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The Big Short Investor Is Stockpiling This Commodity ⎯ Should You?

The commodities market looks poised for growth. There is economic uncertainty, rising geopolitical tensions, as well as oil and natural gas prices rising ever higher.
Whether you fancy yourself a commodities investor or not, there is clearly something to investing in some of the most important commodities in the market, even if just used as a vehicle to park some of your money.
However, despite the popularity of commodities like gold, silver, or even oil, there is one commodity we simply cannot live without, water.
Investing in water, or as it has been referred to, blue gold, is an increasingly popular investment option as many become fearful about our ability to make sure mankind has enough to support literally everything we do.
It is often thrown around that without this or that, societies around the world would come to a screeching halt, but when it comes to water, there truly are no bones about it.
Most don’t quite understand how much water we consume on a daily basis, many of us assume it is a never ending resource simply because the planet is over 70% water. Let’s put it into perspective.
In reference to a cup of coffee, which many Americans need to get their day started, it takes about 36 gallons of water to get from the bush to the table. When it comes to the food we eat, like a steak for example, it’s much more costly in terms of the amount of water needed.
Around 4,000 gallons of water to produce the meat we consume, from just one large cow. With all of that, plus the water we use to drink or shower, we consume a ton of water.
Even some of the most well-known and respected investors are sounding the alarm about investing in blue gold. Michael Burry, the famed investor who famously predicted the financial collapse of 2008 is one of those who is positioning himself to take advantage of the possible water crisis.
So, how can we align ourselves with investors such as Michael to invest in the world’s most valuable resource? Easy, when you have a tool such as Magnifi in your investing toolbox. Chat with your AI-powered investing assistant to get started by looking for water-related ETFs.

After showing Magnifi our interest in the water industry, we have three options that stand out among the many others out there.
First up is the Invesco Water Resources ETF (PHO). This ETF gives you access to some of the top names in the industry without the investor having to comb through the many, otherwise lesser-known water stocks in the market, in anticipation of the growing need to both have clean water for the world to drink and also get access to water for the agricultural industry in order to create and maintain the world’s food sources.
Some of the top holdings in this ETF are Ferguson (FERG), Danaher (DHR), and Ecolab (ECL).
The next blue gold ETF you can consider is Global X Clean Water ETF (AQWA). One of this fund’s top holdings actually happens to be a great growth prospect in an otherwise low growth industry. American Water Works (AWK) has a proven track record of slow, but steady growth as it has managed to post double-digit annualized compounded earnings growth for many years.
Investors in AQWA will not only be exposed to companies like AWK, but will also get the added benefit of dividend growth as well.
Finally, we have the First Trust Water ETF (FIW). While many of this fund’s holdings are similar to the previous two, the fees may be structured differently. Let’s compare all three based on this parameter and see which of the three comes out to be the cheapest long-term investment option.

Your best bet for investors who are hyper-conscious of the fees associated with owning an ETF is AQWA with an expense ratio of .50%, which can really add up over the life of your investment.
This is just one of the many metrics Magnifi allows you to compare across investment options. 
With the AI-powered language model, simply tell the app to “Compare the fees of PHO, AQWA, FIW” or any ETF of your choosing and instantly know which fund offers the lowest fees. The same is true when looking to compare fund or stock returns to one another.
Access to this can be yours when you sign up for the All Star Funds VIP newsletter, which comes complete with a FREE trial offer to Magnifi. Give this money saving tool a try today and wonder why you ever invested without it. Sign up today…

Investors Alley by TIFIN

The Wall Street Journal Finally Gets a Clue

I was pleasantly surprised to read a recent Wall Street Journal article highlighting the investment benefits of Business Development Companies (BDCs).

The article included a couple of BDCs that are on my Dividend Hunter recommended portfolio.

Let’s dig in, and take a look at why these BDCs are such great income investments…

The WSJ article was titled “The 11% Yield That Isn’t in Your Mutual Fund.” It took an evenhanded look at BDCs. Here are some excerpts and, when appropriate, my comments.

BDCs typically raise money from public stock investors that they then lend to small, often private, companies. After banks pulled back from lending in the wake of the 2008-09 financial crisis and again in March following the collapse of a handful of midsize lenders, BDCs helped fill the void.

BDCs have operated in good financial times and bad. It’s just when things turn bad that these stocks get more investor interest.

They give individual investors the opportunity to tap into high-yielding private markets that are usually only open to big, sophisticated institutions. The companies pay out at least 90% of the interest they receive in cash dividends, much like real-estate investment trusts, adding to their popularity among small investors.…

The fat yields on BDCs come with a catch: Unlike a standard fixed-pay bond, the payouts aren’t set in stone. What the shareholder actually receives depends on what the BDC earns from its investments. BDCs could end up paying dividends that are smaller—or larger—than projected.

The top-tier BDCs have consistently grown their dividend rates. These are businesses that can be managed for growth.

“As BDCs have become larger, we can now offer financing to much larger and more important companies than before,” said Craig Packer, CEO of Blue Owl Capital Corp. “Today, we lend to companies that any lender would like to finance.”

Blue Owl lends to nearly 200 companies for a total portfolio of nearly $13 billion.

Tim: Blue Owl Capital Corp (OBDC) has been a Dividend Hunter recommended investment since its 2019 IPO. The company has grown to become the second largest in the sector.

Rising interest rates have been a boon to the sector. About 80% of BDC assets are floating rate loans, according to Robert Dodd, senior analyst at Raymond James. That means the companies earn extra income from their loans when rates go up, as long as their borrowers can make their payments.

Many BDCs are earning much higher net interest income. Instead of increasing their regular dividends, the companies have been paying and declaring supplemental dividends. This dividend strategy allows investors to count on stable dividends if and when interest rates decline.

