This article was first published January 23, 2017, it has not been updated or revised.
This ad caught my eye over the weekend, and it had enough clues that the Thinkolator started chugging along almost before I turned the switch this morning — so let’s dig in, and maybe we can even make it a little quicker than usual.
The spiel is for the Motley Fool’s flagship Stock Advisor newsletter, and it’s hinting at a pick by David Gardner, who is the “Growth” half of the founding Fool brothers. His brother, Tom, tends to focus more on valuation — David is the one who likes buying “Rule Breaker” companies that are changing the world… and that Wall Street thinks are “too expensive.” I’m often a bit of a fuddy duddy on valuation, so I tend to find more that is comfortable to me among Tom’s recommendations that I’ve seen, but David’s have done far better over time (largely because of the outsize impact of the multi-thousand-percent returns from picks like Priceline and Amazon and Netflix early on).
So what is it that Dave Gardner is pitching to try to lure in new Stock Advisor subscribers? Let’s take a look at the details of the ad.
It starts out with some broader hints:
“David Gardner’s newest stock is the leader in what our analysts believe is the one breakthrough you can’t afford to miss in 2017.
“Wall Street Insiders are calling it ‘bigger than the Internet.’
“One Legendary Google Engineer is saying this technology will be as transformative as the discovery of electricity.”
OK, so plenty to get you daydreaming about riches there — what might get the Thinkolator pointed at the right answer? Some more specific clues:
“Here’s what world famous tech investor Marc Andreesen had to say:
‘For fun, our firm has an internal game of what public companies we’d invest in if we were a hedge fund. We’d put all our money into [this same company].’
“This incredible company’s platform is so dominant… that they are being compared to Microsoft in the early days or Apple before the iPhone.
“Here’s Andreesen again:
‘We’ve been investing in a lot of startups applying this technology to many areas, and every single one effectively comes in building on the [same company’s] platform. It’s like when people were all building on Windows in the ’90s or all building on the iPhone in the late 2000s.'”
And apparently this is a threepeat recommendation from David Gardner:
“It first caught his attention back in 2005 when it traded for a paltry split-adjusted $6.62 per share. He issued a buy recommendation that’s gone on to incredible 1,496% gains!
“David went back to the table to recommend the stock in December, 2009. Investors who bought then are already up 575%!
“And now David is issuing a brand-new recommendation on the company for a simple reason…
“The field this company dominates recently experienced breakthroughs that led researcher Tractica to estimate jaw-dropping 5,395% growth across the next decade!”
So who is it?
This is, once again, our old friend NVIDIA (NVDA), which has been the hottest large cap stock in the market over the past year or so on the back of strong revenue growth, accelerating earnings growth, and a great “story” thanks to the company’s important role in several large investing and tech trends, including virtual reality, artificial intelligence and deep learning, data center acceleration, and, in what is being pitched mostly here, autonomous driving.
I’ve written about NVIDIA a bunch of times — it has indeed been teased and recommended by David Gardner before, he pitched it as “Warren Buffett’s nightmare” stock starting almost three years ago because of the role that autonomous driving might have in cutting auto insurance rates (or, someone hold their hands over the poor GEICO Gecko’s ears, doing away with auto insurance altogether)… and it has been a phenomenal performer since then, up more than 400%. It was also pitched heavily a few times by Michael Robinson starting a little over a year ago as a play on “neural imprinting” … which was a dumb pitch about the healing powers of virtual reality, which will remain a pretty small part of NVDA’s business, but was well-timed (it’s up 250% since then).
I personally speculated on some NVDA calls a year or so ago, thanks in part to what was a bit of virtual reality mania in the marketplace, and took profits several months back — so I’m hobbled with something of a bias on this one, it seemed expensive when I took profits when the stock was in the high $40s but it has since doubled since then. It is really hard to reset your personal “value” assessment for a company, so I’m likely to be too pessimistic about this one since I sold at a much lower price — you, thankfully, do not have to live with my particular biases.
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Right now, NVDA is subject to the kind of debate in Wall Street circles that I’m always having in my head — can it keep going up like this? What kind of earnings growth would justify making the company $40 billion more valuable in just the last twelve months? Will autonomous cars and virtual reality and their other rapid-growth businesses grow fast enough to stave off what might be some relative softness in the high-end GeForce gaming chips that are (still) the core of their business?
