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An intriguing 3-legged options trade occurred in ride-sharing giant, Uber (UBER) last week. This strategy, known as a put spread collar, traded 24,000 times and has an August expiration. The purpose of this trade is generally to protect the downside for those that own the stock. With a put spread collar, the downside loss is […]
Trade of the Week: Uber Read More »
On Wednesday, Nvidia (NVDA) shares surged an eye-popping 30%, adding over $200 billion to the company’s market cap and sending the stock to a new all-time high.
The source behind the strength? Incredible demand for the company’s new chips, which are expected to be the backbone for running many Artificial Intelligence (AI) systems that are in development.
It’s not just NVDA riding the AI wave, the biggest stock gains this year have come from companies that will either be supplying the tech to build AI infrastructure or businesses that will benefit from integrating AI features, such as Large Language Models (LLM). By some measures nearly all of the Nasdaq’s 100 (QQQ) 22% year-do-date gains have been fueled by AI related stocks such as Microsoft (MSFT) and Alphabet (GOOGL).
So, it might be surprising to find an AI ETF, like AI Powered Equity ETF (AIEQ), that not only didn’t participate in the rally on Thursday, but is actually down some 5% for the year to date!
This is just another reminder of the importance of doing research and making sure you know what you own. Magnifi is here to help.
Why has AIEQ fared so poorly despite seemingly being positioned dead center in the hottest investing trend in the market?
Well, the irony is, despite its name AIEQ doesn’t not invest in AI-related companies at all! What AIEQ does is use AI to pick stocks.
AIEQ owns no NVDA, Apple (AAPL), Microsoft (MSFT), or any number of the “in play” AI stocks. Rather, of its some 150 stocks in the fund’s holdings, its heaviest concentration of holdings, with a 31% weighting, are in the consumer discretionary sector. Names such as Wingstop (WING), William Sonoma (WSM) and Ollie’s Bargain Basement (OLLI) are among the fund’s top holdings.
Due to the name and similarity to other ticker symbols, some investors might have mistaken AIQE for the Global X Artificial Intelligence & Technology ETF (AIQ), which does count AAPL, NVDA, MSFT, GOOGL among other true AI-related names as its top holdings. AIQ is up a solid 21% for the year to date.
Launched in 2017 AIEQ is among the oldest of the artificial intelligence-powered ETFs, yet it only has a mere $105 million assets under management and the recent performance probably won’t help generate new inflows anytime soon.
“It is ironic that an AI-powered algorithm has not capitalized on the rally in big tech stocks that’s been driven by its own disruptive technology,” said Jessica Rabe, co-founder of DataTrek Research.
“AIEQ has previously tended to work best when it could catch momentum driven tech names in broad-based market rallies like during the pandemic crisis, but it’s clearly failed to do that this year,” she added.
Aside from not owning the best performing names, AIEQ’s best performance tends to come during bull markets when the models latch onto momentum trades, according to DataTrek’s Rabe. Given that the stocks are only recently coming out of an 18-month long bear market, and doing so in a herky, jerky fashion it’s somewhat understandable that AIEQ’s performance has been lackluster. Still, it has to come as a major disappointment that AEIQ’s algorithmic process stumbled so badly in not identifying the AI craze and failed to join the bandwagon, which started rolling over three months ago.
All this is to say, be aware, or even wary, of what are sure to be a slew of new ETFs offerings that will employ artificial intelligence to build and actively manage portfolios.
For example, just last week Roundhill Investments launched the Generative AI & Technology ETF (CHAT). According to Roundhill, CHAT will invest in companies advancing generative AI with the twist of applying the new technology to its own stock selection within the AI universe.
CHAT is off to a good start with its top holding being those usual suspects such as NVDA, MSFT etc. helping it to gain 4.1% since its launch on May 18th.
Time will tell how these AI-powered funds do over the long haul, but as Rabe of DataTrek says, “We find AIEQ is an interesting case study for asset allocators and stock pickers because its investment process differs from traditional approaches. But, as with some of what we are all learning from ChatGPT, different doesn’t always mean better.”