Shares of BDCs aren’t found in many common investment products. Securities and Exchange Commission rules require any mutual fund or index fund that owns BDCs to report management fees earned by the company as a fund expense. That drives up expense ratios reported by funds and, in turn, limits interest from institutions in the sector.

This last fact was new to me. It feeds into the investors’ focus on lower fees instead of investing for better returns.You don’t need an ETF for a mutual fund to get into BDC investing. These are publicly traded stocks, easily purchased through your brokerage account. I currently have four top BDCs on the Dividend Hunter recommended portfolio. To join and get the full list, take a look below.
What’s the one thing you need to stay retired? That’s right… cash. Money to pay the bills. Money to weather any financial crisis like the one we’re in now and whatever comes next. I’ve located three stocks that if you buy and hold them forever, they could serve as the backbone to your retirement. Click here for details.

INO.com by TIFIN

Bank of America (BAC) Under the Spotlight: Buy or Sell in the Face of Inflation Concerns?

In the aftermath of three regional banking collapses earlier this year, the U.S. banking sector has wrestled amid dwindling deposits with customers seeking higher yields, escalated deposit costs, low loan growth, and shrinking profit margins. However, the industry showcased a degree of stability.
This semblance of recovery emerged as the Federal Reserve raised the benchmark interest rates to the peak in over two decades, a trend anticipated to reverse in the upcoming year. Typically, increased interest rates produce gains for banks through elevated net interest income.
Nevertheless, the U.S. banking sector persists in hemorrhaging deposits. Deposits have declined for the fifth consecutive quarter ending June 30, 2023. During the second quarter alone, FDIC-insured banks witnessed a nearly $100 billion drop in deposits.
Furthermore, the industry’s net income saw a $9 billion reduction to $70.80 billion in the second quarter, and the average net interest margin shrank by three basis points to 3.28%.
The perceived stability was also questioned merely two weeks after Moody’s decided to downgrade the credit ratings of 10 mid-sized and smaller banks. Adding to the unease, bond rating agency Fitch has issued warnings, and subsequently, S&P Global Ratings cut the ratings of five American banks and put an extra two on alert, given the increasingly complex high-interest rate business climate.
Such a succession of downgrades from credit rating agencies could make obtaining loans more complex and costly for borrowers. Shares of the nation’s second-largest bank, Bank of America Corporation (BAC), suffered along with other bank stocks after Fitch’s warnings.
The Current Scenario
BAC has reported an increased number of its customers struggling with credit card payments, acknowledging that its credit card sector’s performance lags behind expectations. Rising charge-off rates delineate this underperformance.
In the second quarter of 2023, the bank saw consumer net charge-offs hit $869 million, up from $571 million from the prior year quarter. Concurrently, provisions for losses remained steady at $1.1 billion.
A surge in the net charge-off rate and the delinquency rate of BAC’s BA Master Credit Card Trust II were noted in August. Nevertheless, these rates are still below those recorded before 2019.
The net charge-off rate for the trust was 2.13% in August, up from 1.89% in July but significantly less than the 2.49% registered in August 2019. Likewise, BAC’s delinquency rate escalated to 1.26% in August, slightly higher than July’s figure of 1.24% but keeping under the 2019 benchmark of 1.57%. While these elevated rates might indicate stable consumer conditions, some may perceive them more pessimistically.
BAC’s principal receivables outstanding were valued at $13.8 billion in August, suggesting a nominal shift in lending activity relative to the preceding month. Until recently, consumers were predominantly focused on clearing their credit card and other loan debts. However, current macroeconomic instabilities might put this trend into reverse.
The Real Picture
U.S. consumers have demonstrated robust financial activity throughout this year, with persistent spending expected to catalyze a third-quarter GDP growth of up to 3.5%. Harnessing the ability of credit cards and buy-now-pay-later (BNPL) services, consumers continue to shop. Despite various cost-saving efforts, current consumption patterns still surpass the average consumer’s affordability.
Bank charge-offs and write-offs maintained a steady level until a shift occurred in July when the country’s six major banking institutions disclosed the highest loan loss rates since the onset of the pandemic. Credit card repayments were disproportionately affected. Credit card loans constitute nearly 25% of BAC’s total charge-offs.
These heightened charge-off rates signal potential challenges as more consumers default on their monthly payments. This trend is emerging in a financial landscape where consumers grapple with escalating costs and interest rates. Concurrently, wage stagnation lags behind inflation, and supplemental benefits have been reduced.
Current consumer spending reflects necessity instead of robustness. Consumers are compelled to spend more despite receiving marginally lower goods or services than before. Instances of arrears are recorded across multiple debt avenues, including credit cards, auto loans, mortgages, and student loans. The absence of immediate full payment has fostered a propensity toward overspending.
Unsustainable spending patterns may cause a downturn in consumer spending by early 2024, fueled by mounting credit card debts and dwindling pandemic-era surplus savings. The second quarter witnessed a 4.6% spike in consumer credit card debt, setting a record $1.03 trillion, as opposed to $986 billion in the first quarter.
As the burden of irrecoverable debt continues to strain lenders’ financial stability, net charge-offs for BAC will keep rising.
Investors might want to consider the following additional factors:
Recent Developments
BAC has been imposed with staggering financial penalties in the recent past, totaling $250 million, following a series of dubious practices that include overdraft fee manipulation, withholding credit card rewards, and the initiation of unauthorized accounts. While this may have short-term impacts on its financial performance for the upcoming quarter, it is not expected to cause substantial overall financial implications.
Furthermore, the bank ended the second quarter incurring over $100 billion in paper losses due to its aggressive investment in U.S. government bonds. This figure significantly surpasses the unrealized bond market losses of BAC’s competitors.
