| | Nvidia Sinks on Guidance Downgrade Nvidia was the market-driving news yesterday as it made a huge change to its guidance for the quarter.
For those not familiar with Nvidia, its graphic cards are used in video games, professional visualization, data center and automotive applications to improve the processing capabilities of computers.
Their technology is going to be used in many of the future trends we discuss in the Digest, such as autonomous vehicles and electric cars.
Yesterday, Nvidia announced that it is now expecting revenue for the quarter to be $2.20 billion, plus or minus 2% -- a major drop from the previous revenue guidance of $2.70 billion, plus or minus 2%.
Analysts also were expecting the manufacturer of graphics cards to report revenue of $2.70 billion for the quarter.
Nvidia laid a lot of the blame on China. As I wrote about last Tuesday, slowing growth in the Chinese economy is going to weigh heavily on some stocks this quarter and going forward.
"As we worked through Q4, the global economy decelerated sharply, particularly in China, affecting consumer demand for NVIDIA gaming (graphics processing units). Also, with initial shipments of new high-end RTX GPUs [the company's new gaming platform] selling above MSRP, some customers may have delayed their purchase while waiting for lower price points and further demonstrations of RTX technology in actual games," said Nvidia founder and CEO Jensen Huang in an SEC filing.
Shares immediately dropped from $160 a share closer to $130 before settling in at $138 (-14%) by market close. As I was taking in this news the thought that popped into my head was "Timing is everything." There are all sorts of adages about making money in the market, and probably the most well-known is "buy low, sell high."
But that's not really the trick, is it?
The trick is knowing when.
It's exciting to buy a stock. You own part of a business now and you start to root for it. You check the stock price often (probably too often) and pay attention to news that may affect the price.
But selling the stock is more difficult.
If the stock goes down after you buy it, you want to stay in to get your money back. Some people will even double down, strategizing that a dip in the price allows them to get more bang for the buck when the stock goes up again.
If the stock goes up, you want to ride that wave if possible. And you certainly don't want to get out too early. No one wants to leave money on the table.
But timing the market is practically impossible. If you manage to sell at the absolute high price for a stock, it's usually more luck than anything else. On Friday, Louis Navellier told his subscribers to sell Nvidia. Here is what Louis, editor of Growth Investor, said on Friday. We originally added NVDA to the Ultimate Growth Trades Buy List back in late August 2016. And in nearly three years, the stock has been one of our top performers, as strong demand for the company's products continued to add to its top and bottom lines.
However, as you know, the third quarter was weaker-than-expected. NVIDIA reported adjusted earnings of $1.84 per share on $3.24 billion in revenue. That topped analysts' earnings estimates for $1.71 per share, but fell short of sales forecasts for $3.24 billion. What really hit the stock, though, was the company's guidance, which was below expectations.
NVDA shares grew more volatile following the third-quarter report back in mid-November, and analysts have continued to lower their fourth-quarter estimates. I've been waiting to sell the stock into strength, and we've finally got that bounce. NVDA is up about 23% in the past three weeks. So, I recommend that we exit the stock now.
If you purchased NVDA at the time of my original recommendation on August 31, 2016, you'll be selling your shares for about a 163% gain, including dividends. Even if you didn't sell on Friday ...
Even if you sold only after the big drop today ...
If you bought the stock when Louis originally recommended it, you'd be up 132%.
That's not to say that difference isn't significant, but Louis gave the clear signal that it was time to get out.
He made the call so many investors hesitate to make, and advised an action that produced real triple-digit gains for his subscribers.
That's why Louis is known for his skill as a growth investor. He doesn't just do a good job of picking stocks that go up but advising when it's time to get out. Most investors don't have that level of discipline and it's why they pay for Louis's Growth Investor service. But not every stock with its eyes on future trends is doing so poorly. I noticed last week than another stock in Louis' Growth Investor portfolio -- PayPal -- hit a 52-week high on Friday.
PayPal is an online payment service that allows individuals and businesses to transfer funds electronically. You probably see the offer to use PayPal a lot in your daily life. You can use the service at most retail outlets, and more often people are using it to transfer funds to each other. In fact, the last time my wife had a collection for a baby gift in her office, most people wanted to donate with Venmo, PayPal's mobile funds transfer business, instead of using cash!
Here is another stock that, if you bought it when Louis first recommended it in November 2017, is now up more than 20%.
When he first called on his subscribers to buy the stock 14 months ago, Louis noted that ... PayPal's third-quarter sales, supported by its mobile business Venmo, jumped 21.3% to $3.24 billion. During the same period, earnings rose 14.8% to $380 million, or $0.46 per adjusted share. The analyst community was calling for $0.44 EPS on $3.17 billion in sales, so PayPal posted a 4.5% earnings surprise and a 2.2% sales surprise. I recommend that you add this Conservative stock up to $82 per share. Then, he told his subscribers to keep buying under $81. After the company reported strong earnings last quarter Louis has continued to advise subscribers to buy the stock. Back in October, he noted ... Last quarter, 9.1 million new PayPal accounts were created. This was 15% higher than the 8.2 million accounts created in the year ago quarter. As more people joined, PayPal's transactions also jumped 27% to 2.5 billion.
Compared with Q3 2017, revenue climbed 14% to $3.68 billion. This beat the $3.66 billion Street view by a hair. Over the same period, earnings rose 17% to $0.36 per share. Excluding special items, adjusted earnings came in at $0.58 per share. Analysts were expecting adjusted earnings of $0.54 per share, so PayPal posted a 7.4% earnings surprise.
PayPal also reiterated its FY 2018 guidance. It expects sales growth between 18% and 19% this year. Meanwhile, adjusted earnings are expected to range between $2.38 and $2.40 per share. This is above the Street view of $2.34 adjusted EPS, and it also represents between 25.3% and 26.3% annual earnings growth. With PayPal having completed its acquisition of iZettle, and announcing new partnerships with American Express (AXP) and Walmart (WMT), I expect it'll do even better this year. He now advises his subscribers to buy below $101.
Unlike Nvidia, there's no indicator saying that PayPal is going to start a downtrend. On the contrary, as the stock chart shows, the stock's 50-day moving average is on top of its 200-day moving average, signaling a strong upward trend right now.
Watching a stock hit a 52-week high after you've purchased it is a thrill. It gives that shot of adrenaline and makes you want to invest more.
But knowing when to sell is just as important and that's what Louis brings to his subscribers. To a richer life ...
Luis Hernandez, Managing Editor
and the research team at InvestorPlace.com P.S. Where should the savvy investor look for performance in this market? Legendary investor Louis Navellier believes this year's tax reform law will cause an avalanche of money to rush into the markets in the coming months.
In his Growth Investor newsletter, he's recommending that his readers buy specific dividend stocks that are positioned to take advantage. To learn more about the dividend stocks he is recommending for immediate purchase, check out Louis' critical report here.
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