- Elon Musk’s Terrible, Horrible, No Good, Very Bad Day
- Zach Scheidt: Buy before or after earnings? (It’s complicated)
- Brushing up on two investing basics
- Ray Blanco on Nvidia and powering the AI revolution
- Nashville’s new stadium is like a country song.
“My research recently indicated Tesla was falling out of favor with investors,” says Paradigm’s income-investing ace Zach Scheidt.
“Rising competition, price cuts and a high-value stock price made TSLA shares vulnerable to a sharp sell-off,” he says. “And that’s exactly what happened when Tesla announced earnings last week!”
Indeed, it wasn’t Musk’s day…
Source: Twitter, FortuneElon and the Terrible, Horrible, No Good, Very Bad Day
“I locked in profits on options that benefited from Tesla trading lower.” says Zach. “If I had waited until after the company announced earnings, I would have missed out.”
Accordingly, readers have been asking Zach the following question of late…
“Should I buy shares before or after a company reports earnings?”
“After all, we’re in the thick of earnings season,” Zach says, with about one-third of the S&P 500 companies reporting this week, and a similar number of companies report their results next week.
“It is a very important time for us as investors, because we’re learning how companies are performing in today’s turbulent economy.
“So let’s think carefully about whether you should make major investment decisions before an earnings announcement, or if you should wait until after the company reports.
“There’s not a clear-cut right or wrong answer,” Zach admits. “Depending on your reason for buying and the time frame that you intend to hold your position, it gets a little easier to make a decision.
“I talk a lot about long-term investing,” he notes. “I look at companies I expect to grow over the next few years, or sometimes even over the next few decades.”
In which case, a stock’s performance within a single quarter isn’t going to move the needle much. “Over the next few decades, gains or losses will depend on many different quarterly profit announcements.”
Zach continues: “I’m a big fan of dollar-cost averaging for long-term investments.
“Meaning, if you’re planning to invest $5,000 in one stock, I suggest dividing your capital into three or four different baskets and investing some now, some in a few weeks and some further down the road.
“Using this approach helps you diversify your entry price,” he adds. “So by putting some money to work before an earnings announcement and some after,” investors most likely will achieve the goal of buying low — one way or another.
“Typically, that’s how I approach long-term investments around earnings season. But the thought process is different if you’re a more active trader…
“Skillful short-term trading can help you accumulate profits more quickly,” says Zach.
“That’s especially true if you have an edge from an indicator, statistical trading methodology or professional experience in the market.
“For my family’s portfolio, I often buy in-the-money option contracts to take advantage of short-term moves in a particular stock.
“No, I’m not talking about day trading,” he clarifies, “which is a very difficult way to make money.
“For these shorter-term trades, I do extensive research to understand how economic trends, company fundamentals and technical patterns are likely to drive a stock’s next move.”
In other words?
“The best long-term investments and short-term trades happen when you create a plan ahead of time,” Zach counsels.
“This means understanding why you’re buying a stock, what you expect to happen… and how you’ll know if you’re wrong. (Spoiler: We all get it wrong sometimes.)
“If you’re buying a stock because you expect the company to grow earnings over time, it can be a good idea to buy shares before the earnings announcement,” he says. “If your research is right and the company reports strong earnings, you benefit from the trade.
“But if you’re expecting a stock to move lower in the short term and, instead, shares jump higher after an earnings report, accept that your analysis was wrong.” Stay humble, Zach encourages.
“The best course of action is to close a position that isn’t working and move on to the next opportunity.
“Bottom line: As we work our way through another earnings season, make sure you keep an open mind,” says Zach. “Pay close attention to the information that evolves… And be willing to alter course if details on the ground change.”
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At the time of writing, the three major U.S. indexes are in the green. The S&P 500 is leader of the pack, up 0.70% to 4,165. Meanwhile, the Dow’s up 0.65% to 34,050, and the tech-heavy Nasdaq has gained 0.50% to 12,200.
Adding to our earnings season tally, Amazon (AMZN) announced another Big Tech beat on Thursday. Mainly, the company reported a profitable Q1 2023, to the tune of $3.2 billion (as opposed to the $3.8 billion loss in the same quarter last year).
“The swing to a profit comes as Amazon (AMZN) has ramped up its cost-cutting measures in recent months,” CNN Business says, including “two rounds of layoffs, canceled products and nixed physical store expansions.”
Also, note: “Revenue for [cloud segment] AWS grew 16% year-over-year in the first quarter,” says Business Insider, “trailing Microsoft and Google.”