BAC’s investments in technology are evidently paying off. Its digitization efforts have successfully translated into an unprecedented increase in Zelle transactions by more than double since June 2020, along with a digital banking adoption rate of 74% among households. Engaging customers via online and mobile transactions is significantly less costly for the bank than traditional in-person interactions.
Over the past three years, the financial institution has conscientiously refined and modernized its financial centers nationwide. This integral enhancement enables the bank to bolster its digital services and effectively cross-market various products.
By 2026, it envisages expanding its financial center network into nine emergent markets. In conclusion, its investments in technology are expected to bolster the bank’s operating efficiency.
On August 29, BAC declared the introduction of its highly acclaimed Global Digital Disbursements platform to commercial clients who hold deposit accounts at the bank’s Canadian branch.
With this innovative solution, users can process an array of B2C payments and C2B collections using the client’s email address or mobile phone number as identifiers. This feature presents a cost-effective and user-friendly alternative for companies seeking to replace cash or cheque payments.
Robust Financials
For the second quarter ended June 30, 2023, BAC’s total revenue, net of interest expense, increased 11.1% year-over-year to $25.20 billion. Its net income applicable to common stockholders rose 19.7% year-over-year to $7.10 billion.
Additionally, its EPS came in at $0.88, representing an increase of 20.5% year-over-year. Also, its net interest income rose 13.8% over the prior-year quarter to $14.16 billion. In addition, its CET1 ratio came in at 11.6%, compared to 10.5% in the year-ago quarter.
Robust Growth
Over the past three and five years, BAC’s revenue grew at 8% and 2.5% CAGRs, respectively. Its net interest income for the same periods grew at CAGRs of 6.4% and 4.3%, respectively.
Net income and EPS grew at 13.6% and 18.8% over the past three years, whereas, over the past five years, these grew at 6.7% and 12.8%, respectively. The company’s total assets grew at 4.4% and 6.4% CAGRs over the past three and five years, respectively.
Mixed Valuation
In terms of forward non-GAAP P/E, BAC’s 8.67x is 4.4% lower than the 9.07x industry average. Likewise, its 0.87x forward Price/Book is 10.4% lower than the 0.97x industry average.
On the other hand, in terms of forward Price/Sales, BAC’s 2.32x is 2.1% higher than the 2.27x industry average.
Mixed Profitability
BAC’s trailing-12-month Return on Common Equity (ROCE) of 11.41% is 1% higher than the 11.30% industry average, whereas its trailing-12-month Return on Total Assets (ROTA) of 0.95% is 16.9% lower than the 1.15% industry average.
The stock’s trailing-12-month cash from operations of $44.64 billion is significantly higher than the industry average of $137.73 million.
Growing Institutional Ownership
BAC’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their BAC stock holdings.
Institutions hold roughly 69.7% of BAC shares. Of the 2,816 institutional holders, 1,226 have increased their positions in the stock. Moreover, 139 institutions have taken new positions (42,890,796 shares).
Price Performance
The stock has declined 13.5% year-to-date to close the last trading session at $28.65. However, over the past year, it lost 17.4%, whereas over the past six months, it gained 3%.
Shares of BAC have been making lower highs for the past 12 months, but they have not made a low since March. Its share price displayed upward and downward movement multiple times from January to September 2023. The overall value so far declined compared to the beginning of the year.
Moreover, BAC’s stock is trading below its 100-day and 200-day moving averages of $29.19 and $30.7, respectively, indicating a downtrend.
However, Wall Street analysts expect the stock to reach $35.13 in the next 12 months, indicating a potential upside of 22.6%. The price target ranges from a low of $27 to a high of $49.
Mixed Analyst Estimates
For the fiscal year ending December 2023, analysts expect both BAC’s revenue and EPS to increase 6.3% year-over-year to $100.91 billion and $3.39, respectively. Its revenue and EPS for fiscal 2024 are expected to decline 0.8% and 4.2% year-over-year to $100.13 billion and $3.25, respectively.
Moreover, for the quarter ending September 2023, its revenue is expected to surge 2.5% year-over-year to $25.12 billion, whereas its EPS is expected to decline marginally year-over-year to $0.80.
Bottom Line
The recent upturn in bank charge-offs marks a return to normalcy for the industry after an unprecedented period of low levels during the pandemic, attributed largely to decreased unemployment and substantial government financial relief initiatives.
However, this surge in 2023 introduces an anomaly in the banking sector. Several banking institutions have acquiesced under pressure, and financial experts caution that should unemployment rise above 7%, the industry could face significant complications.
Moreover, consumers will face the reinstatement of student debt payments throughout the latter half of the year, as the forbearance period concludes in October. This would force customers to navigate difficult choices regarding credit card and student debt payments, potentially causing a broader impact on delinquency rates nationwide.
Major banks maintain a positive front that there is little cause for concern moving forward. However, this optimism may rely heavily on steady unemployment rates around the 5% mark – a contingency for which plenty of banks have pre-prepared provisions. Yet, if unemployment rates deteriorate further, banks and consumers could encounter hardship during the latter half of 2023.
Despite the adversities presented, BAC continues to display a robust capacity for growth amidst a tumultuous climate. Notably, despite a downshift in revenues and net income for its Global Wealth and Investment Management unit during the second quarter, the bank still surpassed Wall Street’s top and bottom-line estimates.
Also, in the last reported quarter, when most finance firms recorded subdued Investment Banking business performance, BAC’s IB numbers were impressive. Its total IB fees of $1.21 billion increased 7.4% year-over-year, which boosted its global banking unit’s net income by 76% to $2.7 billion.
Nevertheless, considering the bank’s tepid price momentum, mixed analyst estimates, valuation, and profitability, it could be wise to wait for a better entry point in the stock.

INO.com by TIFIN

Nvidia (NVDA) Surges 200% YTD While CEO Dumps Shares – Buy or Sell?

