Readers have often asked why there is so much disagreement among our models. The essential reason is simple. Each has a different method, and they rarely align.
This week provides a rare opportunity to illustrate this, while also showing the process for each model.
That would already make it one of our most interesting posts in the series, but we also have another great guest expert. Cody Willard, a famous TV anchor and commentator, writer for many top-line sites, former hedge fund manager, and entrepreneur provides our guest commentary. You can follow my friend Cody at tradingwithcody.com. If you mention that you were referred from the Stock Exchange, you can get a valuable free month to look at his ideas. I have followed him for many years, partly because his style challenges my own. It is provocative, interesting, and loaded with ideas that you do not find if sticking strictly to a value approach. His themes highlight a vision of the future.
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More
Our last Stock Exchange took up the difficult question of back-testing and how you can use it. There were more comments on the Seeking Alpha publication of the post, and they were very good. If you missed the original article, please take a look, including the comments.
Let’s turn to this week’s ideas.
This Week – Four Different Takes on Nvidia (NVDA)
It is not quite as rare as an eclipse, but it is certainly unusual to get consensus among our models on a single choice. In addition, we have agreement from Cody. Here are the differing perspectives:
Felix: As the long-term investor, I look for a strong uptrend. This must have persistence over time – more than just a short-term momentum play. Here is what I see.
Athena: I love relative strength, but my time frame is much shorter than Felix’s. I also have less tolerance for losses. Here is what I see.
The stock easily meets my criteria.
RoadRunner: The short-term uptrend is just a start for me. I need both an upward channel and an attractive entry point within the channel. Here is what I see.
Jeff: The agreement from three of you is fascinating. This is a stock that value investors would not care for. I typically use a ten-year history from F.A.S.T. Graphs to capture an entire business cycle. Here is what that shows.
The over-valuation looks scary! Sometimes a different time frame will provide a more useful picture. Let’s shorten it up a bit.
It still seems a bit high, but the strong growth in earnings and typical P/E make it more reasonable.
Cody: I am a long-time holder of Nvidia, so I am not surprised that your models have joined in. Neither the technical nor the fundamental charts can tell the real story. This is a platform play on both self-driving cars and deep learning. These are the fastest-growing and most revolutionary applications. Both are chip-intensive. If either of these markets hits, Nvidia will have a market cap of in the hundreds of billions.
The intermediate-term weakness reflects the company’s decision to commit to long-term opportunities. The pull back in the short-term has cleared out some of the very short-term momentum players, so it is an interesting entry point. A near-term catalyst could be next week’s earnings report. I see downside risk of about 5%, and the potential to break the upside of the channel.
Athena: Thanks for the encouragement, Cody. Jeff is always so fussy about those value charts.
RR: Beep beep!!
Felix: I want to ask Cody about one of my longer-term holdings, Wynn Resorts (WYNN). It has been one of my holdings since the end of March. So far, so good. While the month started off slow, a significant pop in the last two weeks has already made this a worthwhile investment. As always, I’m looking for a long-term holding here. I don’t plan to cash out immediately, like Holmes or Road Runner might do.
Cody: I really don’t like Wynn. There are many ways to trade and invest profitably. There is no need to profit from something that is an addiction for so many. My second objection is that investors are at the mercy of regulators, especially the Chinese. If they crack down on gambling in Macau, Wynn will suffer.
F: The chart has looked good, but I am wondering whether to hold ’em or ‘fold em.
C: Did you learn that from Oscar?
Oscar: Felix makes his own poker decisions, and he is more likely to listen to Chopin than Willie Nelson. My sector choices include some interesting ideas. My top ranking is with consumer cyclicals. This includes retail, like the Gap (GPS).
What does Cody think about my choice here – a profitable one so far?
C: Every bricks-and-mortar retailer is feeling the Amazon effect. I don’t care for any of them on a long-term basis.
O: What about for a few weeks?
C: That is anyone’s guess, but beware of overstaying your welcome. BTW, Jeff told me that both you and Felix have regular stock and sector ratings. Any updates?
F and O: Yes, and we welcome more reader requests. Jeff gives us an incentive payment when we get more followers.
Holmes: Just a minute! Can I get a bark in edgewise? I have some interesting new choices. Look at W.W. Grainger (GWW). This could be a real steal for us dip-buyers.
C: I can see why the rest of your group does not like this chart!
Jeff: Thanks for joining in with some great comments and ideas, Cody. Readers should try Trading with Cody (using our referral) to learn more of your ideas. I hope you will return soon.
C: It was fun. You have some colorful characters here, and I like the range of styles.
This post added something new to our series: Multiple ideas about the same stock. This is a rare opportunity, since the model approaches are so different. Agreement is unusual. The time frame is so important regardless of your analytic approach.
Great trading ideas are not always great investments — and vice versa!
Cody Willard’s ideas added a valuable perspective. We frequently contrast fundamentals based upon value with the message from the charts.
Cody is a visionary. He looks ahead to discover emerging trends. These ideas do not always show up in the charts, and certainly not in the earnings history. It is a valuable perspective.
Background on the Stock Exchange
Each week Felix and Oscar host a poker game for some of their friends. Since they are all traders they love to discuss their best current ideas before the game starts. They like to call this their “Stock Exchange.” (Check it out for more background). Their methods are excellent, as you know if you have been following the series. Since the time frames and risk profiles differ, so do the stock ideas. You get to be a fly on the wall from my report. I am usually the only human present, and the only one using any fundamental analysis.
The result? Several expert ideas each week from traders, and a brief comment on the fundamentals from the human investor. The models are named to make it easy to remember their trading personalities.
If you want an opinion about a specific stock or sector, even those we did not mention, just ask! Put questions in the comments. Address them to a specific expert if you wish. Each has a specialty. Who is your favorite? (You can choose me, although my feelings will not be hurt very much if you prefer one of the models).
We have a new (free) service to subscribers to our Felix/Oscar update list. You can suggest three favorite stocks and sectors. Sign up with email to “etf at newarc dot com”. We keep a running list of all securities our readers recommend. The “favorite fifteen” are top ranking positions according to each respective model. Within that list, green is a “buy,” yellow a “hold,” and red a “sell.” Suggestions and comments are welcome. Please remember that these are responses to reader requests, not necessarily stocks and sectors that we own. Sign up now to vote your favorite stock or sector onto the list!
Article by Dash Of Insight