Copper's Correction: Time to Re-Evaluate Your Investments

Posted on by The INO.com Team

The copper market has seen a significant uptrend in 2024, with prices surging more than 20% from mid-February to late May. However, shortly after that, copper prices fell below $10,000 per metric ton on the London Metal Exchange (LME) due to increasing global inventories and sluggish U.S. job openings data.

Meanwhile, COMEX copper futures continued their downward trend, dipping below $4.5 per pound in June, nearing their lowest level in over a month, completely erasing the gains made in May that pushed copper prices to a record high of $5.2. This price decline is primarily due to evidence of lower near-term demand.

After the official Manufacturing Purchasing Manager Index (PMI) indicated an unexpected contraction in China's manufacturing sector, trade data for the period revealed a 7.1% decrease in imports of copper ore turnover, despite the previous price surge, as refiners have increasingly turned to using scrap to sustain production. As a result, Chinese inventories have grown to their highest levels since 2020, surpassing seasonal trends that usually favor a drawdown.

So, the price of deliveries from Shanghai bonded warehouses has remained at a discount to the LME for two consecutive weeks. Moreover, the LME three-month contract has lost nearly 12% since it hit a record high of $11,104.50 on May 20, 2024.

Despite this, copper prices have risen by around 15% year-to-date, driven by speculative bets on impending shortages. This speculation is fueled by copper’s critical role in electrification, particularly in grid-scale energy and data center infrastructure, and the challenges associated with launching new projects for fresh ore supply.

Bullish Long-Term Trend

The long-term COMEX copper futures chart, dating back to 1971, reveals that futures never surpassed the $1.6475 per pound level before 2005. However, since then, the market dynamics have shifted significantly, with copper prices not falling below $2 since early 2016 and have stayed above $3 per pound since October 2020. The price action pattern indicates that a new all-time high has followed every correction in copper.

Similarly, the long-term London Metals Exchange (LME) copper chart exhibits a bullish technical pattern.

Overall, these patterns suggest a robust and ongoing upward trend in copper prices, driven by increased demand, limited supply, and copper’s critical role in various industries. Despite short-term volatility, this long-term bullish trend indicates a positive outlook for copper investments.

However, the recent correction prompts investors to reassess their positions in copper stocks such as Freeport-McMoRan Inc. (FCX) and Southern Copper Corporation (SCCO), considering both the potential for future growth and the current risks involved.

Freeport-McMoRan Inc. (FCX)

With a $69.76 billion market cap, Freeport-McMoRan Inc. (FCX) is a prominent metals company with a primary focus on copper. The company manages seven copper operations in North America: Morenci, Bagdad, Safford (including Lone Star), Sierrita, and Miami in Arizona, as well as Chino and Tyrone in New Mexico. Additionally, FCX operates a copper smelter in Miami, Arizona.

FCX has a potential expansion project to surpass the concentrator capacity of its Bagdad operation in northwest Arizona. With a life expectancy exceeding 80 years, Bagdad's reserve supports an expanded operation. In late 2023, the company finalized technical and economic studies, indicating the opportunity to build new concentrating facilities to boost copper production by 200-250 million pounds annually, exceeding Bagdad’s current output rate.

At its Safford/Lone Star operation, FCX is completing projects aimed at increasing copper production from oxide ores to 300 million pounds per year. It marks an expansion from the initial design capacity of 200 million pounds per year.

For the first quarter that ended March 31, 2024, FCX’s copper sales were 1.1 billion pounds, 11% higher than the January 2024 estimate of 1 billion pounds, and 33% up from the prior year’s quarter, mainly reflecting higher mining and milling rates and ore grades at PT-FI. Its revenues rose 17.3% year-over-year to $6.32 billion.

Further, average unit net cash costs for FCX’s copper mines of $1.51 per pound were below the January 2024 estimate of $1.55 per pound and first-quarter 2023, primarily reflecting higher copper volumes at PT-FI. During the quarter, the company’s operating cash flows were $1.9 billion, net of $0.1 billion of working capital and other uses. As of March 31, 2024, cash and cash equivalents totaled $5.2 billion.

Kathleen L. Quirk, FCX’s President, stated, “Our first-quarter results reflect strong execution of our operating plans, consistent with our long-standing focus on operational execution.”

“Market fundamentals for copper are positive, supported by copper’s increasingly important role in the global economy and limited available supplies to meet growing demand. Freeport is strongly positioned for the future as a leading producer of copper with multiple options for future growth and an experienced team with a track record of accomplishment,” Quirk added.

Moreover, the company’s financial policy aligns with its strategic objectives of maintaining a solid balance sheet, delivering cash returns to shareholders, and pursuing opportunities for future growth. On March 27, 2024, FCX’s Board of Directors declared cash dividends of $0.15 per share on its common stock, paid on May 1, 2024, to shareholders of record as of April 15, 2024.

For the year 2024, the company’s sales are expected to approximate 4.15 billion pounds of copper, and unit net cash costs are anticipated to average $1.57 per pound of copper. Further, FCX expects operating cash flows to be nearly $7.4 billion, net of $0.2 billion of working capital and other uses, for the year.