A significant rebound in technology stocks was witnessed in 2023, with the Nasdaq Composite index soaring almost 31% year-to-date. This resurgence can be mainly attributed to the advancements in Artificial Intelligence (AI), notably the advent of large language model-based (LLM) chatbots, which acted as the primary catalyst. The burgeoning excitement around AI has led to the tech-rich Nasdaq surging about 32% during the first six months of the year, marking its best half-year performance since 1983.
The Santa Clara, California-based chipmaker NVIDIA Corporation (NVDA) plays an instrumental role in sparking the AI revolution. The company’s Graphic Processing Units (GPUs) are indispensable to Generative AI applications, powering their processing needs.
The company delivered outstanding earnings reports in the past quarters in a tremendous stride fueled by intense demand for AI chips. The surge in tech advancements and AI applications has driven NDVA’s market cap to top $1 trillion.
This notable achievement made it the sixth U.S. company to reach this significant milestone, besides being the inaugural chip manufacturer to enter the prestigious trillion-dollar club.
Owing to its powerful performance, NVDA reported an annual revenue of $4.28 billion in the fiscal year that ended January 27, 2013, which swelled to an impressive $26.97 billion in the fiscal year that ended January 29, 2023. Over the past decade, the chipmaker’s revenue spiraled more than six-fold.
NVDA’s executive, Manuvir Das, predicts a substantial growth opportunity in the AI space. He anticipates a total addressable market of $300 billion in chips and systems, complemented by $150 billion each in generative AI and omniverse enterprise software. This impressive $600 billion market potential in AI and the surging demand for transformative technologies will significantly propel NVDA’s sales and earnings growth.
The company registered remarkable revenue growth with a 22.7% CAGR over the past 10 years. Factors contributing to this rapid acceleration included dominance in PC gaming and professional visualization, along with a tenacious foothold in the data center sector. These sectors jointly accounted for 56% of the company’s total revenue in fiscal 2023.
However, during the same period, the contribution from gaming dwindled from 46% to 34%, and the contribution of the professional visualization segment declined from 8% to 6%.
Shares of NVDA commanded prominent attention from investors, evident from its extraordinary 200% year-to-date surge in stock price. Buoyed by the anticipation that the company will emerge as the chief benefactor of the burgeoning AI revolution, this surge is expected to persist.
Despite these bullish signs, NVDA’s co-founder and CEO Jensen Huang recently undertook an extensive sell-off of his shares in the company, triggering alarm bells for investors. According to Form 4 Filings submitted to the Securities and Exchange Commission (SEC), Mr. Huang unloaded 59,376 shares during trading sessions on September 12 and September 13, translating to a sale of $26.94 million worth of the company’s stock.
Notably, this was not the first instance of such an action by the CEO in recent weeks. Earlier in the month, Mr. Huang divested approximately $42.83 million worth of his shares after exercising his options, amounting to total sales of NVDA shares valued at $112 million thus far. Due to the ongoing correction, the stock has been down about 11% since the beginning of September 2023.
Should Investors Panic?
The CEO’s recently executed large-scale stock divestment has led some analysts to express concerns over NVDA’s stock price stability. The substantial shock to NVDA’s stock value, following his significant share sell-off in January 2022, fuels these apprehensions.
Investor wariness typically escalates when a company’s CEO offloads shares, a gesture often construed as a sign of dwindling confidence in the firm’s future trajectory.
Questions loom about whether AI stocks are experiencing an inflated bubble or are paving the way for a substantial and enduring bullish market trend. Given this speculation-riddled climate, it is plausible that the chip giant has emerged as a contested stock. With sky-rocketing performance expectations, investors are tethered to NVDA’s every move.
NVDA posted its second-quarter report on August 23, 2023, shattering projected earnings and sales figures. Analysts collectively predicted earnings per share of $2.07 and sales totaling $11.09 billion. NVDA outperformed these estimates, attaining $2.70 earnings per share and $13.51 billion in sales.
Adding shine to an already resplendent quarterly report, NVDA forecasted approximately $16 billion in revenue for the upcoming quarter, far outpacing average analyst predictions.
Despite these outstanding achievements, NVDA’s stock experienced a slight dip post-earnings disclosure.
While at first glance, Mr. Huang’s stock divestment may ring alarm bells, insight from NVDA’s latest DEF-14A filings detailing insider and institutional ownership stock holdings reveal otherwise. With these data, average shareholders should not be overly concerned about the CEO’s recent actions.
As evidenced in files provided to the SEC, reflecting holdings recorded on April 3, 2023, Mr. Huang held 86,878,193 shares of the company stock, attributing him a 3.5% ownership stake and qualifying him as the largest individual shareholder.
While his position is significant, heftier investment companies like Vanguard, BlackRock, and Fidelity Investments possess larger portions of 8.3%, 7.3%, and 5.6% of the company’s shares, respectively. The recent divestiture of stocks by Mr. Huang insignificantly makes up less than 1% of his overall holdings in the company.
Furthermore, it is pertinent to note that the stock sale originated from options awarded through his executive compensation plan; hence, his total ownership did not decline. These latest transactions only represent a minor fluctuation in an otherwise stable ownership portfolio.
Despite this month’s recent sale, the CEO remains significantly invested in the firm. His significant stake motivates him to adopt actions and strategies directly benefitting the wider shareholder community.
The decision of a CEO to dispose of company shares can be associated with various reasons. While it is vital to monitor insider activities, NVDA shareholders could also focus on the broader organizational performance rather than overanalyzing what is essentially a minor movement from Mr. Huang’s end.