Let’s get a side-by-side view of the AIEQ and AIQ ETFs and let their metrics help you decide which is a better fit for your portfolio.
To further your research these funds and other ETFs, as well as other funds that can help power your portfolio, be sure to get access to Magnifi.
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Beware: Not All AI ETFs Are Created Equal Read More »
Bitcoin mining company Riot Platforms, Inc.’s (RIOT) shares have skyrocketed, with cryptocurrency gaining mainstream attention and investors flock for exposure. However, RIOT is prone to bouts of volatility due to its correlation with the highly risky assets. RIOT has been on a mining spree, delivering strong monthly results this year. It produced 639 bitcoins in
Should You Buy Riot Platforms (RIOT) This Week? Read More »
“Buy Low, Sell High.”
That is the way all this works, right?
Buy stocks when they are low, and no one wants them.
Then, when everyone wants to buy stocks, it is a great time to sell and book your gains.
One of the great truths of Wall Street is that fortunes are born in bad markets.
The other great truth is that most people will be too afraid to buy stocks when markets are falling and unable to resist buying when everyone they know is excited about the stock market.
Right now, there is an opportunity to buy one of the most important segments of the market at a massive discount to the value of the companies in the industry.
Those that take advantage can expect to reap massive rewards over the next three to five years.
The secret of getting rich in stocks is to buy when there is blood in the street.
Are you brave enough to get rich?
Let me show you how…
Fortunes are Born in Bad Markets – Now’s Your Chance Read More »
After registering two consecutive months of declines of 0.2% and 1%, on May 16, the advance sales report showed a recovery of 0.4% in retail sales for April. However, this modest rebound missed the Dow Jones estimate of a 0.8% increase. In this article, we will explore what this tepid growth means for the prospects of brick-and-mortar stores in today’s economy.
U.S. domestic consumption has been on a roller coaster ride over the past three years. People have gone from not being free enough to spending practically-free money to spend like there’s no tomorrow.
That, in turn, led to a not-so-transitory inflation, the hottest since the 1980s, forcing the Federal Reserve to implement ten successive interest-rate hikes in a little over a year to take the Fed funds rate to a target range of 5% to 5.25%.
With the stash of stimulus cash fast dwindling, average American consumers have been forced to rein in their urge to splurge to prevent inflation from biting harder. The Survey of Consumer Expectations for April carried out by the New York Fed showed that the outlook for spending fell by half a percentage point to an annual rate of 5.2%, the lowest since September 2021.
Could online retailers fare better with a complementary offline presence?
Yes
No
Can’t Say
While consumption may be undifferentiated from a macroeconomic perspective, businesses have evolved to tailor their offerings to cater to various consumer segments. Despite current economic uncertainties and hardships, high-income segments have been relatively unaffected, with affluent patrons queueing up for finer things in life on offer from the likes of Tiffany & Co. and LVMH.
However, middle-income consumers have been forced to go bargain hunting to squeeze out the maximum possible value from money which has gotten dearer. Hence, they have been forced to trade down to budget-friendly retailers, leaving the businesses that offer something in between wrong-footed and stranded.
The divergent prospects between off-price retailers and their middle-of-the-road peers are evident from the Street expectation regarding business performance. The fiscal first quarter revenues of Burlington Stores, Inc. (BURL) are expected to grow by 13% year-over-year compared to an 8.7% year-over-year decline at Macy’s, Inc. (M).
Although budget retailers have lost sales from low-income consumers, that loss has been offset by increased business from the middle-income consumer segment.
As a result, Walmart Inc. (WMT)is expected to have grown by 4.5% year-over-year in Q1, compared to 2.4% for Albertsons Companies, Inc. (ACI)and 1.3% for Albertsons Companies, Inc. (ACI)The Kroger Co. (KR).
While the jobless rate for April fell to 3.4%, tied for the lowest since May 1969, the likelihood that the unemployment rate will be higher a year from now has increased to 41.8% as hiring has slowed and layoffs have ticked up.
