Shesa's NOVEMBER 2024 Investment Blog
NOVEMBER 2024 - INVESTMENT BLOG
By Shesa Nayak
U.S. Stock Market Update
Current Market Trend
Finally, one of the most awaited election of our time has come to an end. The republican party won the decisive election convincingly than stock market expected. Donald Trump will become the 47th president of United States of America when he takes oath on January 20, 2025. This election results brought jubilation to the stock market. We saw the biggest stock market post-election rally in almost a century. Possibly we can say as “Trump rally” still has steam. I am not going to discuss any political issues here rather focus on what it means for the stock market. All the stock indexes have hit record highs. NASDAQ has went past 19,000 points, S&P 500 went past 6,000 points and DOW saw one of the biggest rally after the election day and today it went past 44,000 for the first time. When I wrote my last blog Nasdaq was in a correction territory and now it has taken a U turn to the north. The so called Trump stock got on fire like Tesla which is up over 40% since election day! In addition, Cryptocurrency, financials and of course many of the small cap stocks have rocketed. Having said that, some of the sectors have been the laggards viz. Utilities, energy, real estate, some pockets of retails and the worst being green energy shares. Off late, many stocks in the Semiconductor sectors have been beaten down. So, what’s the lesson? The lesson is that, things changes fast in the stock market in either directions. So, one needs to strategize accordingly.
Federal Reserve: Since my las blog we saw two rate cuts. The Federal Reserve had cut interest rates by 0.5% on September 18 and another 0.25% on November 7 bringing the Fed Funds target rate down to 4.50% - 4.75%. Fed chair Jerome Powell said, he feels good about the economy. During the conference call after FOMC meeting when asked will he resign if Trump ask him to do so? He said blatantly “no”. When asked whether Trump could fire or demote him, Powell retorted: “Not permitted under the law.”. This may be true, but the tone showed some arrogance and probably that may not go well with Trump. In my view, Federal Reserve should be an independent body with full autonomy. However, the president of the country should have a say as he/she is the highest authority, and Federal Reserve or any other department(s) for that matter is part of the same nation. But that’s just my view and it’s debatable..
Economy: The GDP growth for Q3 was 2.8%. We saw one of the lowest employment growth of 12,000 for the month of October due to lay off in Boeing and some other companies.
Having said all the above, why is the stock market got so excited after Donald Trump’s victory? And is this rally sustainable? Well, I will share my thoughts but before that let’s take a look at the record stock market indexes.
Indexes | Open 1/2/24 | Close MON 11/11/24 | Change in 2024 | % Change in 2024 | All Time High | From All Time High | % from All Time High |
DOW | 37,689.50 | 44,293.13 | 6,603.63 | 17.52 | 39,908.00 | 4,385.13 | 10.99% |
S&P 500 | 4,769.83 | 6,001.35 | 1,231.52 | 25.82 | 5,570.33 | 431.02 | 7.74% |
NASDAQ | 15011.35 | 19,298.76 | 4,287.41 | 28.56 | 18,671.07 | 627.69 | 3.36% |
Russel 2000 | 2,012.75 | 2,474.97 | 462.22 | 22.96 | 2,442.74 | 32.23 | 1.32% |
SOX (Semi) | 4,023.04 | 5,156.39 | 1,133.35 | 28.17 | 5,931.83 | -775.44 | -13.07% |
Economy News
- Interest Rate: 4.75%.
- GDP: Q3: 2.8%; Annual GDP: 2.7%
- Inflation: June: 2.4%
- Unemployment: 4.1%
- Retail Sales: Sept: 0.4%, August number will come on Tuesday, 9/17.
- PCE: 2.1%
- Consumer Confidence: 73 up from 70.5
- U.S Crude Oil: $68.26 a barrel
- U.S Treasury Yield%: 2 yr: 4.25, 5 yr: 4.19, 10 yr: 4.30, 30 yr: 4.47.
- US Mortgage Rate: The 30-year fixed 6.79% based on FreddieMac.
Why stock was so excited after Election and is the rally sustainable?
Donald Trump won the presidential election to be the 47th President of the United States, so also the senate and likely they may get house too. So, what does it mean for the market.?Undoubtedly, market was thrilled and the rally still seems to have significant momentum at this time. But is the whole market up? Nope. As I said in my opening remark, there are still many laggards but some sectors/stocks have shot up like rocket. So, let me share my thought about the positives and negatives.