Here are some other factors that could influence NVDA’s performance in the upcoming months:
Recent Developments
Understanding that strategic partnerships are key to their success, NVDA’s CEO is pursuing a cooperative collaboration strategy, gaining traction among tech leaders.
This month, NVDA joined forces with India’s Tata Group and Reliance Industries Limited to collaboratively build an AI computing infrastructure and platforms for producing AI solutions.
NVDA’s strategic move into India, the fastest growing economy, fortifies its global dominance in AI, deploying its design language to establish a benchmark enduring enough to make it challenging for rival chip manufacturers’ attempts to succeed.
Last month, NVDA announced a deal with Google Cloud, which would lead to a deeper integration of the two tech giants’ hardware and software products. Mr. Huang said, “We’re at an inflection point where accelerated computing and generative AI have come together to speed innovation at an unprecedented pace. Our expanded collaboration with Google Cloud will help developers accelerate their work with infrastructure, software, and services that supercharge energy efficiency and reduce costs.”
Moreover, the increased partnership of the U.S. with Vietnam, predominantly in fields like technology, semiconductors, and tourism, could serve as a boon for NVDA. The chip behemoth is partnering with Vietnamese firms FPT, Viettel, and VinGroup to bring AI to the cloud, automotive, and healthcare industries.
Mixed Financials
NVDA’s net revenue for the fiscal second quarter that ended July 30, 2023, increased 101.5% year-over-year to $13.51 billion. NVDA’s performance was driven by its data center business, which includes the A100 and H100 AI chips needed to build and run AI applications like ChatGPT.
The company reported $10.32 billion in data center revenue, up 171% year-over-year. Its non-GAAP operating income was $7.78 billion, up 486.9% year-over-year.
Its non-GAAP net income and non-GAAP net income per share stood at $6.74 million and $2.70, up 421.7% and 429.4% year-over-year, respectively. Also, its free cash flow grew 634% year-over-year to $6.05 billion.
However, for the same quarter, net cash used in investing activities stood at $447 million, compared to net cash provided by investing activities of $1.62 billion in the year-ago quarter. Also, net cash used in financing activities grew 35.5% year-over-year to $5.10 billion. Moreover, as of June 30, 2023, its total current liabilities stood at $10.33 billion, compared to $6.56 billion as of January 29, 2023.
Stretched Valuation
NVDA’s forward non-GAAP P/E and EV/Sales of 40.55x and 19.95x are 82.1% and 637.1% higher than the industry averages of 22.27x and 2.71x, respectively. Likewise, its forward EV/EBIT and Price/Sales multiples of 35.53 and 20.04 are 94.4% and 658.8% higher than the industry averages of 18.28 and 2.64, respectively.
Robust Growth
Over the past three and five years, NVDA’s revenue grew at 35.8% and 22.4% CAGRs. Its EBITDA, EBIT, and net income grew at 41%, 42.8%, and 45% over the past three years, whereas, over the past five years, these grew at 21.7%, 19.6%, and 19.1%, respectively. The company’s levered free cash flow has grown at 39.7% and 31.7% CAGRs over the past three and five years.
High Profitability
NVDA’s trailing-12-month net income margin of 31.60% is significantly higher than the industry average of 2.03%. Likewise, its trailing-12-month Return on Common Equity (ROCE) of 40.22% is significantly higher than the industry average of 1.01%. Its trailing-12-month cash from operations of $11.90 billion is significantly higher than the industry average of $60.08 million.
Growing Institutional Ownership
NVDA’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their NVDA stock holdings.
Institutions hold roughly 66.2% of NVDA shares. Of the 3,666 institutional holders, 1,562 have increased their positions in the stock. Moreover, 430 institutions have taken new positions (13,151,499 shares).
Price Performance
As a result of such increased attention, NVDA’s shares have gained 233.1% over the past year to close the last trading session at $439.66. Over the past six months, the stock gained 70.9%.
Moreover, NVDA’s stock is trading above its 100-day and 200-day moving averages of $406.55 and $309.93, respectively, indicating an uptrend.
Wall Street analysts expect the stock to reach $636.32 in the next 12 months, indicating a potential upside of 44.7%. The price target ranges from a low of $475 to a high of $1,100.
Favorable Analyst Estimates
For the fiscal third quarter ending October 2023, analysts expect NVDA’s revenue and EPS to increase 171% and 477.10% year-over-year to $16.07 billion and $3.35, respectively.
Moreover, for the fiscal year ending January 2024, its revenue and EPS are expected to come at $54.10 billion and $10.83, indicating increases of 100.6% and 224.1% year-over-year, respectively. Furthermore, it has surpassed the consensus revenue estimates in each of the trailing four quarters and EPS in three of the trailing four quarters, which is impressive.
Bottom Line
Rising apprehensions relating to inflation, soaring interest rates, and escalating bond yields may threaten NVDA’s stock price performance in the near future. The escalating geopolitical strain between the U.S. and China additionally muddles this precarious scenario.
Considering these dynamics, CEO Huang’s recent bout of stock sales might be misconstrued as another bearish pointer. However, upon closer examination, these actions appear far less alarming than initially presumed.
Furthermore, while some skeptics argue that NVDA’s shares have undergone a swift uptick, they seemingly overlook the dawn of the AI revolution. Consequently, it is feasible that NVDA could enjoy several more years of vigorous growth.
Strategic collaborations between countries are anticipated to spur AI adoption worldwide, amplifying the demand for NVDA’s chips, software, and services.
NVDA’s enthusiasm for AI has translated into an encouraging outlook for the third quarter. In addition to projecting revenue of $16 billion in the third quarter of fiscal year 2024, it also predicts a non-GAAP gross margin of 72.5%.
However, despite NVDA’s extensive potential, the stock has already witnessed nearly a 200% rally this year, placing it at a rather costly valuation. Acknowledging these elements, it could be wise to wait for a better entry point in the stock.