Moreover, with consumer debt taking its lead from sovereign debt and pushing past $17 trillion to come in at an all-time high, the polarization is expected to increase even further.
Although inflation has moderated from its decades-high level around this time last year, weak consumer demand led The Home Depot, Inc. (HD)to post the worst revenue miss in two decades.
A decline of 0.3 percentage points in the overall outlook for inflation over the next year suggests that things could improve, but probably not before they worsen.
The Changing Landscape of Brick-and-Mortar Stores in Today’s Economy Read More »
For months, the share prices of most stocks have been in the doldrums or worse. Large-cap tech stocks have been the exception, posting nice gains so far this year.
Let’s check how a couple of covered call ETFs have performed compared to the most popular tech stock ETF.
It’s my favorite way of investing in tech…
The Invesco QQQ Trust ETF (QQQ) tracks the Nasdaq 100 stock index—the 100 largest companies that trade on the exchange. The portfolio is the who’s who of large-cap tech companies. Here are the top ten holdings.
Microsoft Corp. (MSFT)
Apple Inc. (AAPL)
Amazon.com Inc. (AMZN)
NVIDIA Corp. (NVDA)
Meta Platforms Inc. (META), a/k/a Facebook
Alphabet Inc. Class A (GOOGL), a/k/a Google
Alphabet Inc. Class C (GOOG), also a/k/a Google
Tesla Inc. (TSLA)
PepsiCo Inc. (PEP)
Broadcom Inc. (AVGO)
As of May 17, QQQ has gained 25.2% this year to date. For comparison, the S&P 500 has gained 8.75%, with almost all of those gains coming in January. QQQ has climbed steadily higher every month.
Covered call ETFs use an option selling strategy to generate cash income with an underlying portfolio. Selling calls can generate excellent cash income, but it also puts a cap on potential capital gains.
Two option-selling ETFs use the QQQ or Nasdaq 100 as their underlying assets.
From one website: “The Global X Nasdaq 100 Covered Call ETF (QYLD) follows a ‘covered call’ or ‘buy-write, strategy, in which the Fund buys the stocks in the Nasdaq 100 Index and ‘writes’ or ‘sells’ corresponding call options on the same index.”
The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) throws in some active management. The fund strategy, taken from its website, says JEPQ:
Generates income through a combination of selling options and investing in U.S. large cap growth stocks, seeking to deliver a monthly income stream from associated option premiums and stock dividends
Seeks to deliver a significant portion of the returns associated with the Nasdaq 100 Index with less volatility
Constructs a long equity portfolio through a proprietary data science driven investment approach designed to drive portfolio allocations while maximizing risk-adjusted expected returns
Both funds pay monthly dividends. QYLD reports a current distribution yield of 11.63%. JEPQ quotes and SEC yield of 13.95%.
Let’s see how each has performed so far in 2023…
QYLD closed out 2022 at $15.91 per share. On May 17, it closed at $17.53. Dividends paid a total of $0.679 per share. A little math gives a year-to-date return of 14.44%.
JEPQ ended 2022 at $40.80. The May 17 close was at $46.51. Dividends paid total $1.81 per share. JEPQ has returned 18.43%.
The results show that a covered call strategy will likely lag a buy-and-hold strategy in an up market; however, in a flat-to-down market, the covered call ETFs should outperform.
JEPQ is a newer fund that launched in May 2022. In September, I recommended to my Dividend Hunter subscribers to sell QYLD and buy JEPQ. To see why, and what other income stocks I like, become a member today.
Have you seen this market lately? It’s been chopping sideways for months… And according to legendary Hedge Fund Manager Stanley Druckenmiller, it could move sideways like this for the next 10 years… Meaning capital gains are DEAD… If you want any hope of increasing your wealth in a market like this, you need CASH… > >Click here to get the #1 cash income strategy for 2023.
Benefit From the Tech Rally and Get Income Read More »
California-based chip designer NVIDIA Corporation (NVDA) has had an outstanding 2023. The stock has continuously outperformed the S&P 500 and more than doubled year-to-date.