NVIDIA has really been the company that can do no wrong over the past six months, and investor NVDA-lust took hold even more aggressively when they reported a huge beat on their last earnings report (their last quarter ended 10/30, they reported 83 cents in profit versus 57 cents forecast by analysts, which is a huge beat for a large company with $8 billion in sales — the numbers were quite fantastic, 54% revenue growth and 104% non-GAAP earnings growth, for more proof that what really gets investors going is real earnings growth, no matter what else is going on).
There is certainly concern in the market about a resurgent AMD, which has been riding NVDA’s coattails higher and is really the only competitor in the high end graphics processing chip market, but forecasts are still climbing for NVDA. The estimates have not been bumped up in the last month, which might help to explain why the shares have hit a bit of a ceiling since they hit a peak of almost $120 at the end of December following all the post-earnings upgrades and estimate increases, and leading in to the Consumer Electronics Show and its big focus on self-driving cars (CEO Jen-Hsun Huang gave the opening keynote address at CES as well, generating still more attention).
So right now, NVDA is just shy of being a $50 billion company, and it is trading at about 35 times expected 2017 earnings (or 62X trailing non-GAAP earnings, if you want real numbers). Analysts see the earnings growing to $3.96 per share by 2019, so at the current price you’re paying about 26X 2019 earnings for the shares.
The company has plenty of cash ($6 billion or so), strong leadership and insider ownership (the CEO and founder owns about 5% of the company), and is positioned well for high-end processing chips that can do the rapid “thinking” required for self-driving cars and “learning” in artificial intelligence. The only concern, for me at least, is the valuation. And it’s not a completely outlandish valuation, to be sure, but it is very steep — if analysts are correct, you’re paying almost 40 times earnings for a company whose earnings, analysts persist in estimating, will only rise by 15% or so per year over the next year or two. It might be that those analysts are too pessimistic, or that future growth is stronger than immediate growth prospects (those analysts do expect 29% earnings growth on average for the next five years, and analysts have been very light on near-term expectations for NVDA and have had to raise forecasts many times over the past year or so), but you work with what you have, and the estimates make the stock look very expensive but not necessarily prohibitively expensive if you have an optimistic slant.
For me, personally, the hardest thing to do psychologically is to buy a stock at a price much higher than I had sold it for in the past — so that has probably kept me from giving NVDA a fair shot as it has surged higher in the past six months, but I do like the company and its prospects quite a bit. It might be that the cure for this psychological hurdle is what I’d call a growth-stock vaccination — just buy a couple shares, a very tiny position, which is enough to let me re-set my thinking about the stock and consider it afresh, then I’ll be able to consider it more rationally when I see the stock dip or surge in the months ahead, and if the valuation gets more compelling or my expectations of NVDA’s future get reset positively, I’d then be able to buy more. That’s what I did recently with Amazon (AMZN) shares, and it’s how I initially opened my position in Facebook (FB) despite some valuation misgivings on both of those stocks at the time, so perhaps that’s what I’ll end up doing with NVDA too. I haven’t bought shares, to be clear, and I won’t trade in any stock I write about for at least three days — but that’s the vaccination procedure that sometimes works for me with high-growth stocks where I like the prospects but feel a little queasy about the valuation.
It’s your money at stake, though, so what do you think? Have the same biases as me? Are you already sitting pretty in NVDA shares and enjoying that 500% gain? Feeling optimistic or pessimistic about NVDA or its autonomous driving and artificial intelligence and gaming businesses? Let us know with a comment below.
P.S. that quote from Marc Andreesen got a fair amount of attention — as has NVDA stock in general, thanks to the huge surge… it made the December issue of Forbes in this article and was ranked the top chip company in their new “Just” rankings of good corporate citizenship.
it did it’s pull back a wee or 2 ago now I’m waiting for it to start moving again. It’s started slowly,but I’m waiting to add more. Also I don’ understand Qualcom. It took an $8 hit on news of a lawsuit by Apple, lawsuits generally take years to make a dent so I don’t get the Immediate downward pressure.
Virtual Reality is still a bigger thing in politics than it is in reality, and driverless cars are still cooler in concept than in unit sales. But much more exciting from an NVIDIA investor’s point of view is the far broader potential for their chipsets and patents in artificial intelligence applications (we own only a couple cars, but we’re on our way to owning hundreds of intelligent devices).