Investors Alley by TIFIN

A Slowdown is Inevitable – Prepare With These Investments

It’s coming. You cannot stop it.

The media cannot stop it by declaring it will not happen.

The economy is going to slow down. A recession is still more likely than not.

Even if the Fed stops raising rates (which is almost entirely dependent on energy and rent prices at this point), they will not lower them anytime soon.

As the economy slows, headlines about real estate will read like dispatches from Poland in the fall of 1939.

Predictions about the collapse of real estate leading to the end of banking and Armageddon will be everywhere.

After all, everyone knows that interest rates have risen, which will be bad for real estate.

Massive amounts of commercial real estate loans are coming due over the next couple of years.

A slowdown in the economy is going to be terrible for real estate.

That is just common sense, isn’t it?

Well, no. And therein lies our opportunity…

While it is true that Commercial Real Estate markets may not be as robust as they have been with interest rates at almost zero, most segments of the market will muddle through the refinancing cycle. While cash flows may flatline for a period, they will not dry up completely.

A lot of the cost of higher financing rates will be passed onto tenants, who will pass much of it on to customers.

Downtown skyscraper office properties will be the only area that will suffer semi-permanent damage. Working from home has changed their tenants’ real estate needs, and it will be a problem.

Residential real estate sales will continue to slow as buyers adjust to the new normal. Mortgage rates have more than doubled in less than two years.

Rates are almost three times what they were back in 2020 when the current housing boom kicked off.

However, if we look at a long-term chart of mortgage rates, current rates are on the low side of normal for the past fifty years.

My Mom had double-digit rates on all four homes she purchased in her lifetime. Two of the three had double-digit interest rates.

She had excellent credit, so she got a great rate for the market at that time.

Rates were higher, so she paid them for a nice house in a good neighborhood with decent schools.

Today’s buyers will eventually acclimate to the new normal and do the same.

The headlines about the multifamily market would have you believe that no one will ever rent an apartment again.

The truth is that multifamily occupancy rates across the United States are about 94%.

New supply is going to dry up as the economy slows.

Most banks and REIT lenders have already stopped funding new projects.

Rent growth will probably slow.

Existing properties, especially Class A properties with high-demand amenities, will be fine no matter what the headlines suggest. As of right now, Class A occupancy rates are comfortably above lower-grade buildings and improving.

As the economy slows, it will be the lower-end apartments that have occupancy problems. The Class A buildings should remain full.

In retail real estate, the same will hold true. Class A malls will be fine, while malls in less populated areas with lower incomes will struggle.

Open-air shopping centers with a strong tenant base in upscale areas will not just be okay.

They should be fantastic investments.

Lower prices because of headlines and uninformed selling of REITs will be an incredible opportunity.

We have added some high-quality real estate to The 20% Letter portfolio this year.

As prices fall, we will add more.

Real Estate has created more millionaires in the United States than any other asset class.

Buying real estate in weak markets has created enormous fortunes for patient-aggressive investors.

We will take advantage of the opportunity created in commercial and residential real estate.

You can either listen to the predictions of those who have predicted 22 of the last zero collapses of the United States, or you can get ready to take advantage of the massive opportunity currently being created.

It will be more than just Real Estate Investment Trusts.

It will be lenders.

It will be commercial real estate mortgage REITS.

It will be agency and multifamily mortgage REITs.

It will be commercial and residential brokers.

Property managers and real estate services companies will offer massive returns when purchased at bargain basement prices.

So will the global commercial real estate services and investment management companies. As the economy slows and the headlines darken, I expect panicked selling of real estate-related securities and assets to price at levels that allow massive long-term gains for patient, aggressive investors.

Check out the picture on the next page. It’s a beat up building that would’ve turned $25k into $4.1 million. It’s not a real estate play. Actually, with the Fed raising rates, it’s the best asset to buy right now. View this beat up, millionaire-making asset.


3 Trades To Watch Ahead Of Wednesday’s FOMC Announcement

This is a big week in the market with yet another FOMC meeting taking place on Wednesday where Fed Chair Powell could announce a pause to rate hikes… or continue the Fed’s hawkish view and look to raise another half a percentage point. One thing is for sure on that front with the slight up tick in inflation over the past month, rate cuts are still a long way off.
After Friday’s trading session, there is still a pretty strong bearish bias gripping the market and with FOMC coming, there could be some consolidation until the Fed makes its next move. For now, we also maintain our bearish bias as there has yet to be a real bullish catalyst that would suggest any more moves higher.
As for the SPX, we are nearing a previous reject level, so be sure to keep that on your radar as we look to start another week of trading. However, despite all the dark clouds hovering over the market currently, we still have some ETF plays we are going to keep on watch. Just remember that FOMC meetings tend to create some volatility in the markets.
For our long plays on watch this week, we have two we are watching closely as the rest of the market signals more weakness brought about the sluggish performance of the tech sector. First, the XLU is on watch as it approaches support around the 64 area.
Seeing as how utilities is an area of the market that performs better during a bearish trend in the overall market, this is more of an ideal play for longs. Following along the same logic and since OPEC+ nations have signaled a prolonged period of production cuts, thus leading to higher oil prices in the near term, we are also keeping a long play on XOP on watch.
If oil continues to be strong, we are looking at the 150 mark on XOP in order to go long once again. As for short plays, our old favorite TLT is showing us some signs once again that prices may be looking to sink a little further. TLT at around its 52-week low of 92.5 to be specific. A break below of this mark is the signal we are looking for to go short.
Again, this week looks to be a pretty eventful week, but remember, only take A+ setups and do not get suckered into to any false breakouts to the upside as the trend is looking to be lower, or at the very least the market may consolidate until Wednesday when we get more direction from the upcoming Fed announcement. Capital preservation is king…
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Christian Tharp, CMT