- For the major economic numbers today, Bloomberg reports: Core PCE, “the Fed’s preferred measure of underlying inflation, rose 0.3% in March from the prior month and 4.6% from a year earlier.” If you recall, the Fed’s inflation target is 2%
- “Meanwhile, the Labor Department’s measure of employment costs — also closely watched by the Fed — increased 1.2% in the first quarter from the previous period, exceeding forecasts.”
All of which aligns with Jim Rickards’ forecast yesterday: another 0.25% rate hike in May… and, quite possibly, a similar hike in June.
“It’s no secret that crypto mining was a big part of the record runs that chipmaker Nvidia (NVDA) went on over the past few years,” says our tech-stock authority Ray Blanco.
“Miners needed more and more powerful processors to validate cryptocurrency transactions for Bitcoin and Ethereum,” he says, “running their PCs around the clock and racking up prodigious electric bills for newly minted crypto.
“But then Bitcoin dropped from $68K to $19K over a few short months,” says Ray. “Not good news for miners. Not good news for NVDA.
“The ‘crypto block’ of graphics card sales dried up even further when Ethereum switched from proof-of-work validation to proof-of-stake,” he continues. “What used to require a bank of high-end processors can now be done with the device you’re reading this on.
“So with events conspiring to sink Nvidia’s big moneymakers, why is the company seeing its stock price surge and its earnings surpassing Wall Street’s expectations?
“NVDA appears to be well on its way to flipping its earnings from graphics cards to powering data centers for the AI revolution,” Ray says.
(From time to time, we’ve referenced CEO buzzwords. And this year? “Alphabet and Microsoft mentioned AI more than 50 times each during their first-quarter earnings conference calls,” UBS analyst Sundeep Gantori writes in a research note.)
“The AI boom has generated a huge demand for GPUs from companies trying to plant their flag in the machine learning industry.”
- “Elon Musk purchased 10,000 GPUs for Twitter’s data center for an AI project
- “Oracle and Microsoft have also bought processors numbering in the tens of thousands.
“All, reportedly, from Nvidia,” Ray says. “And the Nvidia H100, a chip that contains a whopping 80 billion transistors, was designed specifically to power AI projects… Each chip retails for over $30,000.
“Competitors like Microsoft are reportedly developing their own AI-specific GPUs, but Nvidia’s head start may be insurmountable,” concludes Ray.
“Being the first on the AI scene appears to be more than enough to carry Nvidia.”
Sign of the times: This morning, I noticed a personal email from my gas-and-electric provider, BGE.
The email’s subject line grabbed my attention; it’s the same as what’s printed on the following graphic…
Courtesy: BGE.com
BGE says it wants to be a one-stop shop to answer all my burning EV questions… Adorable. To me, it feels a little like Exxon Mobil emailing me about the advantages of driving a Hummer. (Also, see below.)
Moving on…
“Taxpayers are on the hook for $1.26 billion for a new stadium in Nashville,” says an article at Reason.
“The idea of building a new, enclosed Titans stadium in lieu of renovating Nissan Stadium has polarized Nashville politicians and residents alike since it was first floated to the public in February 2022,” The Tennessean reports.
Nevertheless, after a five-hour debate, the resolution to build a new stadium, on underused Metro land along the bank of the Cumberland River, was pushed through (26-12) in the early-morning hours Wednesday.
Rendering of the new stadium
Source: Tennessee Titans
And to pay for this boondoggle (more on that in a moment)…
Supposedly, “tourists [will] bear the tax burden of stadium construction and upkeep” — through increased local sales taxes, a new 3% stadium ticket tax and a 1% hotel-tax hike — “instead of Davidson County taxpayers,” according to councilmember Zulfat Suara.
Yes, because only tourists come out to root for the home team?
Then there’s this: The Metropolitan Council of Nashville and Davidson County, now in the stadium-owning business, “never really looked into how much [a stadium upgrade] would cost, only relying on one estimate provided by the Tennessee Titans owner,” says Reason.
One estimate. From the billionaire owner who stands to benefit most from a shiny new stadium.
But strap in for the most boondoggle thing of all…
“Fans won’t even get a bigger stadium,”Reason says.
“The new one will seat 60,000 people, which is about 9,000 seats fewer than the current stadium and will be the smallest capacity in the NFL.”
Reason concludes: “The city is building a smaller stadium rather than renovating one the state owes money on through 2029.”
Here’s hoping the Titans’ first-round draft pick, offensive tackle Peter Skoronski of Northwestern University, works out.
Have a good weekend… And in true Nashville fashion: See y’all soon!
Best regards,
Emily Clancy
The 5 Min. Forecast