The company went public on January 22, 1999. However, it was not until the pandemic that the tailwind of crypto mining resulted in a surge in demand for its chips and the stock price. This time around, NVDA is riding the waves of Generative AI and Large Language Models (LLMs) that began with the release of ChatGPT to the general public towards the end of the last year.
NVDA is set to release its financial results for the first quarter of the fiscal year 2024 after the bell on May 24. To understand how the business would fare and how its stock price could be impacted after and beyond the upcoming earnings, let’s understand how the global provider of graphics, computation, and networking solutions has grown from being a major player in the gaming industry to an AI giant.
During the dawn of the PC revolution, NVDA’s founder and CEO, Jensen Huang, realized the emergent applications and demand for accelerated computation on the horizon and designed its first high-performance graphics chip in 1997. However, given the relative scarcity of use cases, the fledgling chip designer chose to bet on visual effects and gaming and struck the jackpot.
In 1999, the company launched what it claims to be the first programmable graphics card, the GeForce 256, and popularized the term, Graphics Processing Unit (GPU). In 2000, the company was the first exclusive graphics provider for Microsoft and Xbox.
Since then, these GPUs have become the mainstay of high-resolution gaming and animation to form the primary business of NVDA and contribute around 80% of its revenue.
Moreover, crypto miners hoarded and bid up these gaming GPUs at the peak of crypto-mania. However, with the onset of crypto winter due to rising interest rates and increased regulation risk, those GPUs flooded back into the market. The resulting oversupply led to a 46% year-over-year decline in gaming revenue.For the fiscal year that ended January 29, 2023, NVDA’s revenue remained almost flat at $26.97 billion, while its gross profit declined 12.1% year-over-year to $15.36 billion. The company’s non-GAAP operating income decreased 28.8% year-over-year to $9.04 billion during the same period.Its non-GAAP net income decreased 25.7% and 24.8% year-over-year to $8.37 billion, or $3.34 per share.
However, the company was all in on the next big thing by then. In 2006, NVDA made its foray into parallel (and consequently faster) computing by releasing a software toolkit called CUDA.
Parallel computing was ideal for artificial neural networks’ deep (machine) learning. Hence the kit was first used in AlexNet, a revolutionary AI at the time. This set off a chain reaction that has propelled the company to the center stage of the AI boom.
Fast-forward to today, and NVDA is reaping the rewards for its investment in Artificial Intelligence as its A100 chips, powering LLMs like ChatGPT, have become indispensable for Silicon Valley tech giants.
As a result, the accelerated adoption of its A100 chips due to the AI boom NVDA offset the 20.8% year-over-year decline in revenue due to the gaming slump and reported an EPS of $0.88 to beat its earnings expectations in its previous quarterly earnings release.
Near-Term Prospects
Analysts expect NVDA’s revenue and EPS for the first quarter of fiscal 2024 ended April 30, 2023, to decline 21.4% and 32.4% year-over-year to $6.52 billion and $0.92, respectively.
However, given the fact that the stock is currently trading at 68.57x its forward earnings, which is 224.6% above the industry average of 21.13x and above its 50-day and 200-day moving averages, it could take a monumental outperformance to move the needle that has already been raised by high expectations.
Looking Beyond
For fiscal 2024, NVDA’s revenue and EPS are expected to increase by 11.5% and 36.2% year-over-year to $30.07 billion and $4.55, respectively. Both metrics are expected to keep increasing over the next two fiscals.
Beyond gaming and AI, NVDA’s experience has been mixed. In 2010, it made an unsuccessful foray into smartphones with the Tegra line of processors. In 2020, it closed the long-awaited $7 billion deal to acquire data center chip company Mellanox. However, in 2022 it had to abandon its bid to acquire Arm, citing regulatory challenges.
However, there are enough reasons to be excited about the company’s prospects. With NVDA’s presence in data centers, cloud computing, and AI, its chips are making their way into self-driving cars, engines that enable the creation of digital twins with omniverse that could be used to run simulations and train AI algorithms for various applications.
