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Semiconductor giant Nvidia (NVDA) sparked a broad market rally following its fourth-quarter results, while the Magnificent Seven’s constituents are best and least well-positioned heading into earnings season. Which brand is there?
Nancy Tengler, CEO and CIO of Laffer Tengler Investments, and Steven Glass, Managing Director and Investment Analyst at Pella Funds Management, make their case for their favorite technology companies.
“I believe Nvidia is clearly the winner and will continue to win,” Tengler said. “But Amazon (AMZN) is a company that hasn’t hit new highs yet and has improved efficiency, grown its advertising business, and had a better-than-expected rise to the cloud.”
Apple (AAPL) is “obviously…reliant on services right now. They’re doing very well in services, but they needed to justify that market cap. They have a large pipeline of new products. I don’t think I have it,” Glass said. I will explain. “It’s just not growing, and given its growth profile, that valuation is not justified.”
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor’s note: This article was written by luke carberry morgan.
video transcript
Brad Smith: We want to cut through the noise and analyze which stocks have the best and worst positions from these earnings reports based on their fundamentals. So here we go further and introduce you to Nancy Tengler, CEO and CIO of Laffer Tengler Investments. Also featured here is Stephen Glass, Managing Director and Investment Analyst at Pella Funds Management. I’m glad you two are here today.
Nancy, I want to start with you. Because you’re specifically looking at one of the companies that is in the best position. Let’s start with the good. Then we get to the bad part.
Best position here, Amazon. Make your case for why Amazon is on par with Meta and NVIDIA is winning.
Nancy Tengler: Now, from here on out, it’s a matter of relative performance. So obviously he thinks NVIDIA is the winner. And I believe that we will continue to win.
However, Amazon has not yet reached the point where it can re-challenge its all-time highs. The company has grown its advertising business by increasing efficiency. Cloud was performing better than expected.
And we have a CEO who is dedicated to taking the company to the next level. So I think he will get a very solid performance from Amazon going forward. So we moved it into our 12 Best Ideas portfolio and continue to hold it across our large-cap strategies.
Sheena Smith: Steve, I would ask you the same question in terms of who is in the best position. You seem to think it’s NVIDIA. What do you think the benefits are in terms of how much profit you still have?
Stephen Glass: Well, it’s very difficult to actually have to use your imagination. But in fact, this company’s free cash flow yield is his 2%, and in 2015 he is only expected to grow by 20%. In other words, the company’s valuation fundamentals remain very strong. And you can continue to grow here.
I mean, Jensen fans were commenting on the size of the opportunity. It’s bigger than anyone expected. It’s a whole new industry. And it continues to surprise. So, in actual facts and royal valuations, he is actually the one who is better placed among the Magnificent Seven.
Brad Smith: Okay, I want to go to what you believe is the worse position, Nancy. And Steve, I know you have some commentary on their positioning, so I’m going to introduce you to this as well.
But it’s Google. Alphabet. Nancy, why is this the worst position for you?
Nancy Tengler: Great question, Brad. Because based on recent performance, we should at least be able to outperform future performance. But they keep stumbling.
So this latest issue with images on Gemini is their second issue since they announced Generative AI. At least in the intellectual war with Microsoft, they are lagging behind. I think that makes you suspicious.
If you probably don’t own the position to add or start it, take advantage of the weakness. However, we remain firm and will not increase our holdings. We believe it will take some time for the company to overcome these negative issues.
Sheena Smith: Steven, are the names that seem to be in a bad position for you to be Tesla and Apple? Tesla, I think just the fact that sales are down is pretty much what everyone can wrap their heads around. The fact that profit margins are under pressure. But why doesn’t Apple turn things around soon?
Stephen Glass: Well, actually, it’s a completely penetrated market. So obviously we’re dependent on the service now. And they are doing very well in terms of service.
However, they need to justify their market cap and don’t seem to have a large new product pipeline. And we’re not suggesting in the slightest that Apple is a bad business. It’s just not growing, and that valuation is not justified given its growth profile. If you invest in Apple, you have to accept that you will get a very poor return based on its current valuation and growth profile.
Brad Smith: What will open the door to the next supercycle? We’ll follow up on that, Stephen.
Stephen Glass: What company does Supercycle belong to?
Brad Smith: For Apple. We often talk about the iPhone supercycle, whether generative AI is part of the smartphone or not, or whether the phone actually drives it. There’s a new wave of people trying to get their hands on whatever the new iPhone is by going for a trade-in or trade-in. From your perspective, what drives it?
Stephen Glass: That’s unlikely. Because right now, AI is happening in the cloud, not at the edge. So this is actually a personal device-driven market, not devices.
Even if it happens, it is very well penetrated. So just replace the current user with the new user. So you have to ask yourself, can you increase your margins on iPhone? Hmm, no.
Could it potentially drive more sales? But then we ran into a problem with the App Store. In our view, there is little need for them to introduce new products to justify their current valuation. They need some new growth vector.
And I don’t think it’s going to be a headset. So it’s based on what we can see right now. We don’t know where new growth vectors will come from.
And in fact, we actually think the App Store is threatened by this new regulation. We’ve seen several regulations around the world, in Europe and in the United States. And it’s probably going to be even harder to get a 30% cut of all app sales going forward.
Sheena Smith: Nancy, one name you haven’t mentioned yet is Meta. And I brought it up given the outperformance that we saw last year. Considering the fact that the stock price has increased nearly 190% over the past year.
They declared their first dividend in last quarter’s earnings report. Obviously, there’s a lot of excitement there. Why isn’t it one of your top names?
Nancy Tengler: Yeah, well, we owned it, Sheena. We owned it for many years. And I finished in the low 300th place.
And I missed this last run. But instead we had names like Spotify. And it’s also very well done.
I love dividends. I think it’s possible that Google will announce a dividend. So they certainly have plenty of free cash flow.
But for me, I think it’s Meta. At this point, I’d rather jump to NVIDIA than Meta. Because this model he considers not as robust as NVIDIA’s model. And I’ll just point out that he thinks one of the things that’s going to bottom out for all of these stocks is share buybacks.
The Magnificent Seven announced a roughly $190 billion share buyback. Once the stock is sold, the company is going to step in and set a floor for investors.
So, in my opinion, you can’t go wrong owning any of them. But I think my favorite at the moment is Amazon.
Sheena Smith: Okay, Nancy and Stephen, I’m glad you’re getting some insight here. Looking at the broader market, especially for names that we know that a lot of our audience would like to own, want to own, or that we follow closely here in terms of our trends. . thanks so much. Have a nice weekend.
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