But potential in what stock for chipsets and patents?
I am just discovering this site after years of wasting time on the net. I am learning more here than any other place including a lot of reading. Thank you all.
Ha! I just got sucked in by another Motley Fool teaser quoting Marc Andreessen and focusing on the “We’d put all our money [here]” quote. I was hoping it was Nvidia!
Honestly, I had not noticed that quote was in this write-up when I read it last month. Like other commenters here, I was in the lucky batch who put money in $NVDA at $20 after Motley Fool ran their promos about the self-driving car industry being a threat to GEICO (or, as they loosely described that company, “Warren Buffet”).
I am torn between pulling out my initial investment at this top or just letting it ride for the full five years (three more years) per my initial plan. Because the first option is driven by emotion and the latter is driven by planning, I guess I will err on the side of planning.
Well INTC just bought MBLN. This certainly makes things interesting. I to had NVDA and sold at a profit early. But I have held on more earlier in my stock adventure and ended up losing more than if I had pulled the trigger sooner. Hind sight is 20/20. Exspecially in such a crowded, highly competitive part in the market. AMD has made me a nice profit. And expect to reinvest after Janet Yellen news at 2:30 today and hopefully get some news on AMD latest quarter. And leave on this note, be fearful when others are greedy.
Stock Advisor Performance
David’s Portfolio +351.8%
S&P +73.9%
Tom’s Portfolio +99.6%
S&P +63.4%
Average return of all recommendations since inception David is by far the better of the 2 as you can see as today 3/15/17
Some of my best stock purchases have been from Motley Fool recommendations when I was a member of MDP (Million Dollar Portfolio). (No, I didn’t have a million dollars. They did, and I just bought proportionally with my portfolio.) Example: IPGP & COST.
Penny
Thanks to Travis. I bought some stocks a year ago and calls a year ago; and after making lots of money, I sold Half and I am hoping to make lot more money. The recent pull back is a good opportunity to buy now, if you don’t hold it.
Travis is the man. Several months ago. I miss judged a ecommerce stock thinking it was MELI , but was SHOP as he called it thankfully, I caught my mistake do to his vast knowledge about the SOCKS and researched deeper and found out and invested in SHOP – Shopify and has been a very good choice. Has gone up 16.5% since
meant stocks and while I’m here not several but a couple months ago. In my above post. Should poof read. Please add edit on comments. LOL
Thinairmony – are you an Irregular?
There is an Edit button next to the Reply button which can be used for editing for a short while after posting the original comment, but it might be only for Irregulars.
And a short timer on it.(edit).
I still have the NVDA that I bought long ago plus I’ve added some and then it pulled back but I’m staying on for the ride. I also took on $AMD and $STM which have done ok but not as well. I’mm fooling with warrants right now on$BAC and $Citi and I’m looking at Kodak warrants 18 and 13? but I haven’t seen an exercise price or exchange ratio and the one for 13 is a bit perplexing. When it expires at what the deal is. I would appreciate any thoughts. Also $TXMD has been having a nice ride lately,is it time to cash out or just remove the cost? thanks
your bias is of a common mistake beginner traders make everyday you must go In with no bias trade your system like a robot no emotion
I bought STM based on Gumshoe article around June or so and still holding it..purchase price 5.42 and it is trading at 15.5 or something….it has done great for me…I do not read anything about STM but a lot about NVDA…anybody want to comment on STM as I am little nervous but it just keep hitting new highs..I only have 2000 shares, I wish I had bought more..
Hi Bal Singh,
It’s kinder for we less affluent contributors if you don’t mention actual quantities (or total dollar values) of your transactions. You could phrase it as: “I only have a starter position, I wish I had bought more.” Or even: “I only have a small position, I wish I had bought more.”
Kind regards, Penny
I bought this stock a long time ago and am enjoying a 385% rise in profit, and am going to let it ride a while longer. It had hit 400% but fell back a bit.
Anything on Lou Barnesse “Smart Dust”article
NVidia looks very strong to sell the best brains for self-driving cars, though Google’s Tensor Units seem an alternative possibility. At the 2017 CES, NVidia CEO Jen-Hsun Huang claimed that in 2020, Audi cars will have level 4 self-driving capability, which is all situations except the worst (extreme weather and off-road/unmapped).
