Apple’s recent “Glowtime” event, meant to highlight the new iPhone 16, fell flat with investors. Despite CEO Tim Cook’s introduction of AI-driven features and larger screen sizes, the stock remained stagnant while the broader Nasdaq rose. Meanwhile, Huawei upstaged Apple with 3 million pre-orders for its new triple-folding smartphone. Though Apple has delivered strong returns in the past, its future growth is slowing.

The post Apple Upstaged By Huawei. No Showtime For Glowtime. appeared first on Gunderson Capital.

I have now been a Seeking Alpha analyst for the last thirteen years. I was recruited by the late Eli Hoffman after he read several of my articles on MarketWatch and TheStreet.com. I was recruited to write for TheStreet.com by Jim Cramer.

I was intrigued with the concept of “Seeking Alpha” as that has been my main driving force ever since I became a professional manager almost 25 years ago. Alpha is the outperformance of your holdings vs. the S&P 500. That is what I am all about every day in the market.

I guess that it is the thrill of the chase and the excitement of finding new disruptive stocks or just stocks that have superior management and that have consistently delivered alpha over the years.

I remember the wholesaler for Realty Income (NYSE:O) coming around to the brokerage firm that I began working for back in the late nineties. This firm was located in the North County of San Diego, not too far from Realty Income’s headquarters in Escondido, California. They had a unique concept of paying monthly income to their investors.
I remember the wholesaler leaving us advisors with some wall clocks that were labeled “monthly income.” I cannot argue that the company has not lived up to their promise of monthly income since then, nor can I argue that they have not been one of the best REITs in the market over the years.

They have very good management that has managed risk well, grown at a sustainable pace, and steadily increased their dividend over the years. But, if you are here seeking alpha, they have not delivered any over the last 3, 5, and 10 years.

I remember visiting a retiree over twenty years ago at the behest of his wife. Her husband had invested in high-dividend paying stocks and his portfolio had gone from around $1 million dollars to just over $300k. The man had lost almost $700k in principals over the course of several years.

When I questioned him about it, his response to me was, “what do I care about my principal, I am still receiving my dividends! There was nothing I could do to talk sense to this man. I tried to teach him the true concept of total return, but there was no way that I was going to get through to him.

When I left his home, I told his wife that I was sorry, but there was nothing that I could do.

I know that on the surface those high-dividend yields of 5%, 8%, 10%, or even more seem very attractive, but one has to be honest and look at the TOTAL RETURNS of your portfolio over the years. Alpha is not earned by the value of the dividends that you receive, but by the TOTAL value that your portfolio grows by over the years vs. the S&P 500.

Heck, even a Ponzi scheme can pay you a 10% dividend over the years, but your principal is dwindling each year.

To show you what I mean by this, let’s look at the very popular so-called DJIA stock AT&T. The stock currently sports a fat dividend yield of 5.29%. This is obviously at the lower-end of the high-yielding spectrum, but it illustrates the point of the concept of total return. We will return to the analysis of Realty Income after we go over two examples of dividend-paying stocks.

Performance (BestStocksNowApp.com)

AT&T has delivered an average total return of just 3.72% over the last ten years. The dividend yield that investors have been receiving has been eroded away in part by capital depreciation or loss of principal. Overall, it earns a performance grade of just C-.

During that same period of time, the S&P 500 has delivered an average return of 17% per year. Over the last five years, the stock has delivered a total avg. annual total return of just 1.46% while the S&P 500 has delivered an average of 16.4%.

The only saving grace for AT&T is that is up 54.8% over the last twelve months due to a falling interest rate environment, a move to safety in the market, and the anticipation of rate cuts upcoming by the FED. If you took out those last twelve months, the 3,5, and 10-year returns would be a lot worse.

That is a long time to wait for those returns to finally go positive after being in negative territory for the last several years. That is a lot of risk to take for very meager returns.

Furthermore, investing is all about the anticipation of future returns. That is where valuations come in. My current 5-year valuation for AT&T calculates very poor prospects going forward.