Positives
- As Trump has indicated, he will cut taxes for corporate America to 15% and more importantly minimize government intervention or less regulatory rules. Hence, we can anticipate more autonomy for corporate sectors and great deal of mergers and acquisitions which was a disaster during Biden administration. I will watch for more acquisitions in different sectors but more importantly in the biotech sector.
- We may see more money movement from large cap stock to small cap stocks as economy gets better. However, I will still be cautious on the small cap stocks as interest rate is still high and that’s not good for small cap.
- Oil prices may potentially stay flat around $70-75. Because Trump says he will have America drill more oil. This will not only generate more revenue for government and augment GDP growth but also the cheaper gas would be for the day to day American. And as we know Oil/gas is one of the major contributor to inflation.
- Financial stocks and small biotech stocks should be outperformers due to deregulation, many mergers and acquisitions and stronger economic growth.
- The above factor can make major impact in the stock market with potential for 15% annual earnings growth into 2026.
Negatives
- Trump’s plan to impose a universal 10% tariff on imports and a 60% tariff on goods from China would raise prices on foreign-made products for American consumers. The interest rates are also uncertain, depending on the path of inflation. The reduced taxed and tariff may cause higher inflation and hence the interest rate cut may not be that high as Wall Street expects.
- Trump’s plans to extend and expand his 2017 tax cuts and exempt taxes on overtime, tips, and Social Security could increase the national debt significantly and that may potentially cause inflation.
- Clean energy stock, Oil stocks, Utility stocks may have tough time ahead. Also, if the interest rates do not come down then real estate stocks and some of the retails stocks may face some headwinds.
- Trump has vowed to deport millions of undocumented immigrants which may reduce the labor supply and could hamper labor-dependent industries such as construction and agriculture. Please note that the Homeland Security Department estimates the U.S. has about 11 million undocumented immigrants. However, I do not think all these deportations will happen immediately but certainly in a phased manner. This may cause some impacts in the short-term.
My final thoughts
There are many positives and negatives for the future Trump administrations. However, Wall Street has already given a clear indications that it’s excited about the future. We will see how it goes.. The deregulation, tax cut for corporate America would be extremely positive for the economy coincidentally it may also cause some inflation. As a matter of fact, we may not see too many rate cuts. The post-election rally has gone little too much too fast with lots of exuberance. When market goes in this manner, risk increases proportionately. So, I will be little careful in the short term. It’s better to have some cash on the sidelines to take advantage of any pullback. Having said that, I remain bullish for the end of year rally or possibly till the new president takes oath on January 20. We will see the biggest earnings of the season with Nvidia (NVDA) reporting Q3 results on next Thursday, 11/21. I feel that it will continue to report good results but better to be watchful. Possibly, we may see another 5-10% rally in the stock market from here till the end of the year or till January 20. What so ever it is, in the current era of investing, we should always be ready to deal with volatility. Too much of exuberance may be detrimental to the portfolio but not being invested could cause even bigger risks for return on investment. But let’s not forget, “how much we make is one thing, but how much we keep is the most important thing..”.
S&P 500 Earnings projections for 2024, 2025
- Q2 2024: Earnings growth of 11.3%, Revenue growth: about 5.3% - completed.
- Q3 2024: Earnings growth of 5.3%, Revenue growth: 4.8% - completed.
- Q4 2024 (projected): 12.2% and revenue growth of 5.3%
- Q1 2025 (projected): 12.7%, revenue growth of 5.3%
- Q2 2025 (projected): 11.9%, revenue growth of 5.5%
- FY 2024 (projected): earnings 9.4%, Revenue growth: 5.1%
- FY 2025 (projected): earnings 14.8%, Revenue growth: 5.7%
Valuation: The forward 12-month P/E ratio for the S&P 500 is 22.2. This P/E ratio is above the 5-year average of 19.6, and above the 10-year average 18.1.
