It’s a war out there, people. A bloody battle to keep the markets from going under.
As I recorded today’s BS.H, the Dow and S&P 500 were down, the Nasdaq was flatlining, and stocks in almost every sector were under siege. It’s been ugly upon ugly upon ugly – which is why today’s Buy, Sell, or Hold is dedicated to fortifying your defenses and rebuilding your portfolio.
05/13/2022 Buy, Sell, or Hold Transcript
Hey everybody. Shah Gilani coming to you with your Friday BS.H, that’s Buy, Sell, or Hold.
It’s a bloody battle keeping markets from absolutely crapping out. That’s where I see it. It’s Thursday a little after 12:30pm ET as I’m recording this and the Dow is down about 150 points (about half of a percentage point), the S&P is down, the NASDAQ is flatlining… We’re a long way before the end of the day, people. It’s been ugly upon ugly upon ugly.
So, the first thing I wanna say, is if you haven’t sold or had stops in, you got a real problem, because you probably are sitting on some big losses, especially if you bought late in the last rally. Guess what? It’s never too late to take any profits that you have and go to the sidelines with as much cash as you can. There’s going be an opportunity lower.
Otherwise, if you’re holding onto stuff and expecting it to come back… Long term, we’re gonna come back. This isn’t the end of the market. This isn’t the end of the former bull market. It’s gonna come back, but it’s not going to come back the way it has. It’s going to take a while.
There’s been a lot of destruction in terms of “valuation destruction,” of everything from the industrials to energy stocks that had a great run. They’re getting tagged a little bit lately. A lot of problems across the board.
For the most part, if you haven’t sold-off and you have quality companies, try and hold on to them. But your horizon now for a comeback is gonna be a lot longer. I don’t think that this market is gonna bounce soon. When it does bounce (and it will), the first couple of moves are gonna be 5%, 10%, 15%, 20%, maybe 25% in a matter of a couple of months. We’re gonna have some big pops. Then it’s gonna take a longer time for the market to gain back, for a lot of these stocks to gain back their old highs. Some of them will take years and some of them are never going back to their old highs.
If you’re looking at some of your positions and expecting it to be okay, because it’ll eventually get back to what’s old highs and you’ll have a profit again, you’re better off getting out of losers, getting out of stocks that are continuing to fall, reassessing what you’re gonna do with your capital, and buy in a little lower. Make that money work for you.
Sitting in positions that are going take years to come back is a waste of your capital. You’re better off applying capital into new positions that are gonna come back. That’s my first bit of information and advice to you today.
Second thing is, there are opportunities out there.
Don’t buy stocks that are falling out of bed for all the reasons you understand they are falling out of bed. In other words, they’re the gross stocks that are being impacted by rising interest rates. They’re the companies that are losing profitability. They’re the companies that can’t pass along higher input costs. In other words, they’re doomed by inflation. Don’t buy into those.
If you’re gonna buy stuff… Resist that urge to bottom fish, people, because a lot of stocks that make new lows continue to make lower lows. It’s a very dangerous game, bottom fishing. Even though there’s a lot of stocks on sale right now, a lot of companies I want to jump into, I’m waiting. All right. So to that point, let’s talk about a couple of BS.H candidates you guys threw at me.
First one up is Transform Inc. (TGAN). Prima example, people.
This is a small cap company ($375 million) trading around $6.81 right now. And the bad news here is this, those gross stocks. Yes, it’s in a semiconductor-type business. They provide all kinds of stuff related to semiconductor components used in power adaptation, used in power saving, used in smartphones, used in a lot of different things. It’s a kind of cool business, but it’s a small cap. It doesn’t have a lot of revenue, $18 billion…
Excuse me. Make that million. Yeah. $18 million. Not a lot of revenue. Sure, if you get in at the right time, it’s could be going places you want to be in it, but it’s not the right time.
So $18 million revenue sounds okay for a young growing company with $375 million cap. But guess what? Profit margin? Negative 96%. So that’s a growth company. They’re gonna need capital and they’re gonna have to pay a lot more for it.
Yes. It just had a little bit of a pop. You want to sell it.
This is not something you wanna play with right now. This is completely speculative. As far as TGAN, people, I’d sell it. Take whatever I got out of it and go look for someplace else to apply my capital. This is one of those cheap stocks. It looks like it could be a big winner if it jumps up, but it’s not going to jump up. It could easily come back down and crash. So I would not buy this. In fact if I owned it, I would absolutely sell.
Next up NVIDIA Corp. (NVDA) Second case in point here.
Yes, semiconductors. Hmm. Everybody needs semiconductors. The whole world is short semiconductors and we need the capacities coming online, but it’s costing a lot to build these foundries and factories all over the world. But yeah, it’s coming. But right now, semiconductor companies are suffering.
NVDA is now 52% from its highs. It’s high around $346. It’s trading today around 163 bucks in change. That’s down 52%. You want to own companies like this. And this is the time when a company like this, that has a great balance sheet. NVDA is a $493 billion market cap company with revenues of $27 billion a year. Its profit margin is 36%. It makes a ton of money. Very profitable.