Even its previously unsuccessful Tegra processors have found a new lease of life in logistics robots and driverless cars.
Potential Risks
Other than the risk of backward integration posed by companies such as Apple Inc. (AAPL) and Tesla Inc. (TSLA) designing their own chips, perhaps the only thing that could keep an NVDA investor awake at night is that fact that it is committed to remaining a fabless chip designer to keep capital expenditure low.
Moreover, almost all of the manufacturing has been outsourced to Taiwan Semiconductor Manufacturing Company Ltd. (TSM), which is yet to diversify significantly outside Taiwan.
Bottom Line
Given the stock’s sky-high valuation and bullish prospects amid the background of concentration and geopolitical risks that are in the process of being mitigated, it could be wise to hold on to NVDA and hope for the status quo on the Taiwan Strait, at least over the next two to three years.
Buy, Hold or Sell: A Deep Dive Into NVIDIA Corp. (NVDA) Read More »
U.S. natural gas pipeline giant ONEOK (OKE) is set to buy Magellan Midstream Partners (MMP), which owns a pipeline network that primarily transports crude oil and refined products for $18.8 billion.
This is going to be huge for investors…
Magellan shareholders will receive $25 cash and two-thirds of an ONEOK share for each unit of stock they hold, representing a 22% premium to the company’s closing price before the deal announcement.
A Look at the ONEOK-Magellan Midstream Deal
This proposed deal will create one of the biggest oil and gas infrastructure companies in North America—a company with an enterprise value of $60 billion and a sprawling 25,000-mile network of pipelines stretching from North Dakota to Texas.
Pierce Norton, CEO of ONEOK, described the transaction as “transformational,” adding:
The combination of ONEOK and Magellan will create a diversified North American midstream infrastructure company with predominately fee-based earnings, a strong balance sheet and significant financial flexibility focused on delivering essential energy products and services to our customers and continued strong returns to investors.
Norton is right. And so is my colleague, Tim Plaehn, who loves the deal.
But don’t tell that to Wall Street, which hated the deal so much that ONEOK’s stock plunged 10% after the announcement.
Wall Street seems to be questioning the commercial logic from ONEOK in stepping out of its core natural gas transportation business to buy Magellan’s crude and refined fuels pipelines. Analysts think the businesses are so different that ONEOK management will not be able to handle it.
In a recent article about the merger, Tim wrote: “In its current form, ONEOK is a very well-managed energy midstream company. The shares yield about 6.5%, and earnings and cashflow will increase for 4% to 6% dividend growth.” Tim went on to quote a few highlights from ONEOK’s press release about the Magellan acquisition:
The transaction is expected to be earnings per share accretive beginning in 2024, with an accretion of 3% to 7% per year for 2025 through 2027.
Free cashflow (different from EPS) accretion is expected to average more than 20% from 2024 through 2027.
Free cashflow after dividends and growth capital investments will increase by about $1.0 billion yearly in the first four years after the merger.
“Bottom line,” Tim concluded, “The combined company will generate tremendous and growing free cashflow. That should lead to strong dividend growth. ONEOK has a history of dividend growth. The current rate is 28% higher than the dividend declared after the company rolled up its controlled MLP in 2017.”
I believe Magellan Midstream’s focus on crude oil and refined product logistics is a complement to ONEOK’s natural gas and natural gas liquids (NGL) franchises.
This will turn out to be a big benefit in the event that NGL pricing (which has been on the decline lately) continues to drop due to robust NGL production. Magellan’s other liquids-focused assets will pick up the slack. Keep in mind that NGLs typically make up 55% to 60% of ONEOK’s annual EBITDA.
And even if you ignore this deal, ONEOK has great growth prospects, thanks to its plans in Mexico.
The company has filed for approval for a new pipeline to connect ONEOK pipes (Roadrunner pipeline) at the U.S. and Mexican border, where a final investment decision is expected this year. Mexican gas demand growth has long been an attractive area. ONEOK’s peer TC Energy (TRP) has projected its Mexican earnings to double over the next few years.