Valuation (BestStocksNowApp.com)

I calculate just 45.12% upside potential for T over the next five years. I require 80% or more in the stocks that I consider. AT&T currently earns a value grade of “F.”
No thanks!

Now, before we return to Realty Income, let’s look at another high-yield equity. This popular, high-yield stock currently sports a dividend yield of 14.1%! How can one pass up an investment in AGNC Investment at just $10.21 per share?

After all, I doubt that the S&P 500 will do 14.1% per year over the next five years. This seems to be an almost a sure way of earning alpha during that period of time.
Not so fast, remember that total return is the sum of your gain or loss of principal and the dividends that you receive. While the dividend yield may be the number that appeals to your greed or gets page reads for your article, it is the total return that tells the honest truth:

Performance (BestStocksNowApp.com)

As you can see from the numbers above, AGNC Investment (AGNC) has done very poorly over the years on the capital gain side of the equation. In fact, much of the dividend that you have received has been eroded away by capital depreciation!

That has yielded a meager net average total return of just 3.83% per year over the last ten years. Investors have taken a very large risk for very paltry returns. Mark Twain is famous for saying: “I don’t care about the returns on my investment, but the return of my investment!” (paraphrased)

Over the last five years, returns have averaged a total of just 4.51% per year despite a double digit dividend yield that mostly evaporated in thin air somewhere. Over the last three years, investors have lost all of their yield and then some! Their net annual return has been -1.7% per year! Ouch!

Okay, the last twelve months have been good with a total return of 22.1%, but keep in mind that the returns would be even worse over the last decade were it not for that.
I think I will pass on that big dividend yield that’s trying to lure me in.

Now, let’s conclude by looking at one of the most highly regarded dividend-yielding stocks over recent years. This stock probably gets written about more than any other stock on this site. Now it is my turn to look at the actual TOTAL return of the stock over the years.

Performance (BestStocksNowApp.com)

When I compare the stock against the other 4,845 stocks, ETFs, and Mutual Funds in my Best Stocks Now Database, Realty Income (O) earns a relative performance grade of D+. That is not very good.

While it has had a respectable average total return number of 8.39% over the last ten years (this is against 17.0% for the S&P500), its total returns over the last three and five years have been very meager. It has had an average total return of just 1.68% over the last five years, and 1.14% over the last three years. How much has inflation been during those same time periods? The stock has almost kept up with the S&P 500 over the last twelve months, but then again it has been a good environment for interest rate-sensitive stocks, and also keep in mind that the last twelve months have helped O’s longer-term returns, but the stock still earns a relative performance grade of just D+.
Maybe the current valuation of the shares offers extremely good upside potential going forward? Let’s have a look.

Valuation (BestStocksNowApp.com)

The stock currently earns a valuation grade of F+ with 52.93% upside potential over the next five years. Keep in mind that this valuation includes the current annual dividend yield of 5.06%.

If you have come here truly seeking alpha, you are barking up the wrong tree with Realty Income. Could you do worse than Realty Income? Certainly. Could you do a whole lot better than Realty Income? I only have 20 spots open in each of my portfolios. This does not leave any room for mediocre equities like Realty Income or AGNC.

The post If You Are Here Seeking Alpha, Why Are You Buying Realty Income Or Other High-Yield Equities? appeared first on Gunderson Capital.

Tatomm
The tech sector took another 5% or so hit again this past week. The fundamentals (earnings prospects) for the market (especially tech) remain strong, however, despite the ugly sentiment against big tech in recent weeks. We will take a closer look at these earnings expectations towards the end of this article.

But for now, let’s deal with the current sell-off in tech. There are three main reasons that have turned the sentiment sour against the market for now.

First and foremost is the unwinding of the carry trade. Going long on tech and short on the Japanese yen have been two very popular trades in recent years. This has become a very crowded trade. The yen has been the cheapest source of borrowing for many years and traders have been using these funds to go long tech.

Not all the borrowed money has gone into tech, but it would be a reasonable assumption that a good part of it has. As you can see from the chart above, there is a direct correlation between the strengthening of the Yen against the dollar and the sell-off in tech.

