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Tag: technology

US Economy Too Strong for Fed, Where to Invest Now (Szn 6, Epsd 10)

With Leo Schmidt, River Eddy Capital

Leo Schmidt, founder of family office River Eddy Capital, rejoins the podcast to discuss his views on economy, markets, and where to invest capital in what may be a ‘stagflation lite’ environment.

This podcast episode was recorded on Friday, June 7, 2024 and made available to premium subscribers the following Monday. Visit the Substack or Supercast for more information about premium subscriptions.

  • “Labor markets are way too hot.” There will be “no landing” (1:48);
  • Non-farm payrolls came out much stronger than anticipated. What this says about the labor market (4:59);
  • ‘Stagflation lite’ (8:31);
  • Our views of credit creation are outdated. The shadow banking system has replaced commercial banks as the primary source of credit. What this means (11:59);
  • The Federal Reserve probably needs to cut rates. Could they? Probably not — this year (22:21);
  • What does an investor do now? First up: Stocks that are AI/Nvidia (NVDA) plays. Celestica (CLS), Flex (FLEX), Sanmina (SANM), Jabil (JBL) (27:51);
  • Pharma spin-outs: Haleon (HLN), Kenvue (KVUE), Organon (OGN), Viatris (VTRS) (31:54);
  • Dollar stores, especially Dollar Tree (DLTR), are poised to outperform once there is an economic slowdown (39:07);
  • The bullish case for pipeline companies (46:59).

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The Search for ‘Undiscovered’ AI Chip Stocks

This blog post was originally published as part of today’s Daily Contrarian.

Recent market activity shows investors don’t want to wait for Nvidia (NVDA) earnings tomorrow to bid up AI chip stocks. Marvell Technology (MRVL) was one of the biggest winners yesterday. Smaller AI names like Soundhound AI (SOUN) also put in rallies, as did the usual suspects AMD (AMD), Micron (MU), Super Micro Computer (SMCI), Broadcom (AVGO), and Taiwan Semiconductor (TSM).

AI bull

Here’s an idea for an ETF: small AI hardware names. Limit it at, say $5 billion market cap companies. The focus on hardware would (presumably) allow for a margin of safety. It would also weed out names like the aforementioned Soundhound, C3.ai (AI), FARO Technologies (FARO), and others including companies that just plaster the term ‘AI’ all over their marketing materials to attract attention.

Unfortunately, this doesn’t leave much. The Contrarian did a preliminary search and found just a few such companies, almost all of them suppliers to the semiconductor industry. Of course, ‘undiscovered’ is a bit of a misnomer here. Investors have picked through any and every stock even remotely related to AI. Still, it’s fair to say these securities are certainly under-covered by Wall Street.

Names include ACM Research (ACMR), Camtek (CAMT), FormFactor (FORM), Ichor Holdings (ICHR), Kulicke and Soffa Industries (KLIC), Photronics (PLAB), Ultra Clean Holdings (UCTT), and Veeco Instruments (VECO).

It’s likely the AI hype story is already priced in to these stocks (didn’t check). But it may be worth putting these names in an index to track them, to the extent that somebody hasn’t done it yet. If nothing else this could give us an idea of stocks to buy when (if) there is a pullback in AI chip names.

There are obviously private companies as well, including Anthropic (OpenAI rival), Graphcore, Cerebras, SambaNova, Groq.

The Contrarian does not hold any of these stocks.

Update June 4, 2024: ACM Research will be removed from this list as the company does most of its business in China.

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The Trend is Your Friend. Right Now It’s Positive (Szn 6, Epsd 6)

With Enrique Abeyta, HX Research

Enrique Abeyta of HX Research rejoins the podcast to discuss his (constructive) views on the stock market, why commercial real estate concerns are overdone, and to provide one stock pick — and it’s not Nvidia, though he does discuss that at some length.

Some mature language is used at a few points. Sensitive listeners should be advised. 

The guest’s microphone setup is significantly better than the host’s so don’t get discouraged by the host sounding like he’s hiding in a cave at the open.

Content Highlights

  • Trends are underrated. Many investors don’t respect them or understand what they mean. The current trend is clearly long-term bullish for stocks (2:21);
  • However over the short term there could (probably will) be a pull back — as appears to be happening the week after recording (5:24);
  • On the whole, however, the outlook is very constructive. So constructive that the guest has only seen this clarity 10 times or less in his 30-year career (12:30);
  • When it comes to the Federal Reserve, there is a strong possibility interest rate policy stays roughly the same… (15:36);
  • Contrarian take: there’s no need to worry about commercial real estate: (19:00);
  • Regional banks presented an opportunity a year ago. New York Community Bancorp (NYCB) is not an opportunity now (23:54);
  • Views on Nvidia (NVDA): not super constructive (28:20);
  • One long term idea: Independent power producer Talen Energy (TLNE), owner of a nuclear power plant. The company recently emerged from bankruptcy (34:51).

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