is the RSI still has a positive trend. So, no I’m not jumping on the gloom and doom wagon yet, and no, it is not because I’m a perma-bull.

Tesla (TSLA)

There weren’t many stocks that went up today, but Tesla was one. Elon has seemingly found a better way to communicate with the public about TSLA. Put out sensitive emails to employees knowing they will be leaked to the media because that seems to always happen. It is a much more efficient and direct way to communicate with the mass instead of messing around with Twitter.

Anyway, I have done some work on Tesla these past few days myself, and based on my “data,” it seems hard for me to determine that demand is waning? I’m wondering how the sell-side guys know how to measure demand? Is there some gauge that blows in the wind? Again, my data says demand seems fine, and the email Musk sent out today seems to suggest that.  You can watch my video if you’d like Does Tesla Have A Demand Problem?

I do think the stock is reflecting more China nervousness than demand worries. Remember they are building a large plant in Shanghai.  The $191 level is the last stand for the stock, before a drop to $130. I think the stock is oversold at this point and due to rebound back to $251.

Intel (INTC)

In a sign that perhaps some of these semis are oversold, Intel managed to rise today. It has room rise to $46 before hitting resistance.

Nvidia (NVDA)

Nvidia fell through $150, and now the door opens for a decline to $139.

AMD (AMD)

I don’t know what to say about AMD. The stock is on the slow grind lower. Every time you think its breaking out it fails. I give up. I think it needs to test 25.75 first before we know what happens next.

Acadia (ACAD)

Acadia has one of these wedges forming too, like the one in the S&P 500 yesterday. This time I hope to get it right. I think $27 is on the way, maybe even $31. How many times I have said that before about Acadia, and been wrong? A lot. 🙂

Sleep tight!

-Mike

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