No Value Pick this week, which isn’t a surprise given the past week. The S&P 500 fell 4.2% to mark the worst week in 18 months. The NASDAQ, which is heavy in tech stocks, dropped 5.5%. Fears over potential overvaluation of tech companies dominated the decline in the NASDAQ. Given the market’s sensitivity to interest rates, you’d think last week’s jobs report would have been viewed as a good sign with fewer jobs created than expected, which makes rate cuts a near certainty, but it only served to heighten fears that we may be heading into a recession. Even with all of this, the market remains up 13.4% for the calendar year.
More importantly for us, seven of our picks got clobbered, dropping more than 10%, and we lost 3.1% against the benchmark S&P 500. Six of the seven are tech/AI related:
Zscaler (ZS, -21.6%)
Zscaler reported fourth quarter results and while both the top and bottom lines were higher than anticipated, the projections for Fiscal Year 2025 were lower than expected and the rout was on. ZS is a cybersecurity company which is a highly competitive and dense segment, and I think there will be some mergers in that space next year.
ASML Holding (ASML, -16.7%)
In addition to being caught up in the general decline of the chip manufacturers, whom ASML makes chip making equipment, one analyst from UBS Financial Services changed his rating from “Buy” to “Hold”. That’s a lot weight given to one analyst.
Nvidia (NVDA, -13.9%)
NVDA is the top of the spear when it comes to AI and investors are growing fearful that AI related companies have valuations that are too high: NVDA’s P/E Ratio is 48.3 versus the S&P 500’s ratio of 28.8 (which is also high). Investors also get nervous when the DOJ starts talking about antirust suits against a company. Personally, I think that’s how you know a company has arrived.
ON Semiconductor (ON, -12.8%)
ON has been pulled down with the sector. They last reported on July 29th and don’t report again until October, so there hasn’t been any news from them that precipitate a drop in share price. In addition, the consensus price target for ON is $88.13, a 29.8% increase, and a “top analyst“ maintained ON’s rating as “Buy”. Another head scratcher.
CrowdStrike (CRWD, -11.1%)
Despite the outage in July that made headlines, CRWD announced a 32% increase in recurring revenue, however, the future guidance for the current fiscal year was reduced by $100 million. That’ll drop your valuation every time.
Lam Research (LRCX, -10.6%)
I was unable to find anything involving LRCX that supports a 10.6% drop. They recently announced an increase in their dividend, they’re right in the middle of the 90 day reporting cycle, and a number of analysts rate them as “Buy”. The only negative is the possibility of a suspension of sales to China, but hat’s old news and has been baked into the price form some time.
McKesson (MCK, -10.1%)
MCK, a pharmaceutical company, projected higher taxes for its fiscal second quarter (July – September) that would result in Earnings Per Share being 7.3% below expectations. MCK reiterated its projection that taxes for the year would be inline with projections made in August. A 10% drop seems like an overreaction.
I still have confidence in all seven of these companies and continue to take a long term view of investing in good companies.
Have a great week!
Chris
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