Correlation between yen and tech. (Schwab.com)

Correlation between yen and tech. (Schwab.com)
According to Schwab, “the yen rose 14% against the dollar in less than a month (July 10 to August 5) causing assets to decline in value against yen-denominated borrowing used to fund those purchases, forcing some investors to unwind their trades. The dramatic moves in markets globally on August 5 indicates this likelihood of forced selling, similar to a broad-based margin call.”

“A combination of things likely fueled the recent move in the yen. On July 31, the Bank of Japan (BOJ) surprised with a bigger than expected rate hike and committed to further rate hikes along with faster than expected quantitative tightening (reducing the assets on their balance sheet purchased during a more than decade-long period of quantitative easing). Additionally, worsening U.S. economic data and some disappointing updates from some mega-cap tech companies weighed on the dollar and stocks generally.”

I will be watching the chart of the Japanese Yen in coming days. As you can see from the chart below, the Nasdaq started falling at exactly the same time that Yen started rising. It would stand to reason that as soon as the current #2 uptrend in the Yen begins to level off, the tech stocks can begin their upwards move once again.

Once again, I base this on earnings expectations that we will take a look at in a bit.

Japanese Yen Chart (Stockcharts.com)

As you can see from the chart above. The Yen is coming up on some strong resistance, but as you can see from the chart, it could go higher. I would put this chart of the yen on your daily watch list as the market is currently taking its cue from it.

Much of the yen’s future depends on the Bank of Japan that has stated its intent to raise rates more while the U.S. is getting ready to lower rates. This would drive the Yen higher if Japan follows through. Going long the Yen (NYSEARCA:FXY) and short the Nasdaq with PSQ, QID, or SQQQ would be the way to hedge this current move.

Inverse Nasdaq chart (Stockcharts.com)

I will also be watching the chart of the U.S. dollar. It needs to start strengthening once again. If it instead breaks down, more hedging and selling of stocks will be required.

Chart of the Dollar (Stockcharts.com)

I have sold AMD, ASML, ELF and a few others so far. They have fallen a lot more since I sold them. I have also added a hedge to all of my portfolios with just SH (inverse the S&P 500 1X) for now.

Reason #2 for the current sour sentiment on the market is fear of a slowing economy. The economy is definitely slowing down, but there are still not any signs of a recession on the horizon. I continue to watch the weekly jobless claims for clues to a slowdown in the jobs markets. This will more than likely be the first signs of an approaching recession.

For now, weekly jobless claims remain low, but if they begin to rise, that will spell trouble ahead in the economy.

Chart of Initial Jobless Claims (TradingEconomics.com)

Reason #3 for the recent weakness in tech is the approaching election. The big debate is on Tuesday and election day is now less than two months away. Americans could not have a starker choice between ideologies. Taxation, regulations, foreign policy will be the three biggest issues that the stock market will have to grapple with.

What will America decide? No wonder that despite solid fundamentals, the market is a bit nervous right now.

Now, during my 25 years as a professional money manager, I have found the most reliable indicator for the market, bar none, to be earnings and earnings estimates.

The Gunderson Rule States as follows: Stocks and Indexes Follow Earnings.

Why has the market been going up since 2009? The answer is simple: earning, earnings, earnings.

Chart of earnings (GundersonCapital.com)

As you can see from the chart above, earnings for the S&P 500 have been going up since 2009 when the S&P finally bottomed out at the Biblical number of 666 after the financial crisis and great recession of 2008-2009. The only year earnings have not grown since then was the COVID-19 year of 2020.

In accounting terms, we call that occurrence an “extraordinary item” that hopefully will not occur again. Earnings have gone on to make all-time record highs and are expected to do so once again this year, next year, and the year after that.

Yes, a lot can happen between now and then, but for now, the market is going to trade on those expectations until they change.

2023=$217.66 (est.)
2024=$241.06 (est.)
2025=$278.04 (est.)
2026=$312.11 (est.)

