Nvidia’s (NVDA) third-quarter results beat expectations on the top and bottom lines, yet investors seemed unenthusiastic, given the increasingly high expectations for the artificial intelligence (AI) chipmaker. NFJ Investment Group managing director and portfolio manager Burns McKinney joins Wealth! Host Brad Smith to discuss how to position your portfolio as the market is unsatisfied with anything less than a blowout earnings beat from names like Nvidia.
“We’ve seen the last couple of quarters in the case of some of the bellwethers in tech like Nvidia whereby you know they’ve been beating earnings expectations and yet they’ve still they’ve failed to inspire investors. The bar has been set very high,” McKinney says.
“The last couple of years, the markets have been driven by [the] Magnificient Seven,” made up of Nvidia, Tesla (TSLA), Microsoft (MSFT), Meta (META), Alphabet (GOOG, GOOGL), Amazon (AMZN), and Apple (AAPL). “We’re suggesting maybe a broadening of returns towards that mundane 493 and that could be positive for value stocks on a cyclical basis,” McKinney says.
When looking for value stock opportunities, the portfolio manager says “You want to be contrarian. You look for names that are out of favor. One of the best ways to gauge that with respect to valuations is to look at price-to-earnings [or] PE multiples. You look for those that are trading at multiples that are at a discount to their peers, discount to the market, a discount to their own historical average.”
For value stocks, “The low expectations are baked in and so there’s room for upside surprises,” McKinney adds.
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