Street expects FCX’s revenue and EPS for the fiscal year (ending December 2024) to increase 10.5% and 5.8% year-over-year to $25.26 billion and $1.63, respectively. Moreover, the company has topped the consensus revenue estimates in all four trailing quarters.

Shares of FCF have surged more than 30% over the past six months and approximately 31% over the past year. However, the stock has declined nearly 5% over the past month.

Southern Copper Corporation (SCCO)

With a market cap of $84.35 billion, Southern Copper Corporation (SCCO) engages in mining, exploring, smelting, and refining copper and other minerals. The company operates the Toquepala and Cuajone open-pit mines and a smelter and refinery in Peru; and La Caridad, an open-pit copper mine, alongside copper ore concentrator, a SX-EW plant, a smelter, refinery, and a rod plant in Mexico.

In addition, the company operates Buenavista, an open-pit copper mine, as well as two copper concentrators and two operating SX-EW plants in Mexico.

During the first quarter that ended March 31, 2024, SCCO’s net sales grew 13.3% from the previous quarter to $2.60 billion. The growth was mainly driven by a surge in the sales volumes of copper (+9.6%) and silver (+15.3%) and an uptick in metal prices for all its products. Its operating cash cost per pound of copper dropped 14.2% quarter-over-quarter.

Notably, copper production registered a quarter-on-quarter rise of 6,181 tons (+2.6%) and 16,998 tons (+7.6%) compared to the prior year’s quarter. Year-over-year growth was mainly attributable to a rise in copper from concentrate production at all its mines (+12.7%), including 2,158 tons of copper from the new zinc concentrator.

Furthermore, SCCO’s operating income grew 37% from the prior year to $1.19 billion. The company’s net income was $736 million, or $0.95 per share, an improvement of 65.4% and 63.8% quarter-on-quarter, respectively. Its adjusted EBITDA rose 34.3% from the previous year to $1.42 billion.

Cash inflows from operating activities were $659.9 million, a 22% increase from the $540.9 million reported in the fourth quarter of 2023. This improvement was due to strong cash generation from its operations, driven by higher sales and effective cost-control measures. As of March 31, 2024, the company’s cash and cash equivalents were $1.25 billion, compared to $1.15 billion as of December 31, 2023.

On April 19, 2024, SCCO’s Board of Directors declared a quarterly stock dividend of 0.0104 shares of common stock, paid on May 23, 2024, for shareholders of record at the close of business on May 8, 2024.

During the last earnings call, SCCO stated that it sees robust market demand, driven by both a resilient US economy and emerging needs in decarbonization technologies and artificial intelligence. These factors will play a substantial role in bolstering long-term copper demand, thereby maintaining favorable copper prices. Demand is anticipated to increase by nearly 2.5% this year.

Analysts expect SCCO’s revenue and EPS for the second quarter (ending June 2024) to increase 14.4% and 27.7% year-over-year to $2.63 billion and $0.90, respectively. Additionally, the company’s revenue and EPS for the fiscal year 2024 are anticipated to grow 11.3% and 25.1% from the prior year to $11.01 billion and $3.89, respectively.

SCCO’s stock has surged more than 44% over the past six months and approximately 54% over the past year. However, the stock has plunged around 10% over the past month due to a recent correction.

Bottom Line

The recent correction in copper prices, marked by a decline from a record high hit on May 20, can be attributed to several factors affecting supply and demand dynamics in the market. Higher global inventories and evidence of lower near-term demand, particularly highlighted by an unexpected contraction in China's manufacturing sector, led to a downturn in copper prices.

For investors, this correction serves as a reminder of the inherent volatility in commodity markets. However, it does not necessarily negate the long-term bullish trend driven by increased demand, limited supply, and copper’s critical role in various industries, especially in electrification and decarbonization initiatives. Despite short-term fluctuations, the fundamental drivers supporting copper’s growth trajectory remain intact.

Investors should consider strategies to navigate periods of high volatility. Diversification across different assets can help mitigate risks associated with individual commodities or stocks. Furthermore, hedging options such as futures contracts or options can safeguard against adverse price movements.

In the case of FCX and SCCO, their robust operational performances and strategic initiatives position them for long-term solid growth. However, investors should remain vigilant, continuously reassessing their positions and adjusting strategies as market conditions evolve. They can navigate copper price fluctuations by staying informed and adopting a diversified approach while capitalizing on the long-term potential.

The Bubble Has Burst: Selling Off Pandemic-Era Recreational Stocks

Posted on by The INO.com Team

The COVID-19 pandemic significantly changed consumer behavior, particularly in the recreational vehicles (RVs) industry. In the early days of the pandemic, extra cash that found its way into Americans’ bank accounts due to federal government largess and a desire for social distancing drove a surge in sales of RVs, boats, motorcycles, and snowmobiles, propelling them to multi-year records.

However, this initial bubble during the pandemic for RVs—along with boats, motorcycles, and other outdoor vehicles—has burst, leading to a significant market correction as demand normalizes and financial conditions tighten. As the cost of living increased, remote working became more challenging, and interest rates surged, financing for these big-ticket items grew prohibitively expensive.

