Shesa's JULY 2024 Investment Blog
By Shesa Nayak
To all my Blog Readers
As many of you may be aware, I have been writing the investment blog for more than a decade. Recently, I have started a YouTube channel to share my views on investments. Please go to the following link and subscribe to my channel. Thanks in advance! It’s just the beginning and my next video will be made public very soon with my views on some interesting stocks. Here is my channel link: https://www.youtube.com/channel/UCt7oLVUMG3NkJUzAVUzl4Tg
U.S. Stock Market Update
The U.S stock market is on the run and making new all-time high despite Federal Reserve beating the drum about its discomfort to cut interest rates. Both S&P 500 and Nasdaq have hit their all time high this week. Many people keep talking that stock market is in a bubble like 1999 .com bubble. Is it so? Evidently I do not think so. Because we have still not seen those maniac of .com bubble. I have gone through those experience of 1999 .com bubble and bust. Investors still fear that market may fall and lots of folks are on the sidelines. As a matter of fact, almost $6 trillion cash is sitting on the sidelines. Of course, there is some euphoria for the AI released stocks but it’s not just with the name of “AI”. Those companies are delivering exceptional results, both revenue and earnings. Anybody, not delivering results is being punished hard. Hence, I do visualize more upside is on the card for the stock market. But obviously market never go up on a straight-line. If history is any evidence, then market usually pullback 7-10% even in a bull market. September is the worst month in the stock market, hence one must be extra careful around September timeframe.
Earnings: The 2nd quarter earning will kick-off this week with some banks and financial institutions reporting results. Next week we will see many big tech companies report their earnings. For Q2 2024, the estimated (year-over-year) earnings growth rate for the S&P 500 expected to be 8.8%. If so, it will mark the highest year-over-year earnings growth rate reported by the index since Q1 2022 which was 9.4%.
Federal Reserve: Based on the latest survey, 70% of the economists anticipate Fed rate cut in September and 90% chance of cut before the end of the year.
Economic: Last Friday, the unemployment rate went up to 4.1% in June, up from 3.9% in April, 4% in May. The ISM Manufacturing stumbled 4.9 points to 52.1, continuing jobless claims spiked to their highest level since late 2021. ADP private unemployment numbers have been rising, diminishing consumer confidence, shrinking retail sales and so on. If so many bad things are happening in the economy then why is stock market going up? I will share my view but before that let’s take a quick glance to the stock market indexes:
Indexes | Open 1/2/24 | Close FRI 7/5/24 | Change in 2024 | % Change in 2024 | All Time High |
DOW | 37,689.50 | 39,375.87 | 1,686.37 | 4.47 | 39,908.00 |
S&P 500 | 4,769.83 | 5,567.19 | 797.36 | 16.72 | 5,570.33 |
NASDAQ | 15011.35 | 18,352.76 | 3,341.41 | 22.26 | 18,366.31 |
Russel 2000 | 2,012.75 | 2,026.73 | 13.98 | 0.69 | 2,442.74 |
Economy News
- Interest Rate: 5.5%.
- GDP: Q1: 1.4%; Annual GDP: 2.9%, Q4: 3.4%, Q3: 3.3%,Q2: 2.1%, Q1: 2%.
- Inflation: May: 3.3%,Apr: 3.4%, Mar: 3.5%.
- Unemployment: 4.1%, previous 3.8%. In May, nonfarm Payroll increased to 206,000 vs. 200000 expected.
- Retail Sales: May: 0.1%, -2%(April)
- PCE:2.6% in May
- Consumer Confidence: 68.2 down from 69.1
- U.S Crude Oil: $83.44 a barrel.
- U.S Treasury Yield: 2 yr: 4.76, 5 yr: 4.23, 10 yr: 4.28%, 30 yr: 4.48%.
- US Mortgage Rate:The 30-year fixed Jumbo: 7.4%.
Why Stock Market keeps going up?
- Bad news is good news: Off late, most of the economic reports have not been very favorable as I stated in my market commentary. But these “bad news have become good news” with the anticipation that FED will cut interest rate sooner than later. As I said earlier, 70% of the economists anticipate Fed rate cut in September and 90% chance of cut before the end of the year.
- We are in a bull market: As I have been saying for several moths, we are in a bull market and stock market tends to go up in a bull market. But it never goes up on a straight line. It gives confidence for the investors to invest money in the stock market when bulls are in control. Hence, these are the environment to buy/accumulate on dips and trim on the up.
- Corporate earnings: The results from large cap technology companies have been rising and they are beating the top and bottom line of analysts estimates. Why because this AI phenomena is driving the corporate spending. These AI phenomena is not for a quarter or two, rather it should continue for years. The technology companies will kick-off earning with Netflix starts reporting on 7/18/24.