Stock Market TOP sectors for 2024
|
Sector |
YTD Performance in %age |
|
Communication Services (TOP) |
35.54 |
|
Information Technology |
34.93 |
|
Financials |
32.30 |
|
Utilities |
25.09 |
|
Consumer Discretionary |
24.96 |
|
Consumer Staples |
13.70 |
|
Energy (worst) |
8.47 |
Please note that none of the sector is red Year to Date. You can click below link to view complete sectorial performances:
https://www.barchart.com/stocks/sectors/rankings?timeFrame=Ytd
Source: barchart.com
Now let me discuss this month’s stock picks for my Blog Portfolio.
Lam Research (LRCX)
Lam Research designs, manufactures, markets, and services semiconductor processing equipment used in the fabrication of integrated circuits. Basically, it’s a a key supplier of wafer-fabrication equipment and related services that make the global chipmaking industry run. The company sells various products used in fabrication or semiconductor manufacturing process. The fabrication technology helps fit more circuits on smaller chips. That's why we see smaller, thinner and sophisticated phones, laptops, computers, other electronics products these days.
The headwinds for LRCX
The current trade war with China and government restriction on sale of various chips to China has created some headwinds for Lam Research. Furthermore, the incoming Trump administration proposal to increase tariffs could be headwinds to the semiconductor sector. China was one of its biggest customer. If we see the semiconductor sector then except Nvidia a handful of stocks most of the other stocks have been beaten down. So I feel it may be an opportunity for longterm.
Why do I like LRCX?
I like this company because it is still growing revenues and profits at a faster pace. Lam Research did not have a great fiscal year 2024 as its revenue and earnings declined due to poor memory demand as a results of the decline in the smartphone and PC markets. But the momentum of Artificial Intelligence (AI) has created a lots of opportunities in semiconductor sector making the investors excited about its future potential. So, the non-AI chips may have sluggish demand but AI chips have astronomical demand. The company kicked-off fiscal 2025 on a solid note. We can expect the memory demand to be back in 2025. The continued growth in AI plus uptick demand for memory should accelerate its revenue and profits for Lam Research. Currently, the stock looks cheap to me. So, let’s look at its financials.
Financials
On October 23, the company released its Q1 2025 results beating top and bottom line. It reported revenue of $4.17 billion vs. 4.01 billion, up 20% year-over-year and earnings increased 25% year over year to $0.86 per share vs. 0.81 expected. The guidance was the icing on the cake. Lam expects $4.3 billion in revenue in the current quarter at the midpoint, which would be a 14% improvement year over year. It expects earnings of $0.87 per share vs. $0.85 per share on revenue of $4.26 billion. This was above expectations. Despite that, the stock has not gone anywhere.
Company Fundamentals
|
Market Capitalization |
$98.00B |
Total Cash |
$6.07B |
|
Trailing P/E |
25.31 |
Total Debt |
$4.98B |
|
Forward P/E |
20.X |
Book Value per share |
6.56 |
|
Price/Sales |
6.59 |
52 weeks high |
113 |
|
Revenue |
15.59B |
52 weeks low |
67.06 |
|
Quarterly Revenue Growth (YOY) |
19.7% |
52 weeks change |
16.12 |
|
Gross Profit |
N/A |
Held by Institutions |
10.15% |
|
Net Profit |
4.06B |
Held by insiders |
0.03% |
|
Quarterly Earnings Growth (YOY) |
25.8% |
Float |
1.28B |
|
EPS |
3.09 |
Annual Dividend (Fwd) |
1.18% |
My View
If we see the fundamentals above, the stock looks pretty cheap visualizing its revenue and profit growth. Currently, it’s trading only at 20.X forward earnings. Fundamentally, Lam Research is expected to benefit from the AI Boom as a critical supplier. It’s expected to grow revenues and profits more than 20% for the foreseeable future. The company is poised to ride the innovation wave across AI and other technologies. It will not be surprising to see the stock go beyond $100 once all the dust settles with the new administration. In the short term, I do not expect too much upside due to the current government restrictions and lukewarm demand for laptops and phones. However, I see this stock as a long term winner. The stock is currently trading at $76.17. The stock had 52-week high of $113, so there is a 32% discount from its 52-weeks high. Hence, I guess it’s worth creating a portfolio with gradual accumulation.
Strategy: As a strategy, I don’t buy any stock at once because nobody can predict the top or bottom of a stock. Hence, my strategy is to keep accumulating in small quantities and build the portfolio. Also, I do not fall in love or emotional with any stock. This is not easy but leaned from past lessons. I also take some chips out of the table when a stock run ahead to book some profits and mitigate risks. If I find that the stock has further momentum then I usually add it on a pullback. That’s just my perspective. But it depends on every investor’s own investment framework.