INO.com by TIFIN

Roku (ROKU) Stock: A Year-Long Analysis and Insights

The landscape of television has dynamically evolved in recent years, marked by an accelerated launch of various streaming TV options. A vast selection of subscription-based internet TV services are now at consumers’ fingertips, making streaming entertainment a commonplace fixture in American households.
As consumers devote an ever-increasing proportion of their time to streaming media, TV providers rapidly shift their advertising onto these digital platforms.
The leading streaming platform provider, Roku, Inc. (ROKU), witnessed an upsurge in engagement metrics, such as active accounts and streaming hours, over the past few years. This heightened engagement has significantly echoed in the company’s financial performance.
The company has seen a remarkable surge in stock prices, which have doubled since the year’s onset. This uptick has notably surpassed gains in the S&P 500 and outstripped the year-to-date returns recorded by streaming giant Netflix, Inc. (NFLX).
To fully understand the factors underpinning ROKU’s stellar performance in recent months, it’s essential to analyze its progress comprehensively. Understanding the factors that catalyzed this growth will provide us with a more informed perspective for predicting potential future directions for ROKU, both as a company and in terms of its stock-price performance.
Recent History
The COVID-19 pandemic significantly boosted the adoption of digital streaming services. As millions of households worldwide had to spend the majority of their time indoors, there was a surge in first-time subscriptions to streaming platforms in 2020.
In July 2021, ROKU’s shares soared to a remarkable peak near $480, predominantly driven by an escalating demand for video-on-demand platforms, a trend amplified by pandemic-enforced home isolation. However, following this zenith, ROKU has experienced a slowdown in momentum, contributing to the company’s stock price diving to roughly $39 by the close of 2022.
In 2020, ROKU’s users streamed nearly 59 billion hours of content, marking a 55% surge over 2019. This success solidified ROKU’s position as the custodian of streaming content within the U.S. market.
Unlike other streaming service providers, the company witnessed an upsurge in active subscribers. For instance, in the second quarter ended June 30, 2020, active accounts reached 43 million, and streaming hours totaled 14.6 billion.
Despite this success, the company is battling to hold its place in the fiercely competitive digital streaming arena. Although sales skyrocketed early in the pandemic and the company briefly entered profitability, the ongoing hurdles of intensifying competition, a saturated market, audiences gradually emerging from lockdown, and inflation strains its once robust performance.
Current Status
At the end of the first quarter of 2023, ROKU unveiled its new in-house television line and rolled out significant updates across its operating system, enhancing features and expanding channel partnerships.
The TVs come in 11 diverse models ranging from 24-inch to 75-inch screens, spanning two different lineups and reasonably priced from $150 to $1,200. This strategy is expected to have aided TV sales, boosting top-line growth in the second quarter of 2023.
For the fiscal second quarter that ended June 30, 2023, ROKU’s total net revenue soared 10.8% year-over-year to $847.19 million with platform revenue, which is mostly ad sales, gaining 11.1% from the year-ago quarter and reached $743.84 million. Device earnings, hitherto hampered by supply chain and inflation issues, rebounded with an 8.6% year-over-year gain to $103.35 million.
In addition, there has been an uptick in ROKU’s engagement metrics as active accounts and streaming hours reached 73.5 million and 25.1 billion, indicating 16.5% and 21.3% year-over-year increases, respectively. This was driven primarily by the domestic and international success of the ROKU TV licensing program, coinciding with a predicted 40% drop by the end of 2023 in U.S. households availing cable TV packages from what was a decade earlier.
The popularity of ROKU’s proprietary Operating System (OS) further bodes well for the company, claiming the crown as the best-selling TV OS in the U.S. for the quarter, outperforming some major competing systems combined.
It is also worth mentioning that as of June 2023, ROKU boasts an impressive cash and cash equivalents of $1.76 billion, without any debt.
However, there remain areas of concern for the streaming service provider. Average revenue per user (ARPU) declined 7.2% from the prior year quarter. It was steady with the first quarter of 2023, which also declined year-over-year. Advertisers reducing their budgeting amid an inflationary economic environment dealt a harsh blow to the company’s operations.
For the second quarter of 2023, ROKU’s loss from operations stood at $125.96 million, a distressing 14% increase from the year-ago quarter. Its net loss stood at $107.60 million, while the net loss per share reached $0.76. However, it was much better than the past three quarters.
In ROKU’s second-quarter results, brand advertising remained pressured as total U.S. advertising came in flat year over year. Spending on traditional TV fell 9.4% year-over-year, while traditional TV ad scatter sank 17.2% year-over-year.
Considering the promising top-line projections unveiled by the company, ROKU’s share prices rose 31.4% to $89.61 as of July 28, 2023, the highest daily percentile expansion since November 2017, which has more than doubled this year. This expansion resulted in an approximate $3 billion upswell in the company’s market cap.
Recently, ROKU announced a layoff of 10% of its workforce, about 360 people, to cut costs. This action marks the third round of staff reductions within the past year, following its decision to slash 6% of its workforce (roughly 200 employees) in March and another 200 last November.
To trim expenses further, ROKU is planning several organizational changes. It might slow the hiring rate, consolidate office space, reduce its outside services, and conduct “a strategic review of its content portfolio” to save money. Following the announcement of these cost-cutting measures, ROKU’s shares spiked almost 10%.
Despite these financial strategies, the stock is trading at a premium to its industry peers. ROKU’s forward EV/Sales multiple of 2.96 is 58.1% higher than the industry average of 1.88. Also, its forward Price/Sales and Price/Book multiples of 3.29 and 4.95 are 188.1% and 161.9% higher than the industry averages of 1.14 and 1.89, respectively.
Within a year, ROKU’s overall price performance presented a decelerating trend until the end of 2022, then transitioned to a stable growth phase at the beginning of 2023. This followed a significant mid-year acceleration, followed again by slight deceleration. A comparison of the current share price with that of a year ago indicates long-term growth.
Yet the stock remains significantly below its zenith recorded two years prior, echoing broader pressure on the streaming category in general to establish profitable business models.
Furthermore, changes have been observed concerning institutions’ holdings of ROKU shares. Even though approximately 80.8% of ROKU shares are presently held by institutions, of the 599 institutional holders, 264 have decreased their positions in the stock. Moreover, 81 institutions have sold their positions (1,306,808 shares), reflecting declining confidence in the company’s trajectory.
Future Prospects
ROKU has raised its third-quarter net revenue forecast between $835 million and $875 million, putting aside charges related to severance and removing certain content from its streaming platform. This exceeds the earlier third-quarter estimate of approximately $815 million in revenue.
The entertainment giant also anticipates its adjusted EBITDA to conclude between a loss of $40 million to $20 million, which shows improvement from an earlier prediction of a negative $50 million. The Hollywood double strike is anticipated to influence media and entertainment spending adversely for the rest of the year. This scenario poses a relatively severe challenge, given ROKU’s extensive promotions provided for content.
ROKU has noted some recovery hints within specific advertising sectors, including CPG and health and wellness. Yet, the spending on M&E, already facing challenges across the industry, will likely face additional pressure due to limited fall release schedules. Despite these odds, the company remains determined to deliver positive adjusted EBITDA for 2024 with continued improvements.
For the fiscal third quarter ending September 2023, Street expects ROKU’s revenue to increase 11.3% year-over-year to $847.54 million, while its EPS is expected to decline 105.1% to negative $1.81.
Moreover, for the current fiscal year (ending December 2023), the company’s revenue is expected to increase 7.9% year-over-year to $3.37 billion. However, its EPS is expected to come at negative $5.04, indicating a decline of 39.4% year-over-year.
Bottom Line
Streaming service provider ROKU is poised to capitalize on the escalating digital streaming and cord-cutting trend in the upcoming years. This positions the temporary slump it experienced in 2022 as a trifle hiccup rather than an enduring setback.
However, affirming that the company has fully rebounded and is back on its consistent growth path may be premature. Further confirmation of continuous revenue augmentation, ideally substantiated by several successive quarters of enhanced performance, is still needed.
Risk-averse investors would want to keenly observe ROKU for more tangible indications of renewed profitability over the ensuing quarters. There is a potential for the company to continue generating substantial returns, provided it can add persistent value to its platform for users, content producers, and advertisers.
The persistent issue pestering ROKU is its inability to yield regular profits. Furthermore, the company’s ad-supported sales infrastructure is stretching back into profitable territory. Yet its recently instituted cost-reduction measures should alleviate some of these financial burdens from 2023 onward.
Seeing ROKU deliver on its projected outcomes would be encouraging. Considering this, all attention will be on the company’s performance over the subsequent quarters.