This is what you want own in a market like this that’s come down. Even though this is down 52%, this is the kind of company, he kind of stock you want to take a position in. Not your full commitment, but maybe 25% of your capital allocation to a company like NVDA. That is a good place to put in. All right, you put down 25% of your total capital. You wanna put into NVDA right now and you have to be prepared to average now. Cause I think the market has lower to go before it shakes out and then flat lines for a while and then makes it move back up.
When’s that gonna be? I’ve got a few guesses and you’ll be able to read about them in my upcoming Total Wealth Research pieces. I’m gonna nail all of the particulars and the benchmarks and the levels and where they’re going to go and how to look for a clearing in the woods to start getting back in.
But on a company like NVDA, you wanna take a piece now because you don’t know when that bounce is going to come. And you wanna guarantee that you get on the way down because you’re gonna average down. No one can pick the bottom. Not even me. I’ve had lots of great times and lots of great profitable streaks hitting the bottom, catching the bottom, and I’ll tell you what it is. It’s mostly luck. All right? It doesn’t hurt to be lucky, but that’s not the way I trade.
I don’t try to catch bottoms. If I’m lucky enough to catch bottom, Woohoo, but that’s not the way I trade. Not the way you used to trade. There’s danger is trying to catch falling knives, but NVDA… it’s not a knife. This is a genuinely fabulous company, very profitable.
You want to buy in now, take about a quarter of the capital you want and buy NVDA here and look to buy on lower levels as it comes down. Cause I think if the weight of the markets continues to be heavy, then Nvidia and most stocks will probably get hit with that weight and come lower. Give an opportunity to average down on the video.
Next up Home Depot (HD).
Same story, great company, huge profitability, big company. And the business is really not going anywhere. So what the stock is down 30%? Again, I think this is an opportunity to buy into Home Depot.
Revenue, $151 billion.
Profit margin, almost 11%.
This is pretty nice profit margin for what they do with that kind of revenue. Listen, net income available to common shareholders… which is the metric I favor. I like net income available to common shareholders because that tells you what they can spend on the common shareholders in terms of a dividend or then that’s money that they’ve got so much of. They can reinvest in the company. They can do all kinds of things with, but I like to think, what are they gonna do for the shareholders? And in Home Depot’s case, they do pay a dividend. So out of that 16.4, $3 billion in net income available to common shareholders, they take about 42% of that, a shade over that.
And they pay a dividend forward dividend yield on Home Depot, 2.69.
Same deal here, great company, not going anywhere, big mode around it. I like it better the lows. And I think you want to take a position in here. It’s on sale people. It doesn’t mean it’s not gonna go lower. You should consider taking a stake. Now buy some here, maybe quarter of the total capital you want to allocate to it and then average down. If the market weighs further on Home Depot, that’s what I do with Home Depot right here.
Last but not least in our foray today is The Walt Disney Company (DIS).
Here’s a company that everybody loves and it’s been a darling for so long, but it’s making new lows all the time. I don’t want to buy a stock that’s making new lows.
Yes. It looks cheap. It’s down from $203, trading right around $103 and change. Call it a 50% drop. Doesn’t mean it can’t go lower.
It’s in the stream business, yes. They didn’t have a bad quarter in terms of streaming and subscriber growth. It wasn’t great, but it wasn’t what could have been like, shall we say Netflix was, which was a horror show. So yeah, the stock has been better than most people expected, but it’s still lousy.
You wanna sell it here.
If you wanna buy Disney, buy it at $80. I think you can get back down to $80. I wouldn’t own Disney here.
If you’re holding it and you’re a long-term holder and you own it lower, then I would probably just stick with it because it’s gonna come back.
This one’s gonna take a few years to come back. This is not gonna be a quick bouncer. It might have a pop when the market does turn, but this is gonna be a grind to get back to its old high, a real grind. So as far as Disney goes, I say, sell it. If you have any profit in it right now, look around 80 bucks to see if you can get back in.
That’s what I would do with Disney, Home Depot, Nvidia, Transform.
Lastly, on the market’s as we go: Be careful out their people. It’s a war and the combatants… the valuation methodologies of these companies, especially growth companies, growth companies are running up against the antagonists right now, which is the fed who is raising rates and gonna continue to raise rates. They’re gonna raise rates. They’re gonna raise the fed funds, raise another 50 basis points at their June meeting upcoming. So it’s hard to look for a bottom. If the Fed’s gonna continue to raise interest rates, as the economy seems to be slowing as the market seems to be tumbling, but not seems to be a lot of it is falling out of bed.
And you got cryptos on top of all that scary as all get out. So this is not a time to start speculating wildly. This is a time to be conservative, build up some cash positions and there’ll be plenty great companies to add to like the video like home Depot going forward. That’s it for? They be safe out there, everybody on catching next week. Cheers.