And at its core, both ONEOK and Magellan Midstream are still energy pipeline businesses. And both companies own increasingly rare assets. Let me explain…
The Future of the Pipeline Business
For pipeline builders, the shale era brought a wealth of opportunities. As gushers of oil and natural gas suddenly erupted in places such as North Dakota and Pennsylvania, the need for a vast expansion of the plumbing that moves fuel around the country was obvious. That’s what led to a decade-plus-long boom that produced thousands of miles of new pipelines.
The shale growth story is not over in the U.S. oil and gas patch, but it is slowing. And for certain, the associated pipeline building boom has pretty much run its course. An increasingly inhospitable regulatory environment has delayed or canceled a number of major projects.
These circumstances make acquisitions one of few remaining paths to growth. ONEOK management understands the current reality—and it is correctly looking at its future prospects, considering the energy transition.
ONEOK is starting to look for new growth opportunities in moving around low-carbon fuels, such as hydrogen and biofuels or transporting carbon dioxide from carbon capture and storage projects…even though none of those businesses currently exists in scale. In discussing the Magellan deal, ONEOK’s CEO, Pierce Norton, told analysts that the new company’s larger size would make it better prepared for the big changes coming “down the pipe,” adding: “Scale does matter going into the future, especially going into wherever energy is going.”
Norton continued: “As far as hydrogen and…renewable fuels, those kind of things that can move through these [pipelines]. The future is going to determine that. It’s going to be determined by what the customers are desiring and the cost. But having these two companies combine sets us up for that opportunity.”
I agree with Tim Plaehn’s assessment…there will likely be high single-digit to double-digit dividend increases starting next year for the combined companies. If you buy shares of OKE now, you will be happy with the investment for the next decade. Buy it under $62 a share.
Have you seen this market lately? It’s been chopping sideways for months… And according to legendary Hedge Fund Manager Stanley Druckenmiller, it could move sideways like this for the next 10 years… Meaning capital gains are DEAD… If you want any hope of increasing your wealth in a market like this, you need CASH… > >Click here to get the #1 cash income strategy for 2023.
This Energy Midstream Mega-Deal Will Be a Winner Read More »
The debt ceiling is a side show. Not real theatre. And not a real reason for stocks to move. The sad fact is we are still stuck in gridlock not knowing if the traffic will flow bullish or bearish from here. In the meantime, investors are willing to trade every little ripple in the water
Post 6/1 Stock Trading Plan Read More »
The market seems to be showing some signs of wanting to pullback a bit after the run up over the past week or so. For the S&P 500, after surmounting that 4200 on last week and again on Monday of this week, it quickly retreated back below that level.
While this may not mean the end of the rally, it could be a signal of the market getting ready to blow off a little bit of that steam. A pullback here would likely bring back 4150 back into play as a point of support for the S&P.
From an individual stock standpoint, the big tech names have begun this selloff. Google (GOOGL), Microsoft (MSFT), and Nvidia (NVDA) have all started Tuesday’s session in the red, retreating back to support levels. Only time will tell if they can recover in the coming days to resume the rally. Tesla (TSLA), however, has not followed this path a continues to push higher this week.
As far as ETFs go, there since much of these moves have been led by the big names, there hasn’t been much participation by the ret of the stocks in these indexes and ETFs. When there is some broader participation from stocks that aren’t as heavily weighted in these ETFs the rally should begin once again.
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Join my Smart Trades options trading service today to see exactly how my students and I trade these types of scenarios! Smart Trades is where I teach my students how I trade options on some of the largest ETFs on the exchange. As you learn, you’ll get exclusive access to all my trades with notifications any time one is put on. Now, you can learn how many use this high-income skill to achieve financial freedom. Join today and as always…
Good Luck With Your Trading!
Christian Tharp, CMT
Market Finally Blows Off Some Steam ⎯ Just A Pause Or Is The Rally Over? Read More »