Investors Alley by TIFIN

Here’s How to Profit Off the Gasoline Price Spike

Last week, I went to fuel up my pickup truck and was shocked to see that gas prices had jumped overnight by $0.40 per gallon. Ouch!

I started digging into the cause, looking for an investment angle.

What I found reinforced my belief in what I think is one of the best investment opportunities in the energy sector…

Many news outlets reported the price jump, referencing a GasBuddy post. I found the original post and here is the opening paragraph:

Drivers in Oklahoma, Missouri, South Dakota, North Dakota, Nebraska, Minnesota and Kansas: be ready. GasBuddy, the leading fuel savings platform saving North American drivers the most money on gas, today predicts that gas prices in these states will spike anywhere from 50¢ to $1 per gallon over the next several days. While there are few details on the particulars on what is driving the increase, trade sources tell GasBuddy a refinery outage may be to blame.

I live in South Dakota and was traveling through Iowa (also hit by the increase) and Minnesota. I don’t remember seeing that magnitude of price increase in just a couple of days.

A few days earlier, I read an article titled: “‘No Plan B, No Excess Capacity Anywhere’: Oil Industry Warns of Looming Refining Crisis As ‘Dirty’ China Grabs Market Share.” Here is an excerpt from the article (emphasis mine):

The lack of spare crude-processing capacity due to under-investment, and shutdowns happening more frequently with refiners ramping up on better margins and deferring planned work were common themes at the APPEC by S&P Global Insights conference in Singapore this week. That’s left fuels like diesel and gasoline vulnerable to sudden swings when there are unplanned outages.

Here’s how to play this.

Refining companies operate with the significant challenge of having the prices of both raw material inputs (crude oil) and finished products (including gasoline, diesel fuel, jet fuel, and heating oil) determined in the commodity markets. As a result, refiners need to be highly efficient to stay profitable when the spread between oil and fuel prices is tight. The efficiency means that profits can explode higher when the spread widens.

In the U.S., refineries are operated by a range of companies, from large, diversified multinationals like ExxonMobil and Chevron down to small, single refinery companies. To start investing in refining stocks, I recommend looking at the three large companies whose businesses focus exclusively on refining:

Phillips 66 (PSX) is a $55 billion market cap company that owns and operates 13 refineries.

Marathon Petroleum Corp (MPC) has a $62 billion market cap and owns and operates 13 refineries.

Valero Energy Corp (VLO) has a $50 billion market cap and owns and operates 15 refineries.

One of these refining stocks is in my Monthly Dividend Multiplier newsletter recommended portfolio. The stock is on the portfolio due to a 2018 merger and has performed very well for my subscribers. I view all three as equally well-run, with comparable investment potential.


Block (SQ) Presents A Bearish Opportunity On Continued Weakness

Block (SQ), formerly known as Square, has had quite a lackluster year with largely sideways trading or continued declines. Most recently, we have seen more declines, falling all the way down to a support level of around 55. On Friday, price finally broke that support level, giving traders signs of a move lower to what could end up being a new 52-week low.
For those looking for short opportunities, it would seem this chart favors the bears, however, those looking to go short here should not jump in with both feet. If the overall market can push a bit, it could take SQ with it to retest that 55 level.
In this scenario, the risk/reward would be a bit greater and probability of a retracement from there would be greater. The key to a trade like this is patience, waiting for the proper time to enter the trade rather than chase a move in one particular direction or another.
Also, postion yourself based on the level of confidence you have in the trade, while leaving yourself room to add should the trade experience some drawdown. An important piece of trading to remember, trade for tomorrow, not just today. This will help you preserve capital and stay in the game longer.
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Christian Tharp, CMT