That is an entirely new market beyond graphics chips which is too lucrative for businesses to ignore. 10% of workers in the United States drive for employment. There is a vast amount of money to be made by replacing those workers with machines. It may seem cold, but I expect to be in the same situation myself and need to find another source of income.
I feel the most profitability will come from the companies that put myself and others out of work. Microsoft, Google and NVidia (I am not very confident in IBM or Apple’s decisions, so am avoiding those) are my primary bets. The most money will come from the software side, but I am not going to discount the hardware side. There is more competition in software, while the hardware may be a near monopoly with limited supply.
Those self-driving car brains will start taking off by 2020 at the latest. Developer versions are currently being sold, but I have to wonder what else those boards can do beyond driving a car? Can they sort fruit? I expect they can and it would be very economical to replace a human with one.
My regret at buying at $13.39 per share – I wish I would have bought more. I wasn’t too excited about the stock but knew it was a good stock to buy. My little purchase of 74shares could be so much more, had I purchased more shares!!
Is NVDA worth buying now at $160?
TESLA was under 240 in Jan and now its Summer and its 377…NVDA has crushed it most folks should consult an advisor for at least for a portion of their portfolio, develop a financial plan and to bounce risk reward ideas around it’s real money after all. http://www.boardwalkcm.com/
Join the dream, there is no doubt NVDA is the real deal, still a buy especially on any pullbacks but the train has left the station for it to be a steal anymore. More competition will just pump there story until the competition gets a new twist. You know a new improvement or a new idea to make it better. Maybe NVDA has the angles of the future wrapped up in all there patents with new patents on the way. The art of writing a patent to cover what has not been made or shall we say invented yet. There in itself is the Future so who has the best R@D guru! Or who has the best idea on how to make what they have a patent for already?
I believe Fujitsu has made it more interesting
Gene: Fujitsu? How would that be?
Travis what do you think about buying into NVDA at its current price of $195. Seems really expensive to me but I’m a real newbie to this game How do you think AMD stacks up against it. It certainly is a more attractive price point at $12.45 Anyone else care to address this question? All information is welcome.
AMD has had such terrible execution problems in the past that I hesitate to trust them, and they don’t seem to have the industry following that NVDA does when it comes to new technologies being built that use their platform… though that may just be a blind spot for me.
I haven’t bought NVDA recently, the last time I really committed capital it was close to half of this price because I eased in using out-of-the-money call options due to a lack of nerve — it’s absurdly valued at more than 50X current year earnings, so for this to work out the analyst estimates really need to be on the low side. They have been for years, and NVDA repeatedly shocked on the upside with much better earnings than expected, but it’s a little stomach-churning to count on that.
With hyper-growth stocks and momentum stocks like this, where I really like the company but can’t get comfortable with the valuation, I often take a very small position, either in options or in equity, and watch the stock and follow it closely to get more comfortable in hopes of a dip. That’s how I got into NVDA in the first place, I’ve been hesitant about the valuation for a couple years but used well-out-of-the-money call options on a few different occasions to speculate on the growth continuing because the momentum and their exposure to hot trends was so strong, and my equity position came because I eventually rolled those profits into actually exercising options and buying shares once a few call options were well in-the-money at expiration.
Stocks that look overvalued can become dramatically more overvalued, and if the growth and growth expectations remain strong they can stay elevated and mature into their valuation if they’re well-run and can consistently grow and the business appears strong, so I’m willing to let it ride but not willing to make it a much larger position. Sometimes getting a little bit of exposure without risking a dramatic amount of capital is the best way to ease into volatile growth stocks.
That’s the case with lots of stocks for me — Shopify, Amazon, sometimes I can’t make the valuation make sense but it’s clear that the business is very strong and growing and the share price often follows that even if profitability remains elusive. I resisted Amazon for years, for example, because I couldn’t stomach their profit margins, but eventually became convinced of the long-term power of their business and the market’s acceptance of their constant growth reinvestment strategy, and decided I should own shares… I bought a very small position in the shares last Winter at what I thought was a crazy high valuation, hoping that we’d see a dip on a bad earnings report for me to build that position, and there’s been no dip. That means I don’t have a full position, and I didn’t commit a dramatic amount of capital to a stock that was and is very overvalued on most metrics, but I have at least enjoyed the 25% gain in the shares since then.
Sometimes investing more about managing your own psychology than it is about picking the right stocks.