- Large Cap stocks are pulling the Stock Indexes: If we see almost 90% of the gain for the index has come from a selected group of large cap stocks. Off late, we are seeing little more participation from other stocks. For example, Nasdaq has gone up 22% this year but Russell 2000 (Small cap index) has barely been positive, up only +0.69%. All large cap stocks related to Artificial Intelligence (AI) have been on fire, particularly many of the semiconductor stocks, some cloud/software who surpassed earnings expectations in this space have been on the run.
- The CPI (inflation) has been coming down except in the month of March when it ticked up mostly because of higher energy prices. Currently inflation is only 3.4%, and next CPI report is expected on Thursday, 7/11/24. The Personal Consumption Expenditures (PCE) report showed that the Fed's preferred inflation metric dropped to 2.6% in May. This has increased the possibility of Fed rate cuts. Also, please note that I wrote about other economic factors in my opening remarks.
- Presidential Electionreflecting on Stock Market:
Since the first presidential debate, the market has taken a different turn. The stock market is currently bracing for Trump winning the race. If that’s the case then we need to dig a little deeper to Trump’s first term. However, I don’t want to write about politics. But that comes true, what it implies, stronger economic growth and higher earnings, but also higher inflation and sustained high interest rates. That’s why Treasury yields rose after the first debate. If you recall, I have also repeatedly written about the impact of election on stock market in my earlier blogs. Usually, stock market tend to do well in the election year but volatility higher. If feasible, I can post a video in future. According to RealClear polling, the betting odds for the presidential candidates winning probability show the following at this time:
Donald Tump: 55.5%
Kalama Harris: 16.2%
Joe Biden: 13.7%
S&P 500 Earnings projections for 2024
Q1 2024: +8%
Q2 2024 (Current Quarter): +8.8% (projected), revenue growth: 4.6%
Q3 2024: +8.3%
Q4 2024:+17.3%
FY 2024: earnings +11% (projected)
Revenue growth for 2024 expected:3.5%.
Stock Market TOP sectors for 2024
Sector | YTD Performance in %age |
Information Technology (TOP) | 32.70 |
Communication Services | 31.02 |
Financials | 10.26 |
Consumer Discretionary | 9.17 |
Consumer Staples | 8.66 |
Real Estate (worst) | -4.44 |
Please 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.
Dell Technologies Inc (DELL)
Dell is a leading player in the global PC market and has a strong presence in enterprise solutions and services. The company offers a wide range of products, including personal computers, servers, data storage devices, network switches, software, and peripherals. It also provides IT services and consulting. Dell is heavily investing in emerging technologies like artificial intelligence (AI), cloud computing, and edge computing.
Why do I like DELL?
Way back in 1984, Dell started the concept of delivering PCs direct-to-consumer model that enabled customers to configure their PCs with preferred specifications, such as processor type, memory size, storage options etc. It became hugely popular. Fast forward, the PC and server demand came down after the COVID-19 causing Dell and other hardware manufactures to struggle for last few years. However, the dynamics changed when the company reported its Q4 results on February 29. The company beat its top and bottom line and increased the annual dividend by 20% to $1.78 per share by saying that it’s a “testament to their confidence in the business”. The extraordinary demand for servers for Data Centers and AI factories has helped the company to accelerate further growth despite slowing PCs and laptops demand. I believe the company is on the path for a big turnaround.
On 5/20/24, Dell and Nvidia announced AI journeys during Dell Technologies World 2024. They announced services designed to help make AI adoption simpler and more effective. This includes products powered by the Nvidia’s blockbuster Blackwell chips announced earlier this year, with the new Dell PowerEdge XE9680L server offering. The financials even got better in its Q1 2025 earnings. The company again beat on revenue and earnings and guided for higher revenue than analysts had expected for the current quarter. Despite this Wall Street was not satisfied and the stock got hammered from $180 to less than $130. And I see this as an over-reactions which motivated me to take the opportunity to accumulate the stock. Let’s take a quick look at its financials.
Financials
In the latest Quarter (Q1 2025), Dell reported revenue of $22.2 billion, up 6% year over year. The important thing is its Infrastructure Solutions Group (ISG) revenue were up 22% (YOY) to $9.2 billion, servers and networking revenue were up 42% to a record $5.5 billion mostly because of data centers demand.
Earnings per share (EPS) came at $1.32, up 67% year over year.
For the current quarter, the company is expected to earn of $1.65 per share and revenue $23.5 billion - $24.5 billion above analysts estimate of $23.35 billion.