Go ahead and slap a 20X multiple on those earnings and calculate your own target price for the S&P 500 and the market will start to make sense to you. You can make the market as complicated as you want, or you can keep it simple. It is up to you.

The post The Carry Trade Continues To Unwind appeared first on Gunderson Capital.

Despite a recent dip in the stock price, Microsoft Corporation continues to be a buy based on a strong history of delivering alpha, paired with an updated 5-year target price. Microsoft’s past performance has consistently beaten the S&P 500, with a 5-year target price of $771 per share, showing 84% upside potential.

The post Microsoft By The Numbers: Past Performance And Future Valuation appeared first on Gunderson Capital.

As obesity remains a critical global health issue, Eli Lilly’s blockbuster drug Zepbound positions the company to potentially become the first trillion-dollar drugmaker, with its market cap already at $858 billion. The strong performance of both Eli Lilly and its competitor Novo Nordisk, whose diabetes and weight loss drugs are driving significant market gains, make these stocks top holdings at our firm. With continued demand and new approvals, especially in China, we remain confident in the future growth and disruptive potential of these companies in the health and diet industry.

The post Novo Nordisk Breaks Out To An All-Time High On China Approval Of Wegovy appeared first on Gunderson Capital.

In the ongoing race for market capitalization supremacy, Nvidia, despite being younger than both Apple and Microsoft, has emerged as a formidable contender, recently surpassing both companies. Nvidia has demonstrated impressive performance history and potential, and I project it to double in value over the next five years, potentially becoming the largest company by market cap. Nvidia is still one of the best stocks in the market, and is the second-largest position at our firm.

The post Nvidia Takes The Lead In The Silicon Valley Derby appeared first on Gunderson Capital.

In my September 2023 article, I recommended Eli Lilly as a buy with a five-year price target of $1,020, driven by the anticipation of its blockbuster drug Mounjaro’s approval for weight loss. Since then, the stock has surged by over 40%, and after further positive developments, including strong earnings and an expanding PE multiple, I have raised my five-year target price to $1,455, reflecting 78.3% upside potential. Lilly remains my largest holding, and I continue to rate it as a buy, given its robust growth prospects and momentum.

The post Is It Possible Eli Lilly Is Breaking Out To New All-Time Highs? appeared first on Gunderson Capital.

In my August 2023 article, I confidently declared Nvidia the best stock in the market, supported by its remarkable performance and strong valuation. Since then, the stock has surged 61.33%, significantly outpacing the S&P 500’s 12.91% gain, and after another outstanding earnings report, I now project a five-year target price of $1,563.43, offering nearly 98% upside potential. Nvidia’s exceptional earnings growth and momentum continue to make it a top holding in my portfolios, reinforcing its status as a strong buy.

The post Is Nvidia Still The Best Stock In The Market Now? appeared first on Gunderson Capital.

I initially rated Eli Lilly as a buy with a five-year target price of $1,020 per share in September 2023, based on its strong growth potential and valuation. Following the company’s impressive earnings report, I’ve revised my target price to $1,318, reflecting an 81.8% upside over the next 3-5 years, driven by robust demand for its blockbuster drugs, particularly the weight-loss drug Mounjaro. With accelerating earnings growth and a powerful stock chart, I now rate LLY as a Strong Buy and have positioned it as our second-largest holding behind Nvidia.

The post Will Eli Lilly and Company Become A Trillion-Dollar Baby? appeared first on Gunderson Capital.

Meta Platforms, Inc. delivered a stunning Q4 performance with 25% revenue growth and a 203% increase in earnings, surpassing analysts’ expectations and driving the stock up by over 20% in a single day. This momentum, combined with strong valuation potential, positions META as a top pick in our Premier Growth Portfolio, with a revised five-year target price of $890 per share, representing 87.5% upside potential. Despite the recent gains, META remains a strong buy based on its continued earnings growth, robust valuation, and the company’s strategic moves, including a significant stock buyback and the initiation of its first dividend.

The post Is Meta Platforms Still A Buy? appeared first on Gunderson Capital.