Risks
Current government restrictions and lukewarm demand for laptops and phones is a headwind for the company. So, the stock is in a doldrums. But when the stock is cheap, it’s better to build the portfolio. Secondly, all equities carries risks. When market comes down most of the stocks gets hammered and every stock looks cheaper. Market has run too much too fast, particularly after election. Furthermore, chip sector is more volatile, so risk and reward are higher depending on how the market moves.
My final thought: LRCX looks cheap visualizing its revenue and profit growth as it’s trading only at 20.X forward earnings. Fundamentally, Lam Research is expected to benefit from the AI boom as a critical supplier. I am invested because I feel that LRCX has the potential to be a long-term winner. It’s a solid company. But as an investor, this stock may need some patience to accumulate gradually before it really takes off. I am not anticipating huge run for this stock in the near future. So, I will invest patiently. However, if I see any red flags then I won’t hesitate to pull the trigger.
Shesa’s Blog Portfolio (As of NOV 11, 2024)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View (see disclaimer) |
STOCK (All prices are in USD) | |||||
12.9 | 224.23 | 1/25/13 | 1638% | HOLD | |
47 | 583.17 | 11/13/13 | 1141% | Buy on dip | |
77.18 | 530.12 | 12/12/13 | 587% | HOLD | |
15.58 | 206.84 | 4/12/14 | 1228% | HOLD | |
13.48 | 89.99 | 11/25/18 | 568% | HOLD | |
54.59 | 181.34 | 5/25/20 | 232% | HOLD | |
51.49 | 27.18 | 10/10/21 | -47% | SOLD | |
23.9 | 144.75 | 2/13/22 | 506% | Buy on dip | |
290.25 | 350 | 5/1/22 | 21% | Long term BUY | |
77.13 | 90.98 | 1/1/23 | 18% | SOLD | |
8.87 | 9.85 | 4/6/23 | 11% | HOLD | |
15.66 | 32.77 | 4/6/23 | 109% | Buy on dip | |
123.25 | 181.97 | 5/21/23 | 48% | HOLD | |
20.49 | 60.24 | 11/19/23 | 194% | HOLD (Trimmed) | |
376.04 | 417.98 | 1/1/24 | 11% | HOLD | |
20.54 | 21.67 | 2/1/24 | 6% | HOLD | |
284.13 | 398.1 | 3/31/24 | 40% | HOLD | |
85.74 | 23.04 | 4/28/24 | -73% | HOLD - updated on 11/12. | |
10.48 | 9.99 | 4/28/24 | -5% | Accumulate - Long Term | |
138.96 | 138.51 | 7/6/24 | -0% | Accumulate | |
51.92 | 75.79 | 8/11/24 | 46% | Buy/Accumulate | |
254.57 | 341.73 | 9/14/24 | 34% | Buy on dip | |
76.16 | 76.16 | 11/11/24 | 0% | NEW ADDITION | |
ETF | |||||
27.82 | 55.71 | 8/16/15 | 100% | HOLD | |
MUTUAL FUND | |||||
59.45 | 164.35 | 12/20/14 | 176% | HOLD | |
9.05 | 21.17 | 1/15/16 | 134% | HOLD | |
43.66 | 68.98 | 9/24/17 | 58% | HOLD | |
A few Key Economic report this week (9/16 - 9/20)
WED, 11/13: Consumer Price Index (CPI)
THU, 11/14: Producer Price Index (PPI)
FRI, 11/15: U.S. Retail sales, Industrial production
Equity Sold since my Last Blog
ENPH
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Disclaimer: This blog is meant to provide my opinion only. The information provided is to the best of my knowledge but may not be accurate. I do NOT provide any professional recommendation to buy/sell any stock, ETF, mutual fund, or any other security(s). As an investor, it’s your hard-earned money and you decide what is best for you. The above are merely my own opinions on what I do. Please contact a professional money manager to buy/sell any security. I do not charge any fees or commission by writing the blog except anything from Google AdSense. I have position(s) on whatever security I put on my blog portfolio and avoid including any security that I do not own or follow. Anyone buying or selling the equities mentioned here must do at their own risk.
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