Company Fundamentals
Market Capitalization | $98.565B | Total Cash | $6.03B |
Trailing P/E | 29.18 | Total Debt | $26.26B |
Forward P/E | 18.32 | Book Value per share | -3.97 |
Price/Sales | 1.17 | 52 weeks high | 179.7 |
Revenue | 89.57B | 52 weeks low | 52.05 |
Quarterly Revenue Growth (YOY) | 6.3% | 52 weeks change | 166.52% |
Gross Profit | N/A | Held by Institutions | 68.58% |
Net Profit | $3.59B | Held by insiders | 11.87% |
Quarterly Earnings Growth (YOY) | 64.7% | Float | 282.55M |
EPS | 4.89 | Annual Dividend (Fwd) | 1.25% |
My View
The stocks is currently trading at $138.96. The stock has an all-time high of $179.70. So, it’s trading 22% below its 52-weeks high. Despite PC slowdown, Dell seems to have great growth opportunity as AI momentum continues and numerous data centers and AI factories are set up globally. Though the stock is up significantly in last one year, I still see a major run way ahead. It’s trading only 18 times forward earnings and Price/Sales is mere 1.17. Also, looking at its fundamentals and growth prospects, it looks reasonably cheap to me. Without AI momentum, this stock could never have been in my portfolio. However, things have changed significantly in last two quarter and that’s the reason I saw growth opportunity. Despite its good results and guidance, stock is down 22% and that induced me to accumulate. As most of my readers know, I never buy any stock at once because no body can predict the top or bottom of a stock. Hence, my strategy is to keep accumulating in small quantities and build the portfolio. But as I say, never get in love or emotional with any stock. It’s sensible to take some chips out of the table when a stock run and book some profits to mitigate risks. If stock is has further momentum then we can agin add the stock on a pullback.
Risks
All equities carries risks. When market comes down most of the stocks gets hammered and particularly who has/had a big run are hit hardest. If the AI momentum slows or server demands fall then Dell will also take the hit. But in my view, we are still in the early-mid innings of AI adoption. Hence, I do not see a significant risk at this time. But things may change and we must be prepared with our strategy, if it happens.
My final thought: Dell stock did not do much in last few years but this year has been very rewarding for the shareholders due to AI euphoria. And as I said, we may be in the early-mid innings of AI adoption, hence there is a long way to go. Despite its growth opportunity, there is nothing written on the stone that we may see astronomical gains ahead. So, one must invest with caution! I am a growth investor and willing to take some calculated risk. I see Dell as a dominant player for Data Center servers, AI factories with sophisticated Nvidia chips and also AMD chips. I am invested because I feel that Dell has the potential to be a long-term winner. Having said that, if I see any red flags then I don’t hesitate to pull the trigger..
Shesa’s Blog Portfolio (Updated on 10 Aug, 2024)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View (see disclaimer) |
STOCK (All prices are in USD) | |||||
12.9 | 226.34 | 1/25/13 | 1655% | HOLD | |
47 | 539.91 | 11/13/13 | 1049% | Will add around $500 | |
77.18 | 449.49 | 12/12/13 | 482% | HOLD | |
15.58 | 200 | 4/12/14 | 1184% | Buy/Accumulate | |
13.48 | 67.63 | 11/25/18 | 402% | HOLD | |
54.59 | 146.09 | 5/25/20 | 168% | HOLD | |
45.3 | 97.14 | 6/28/20 | 114% | Accumulate | |
27.98 | 2.59 | 4/25/21 | -91% | SOLD on 8/8/24 | |
51.49 | 10.22 | 10/10/21 | -80% | Accumulate | |
23.9 | 125.83 | 2/13/22 | 426% | Accumulate Long Term | |
290.25 | 251.52 | 5/1/22 | -13% | Long term BUY | |
115.21 | 152.5 | 10/31/22 | 32% | SOLD on 8/7/24 | |
77.13 | 82.02 | 1/1/23 | 6% | HOLD | |
8.87 | 6.01 | 4/6/23 | -32% | BUY/Accumulate | |
15.66 | 60.81 | 4/6/23 | 288% | Buy on dip | |
123.25 | 191.96 | 5/21/23 | 56% | Buy/Accumulate | |
5.57 | 1.52 | 8/27/23 | -73% | SOLD on 8/7/24 | |
20.49 | 27.23 | 11/19/23 | 33% | Accumulate | |
376.04 | 467.56 | 1/1/24 | 24% | Accumulate Long Term | |
20.54 | 16.59 | 2/1/24 | -19% | Accumulate | |
284.13 | 342.09 | 3/31/24 | 20% | HOLD | |
857.44 | 846.58 | 4/28/24 | -1% | Accumulate -Long Term | |
10.48 | 16 | 4/28/24 | 53% | Accumulate | |
138.96 | 138.96 | 7/6/24 | 0% | NEW ADDITION | |
ETF | |||||
27.82 | 51.37 | 8/16/15 | 85% | HOLD | |
MUTUAL FUND | |||||
59.45 | 148.72 | 12/20/14 | 150% | HOLD | |
9.05 | 19.61 | 1/15/16 | 117% | HOLD | |
43.66 | 62.11 | 9/24/17 | 42% | HOLD | |
Equity Sold since my Last Blog
None.
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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