According to the RV Industry Association, RV shipments witnessed a nearly 40% increase from 2020 to 2021. The RV industry shipped a record of about 600,240 units to dealers in 2021, up 19% from the record set in 2017. RV shipments nosedived post the pandemic surge. The RV industry ended 2023 with 313,174 shipments, down 36.5% compared to 2022.

“The pandemic did spark a lot more of buying action from the consumer but now it’s coming back to more of the 2018, 2019 numbers, rather than the crazy numbers in 2020 through 2022,” said co-owner and general manager of Midway, Chris Grant.

As the pandemic bubble has burst, investors could consider selling off recreational stocks such as Thor Industries, Inc. (THO), Winnebago Industries, Inc. (WGO), and Polaris Inc. (PII). Let’s delve deeper into the stocks’ fundamentals and near-term outlook.

Thor Industries, Inc. (THO)

Thor Industries, Inc. (THO), a leading manufacturer of RVs, experienced a tremendous surge in demand during the pandemic but now faces a market correction. The stock has struggled to maintain its pandemic-era gains, with consumers pulling back on discretionary spending and higher financing costs dampening enthusiasm for RV purchases.

Shares of THO have plunged more than 8% over the past month and approximately 10% over the past six months.

THO’s trailing-12-month gross profit margin of 14.10% is 61.7% lower than the 36.80% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 4.28% and 2.59% unfavorably compare to the industry averages of 7.59% and 4.70%, respectively.

“In our fiscal third quarter, our independent dealers experienced increased retail activity during the Spring selling season; however, conversion to sales remained difficult in light of the economic pressures on retail buyers. Faced with elevated floor plan interest rates, our independent dealers remain understandably cautious with their ordering patterns; consequently, our independent dealer inventory levels remain suppressed,” said Bob Martin, President and CEO of THOR Industries.

“Given the macroeconomic conditions, we see this cautious approach as healthy for our industry and maintain our confidence in a robust return of our top and bottom line performance once macro pressures subside,” Martin added.

For the quarter that ended April 30, 2024, THO’s net sales decreased 4.4% year-over-year to $2.80 billion. North American Toward RV net sales were down 4.7%. Its gross profit came in at $421.85 million, down 2.5% from the year-ago value. Its net income and earnings per common share were $113.58 million and $2.13, declines of 5.1% and 4.9% year-over-year, respectively.

As of April 30, 2024, the company’s cash and equivalents stood at $371.82 million, compared to $441.23 million as of July 31, 2023. THO’s current liabilities increased to $1.74 billion at the end of the third quarter.

Given the challenging market conditions, the company lowered its full-year 2024 guidance. The prolonged market downturn, which persisted longer than anticipated, continues to impact THO’s independent dealers and consumers, which the company believes will constrain its top and bottom lines for the fourth quarter.

Based on current North American order intake levels through the end of May, the company revised its guidance ranges to reflect a more conservative fiscal year 2024 North American industry wholesale shipment range of 315,000 to 325,000 units, down from the prior range of 330,000 to 340,000 units.

For the full year, THOR Industries expects consolidated net sales in the range of $9.8 billion to $10.1 billion, compared to the previous guidance of $10.0 billion to $10.5 billion. Its gross profit margin is expected to be 13.75%-14%, down from previously guided 14%-14.5%. Also, the company’s earnings per share are anticipated to range from $4.50 to $4.75 (previously $5-$5.50).

Analysts also appear highly bearish about the company’s prospects. Street expects THO’s revenue and EPS for the fiscal year (ending July 2024) to decrease 10% and 32.4% year-over-year to $10.01 billion and $4.70, respectively.

Winnebago Industries, Inc. (WGO)

c, another prominent player in the RV market, has faced headwinds as demand wanes. The company enjoyed a boom during the height of the pandemic, but the current economic uncertainty and rising interest rates have led to decreased sales and stock performance.

WGO’s stock has slumped nearly 15% over the past six months and more than 19% year-to-date.

After all, WGO’s trailing-12-month gross profit margin and EBITDA margin of 15.93% and 8.59% are lower than the respective industry averages of 36.80% and 11.18%. Similarly, the stock’s trailing-12-month net income margin of 3.70% is 21.4% lower than the industry average of 4.70%.

In the second quarter that ended February 24, 2024, WGO’s net revenues declined 18.8% year-over-year to $703.60 million, driven by lower unit sales related to market conditions and unfavorable product mix. Its gross profit decreased 28.3% year-over-year to $105.30 million. Its operating income was $35.40 million, down 53.9% from the previous year’s quarter.

Furthermore, the company reported a net loss of $12.70 million, or $0.43 per common share, compared to a net income of $52.80 million, or $1.52 per common share, respectively. Its adjusted EBITDA decreased 83.7% from the year-ago value to $13.90 million.

During the quarter, wholesale shipments were constrained as dealers closely managed inventory levels amid a high interest rate environment and seasonal demand trends. As of February 24, 2024, the backlog from the Motorhome RV segment was $452.20 million (2,582 units), down 48.2% from the prior year.

As of February 24, 2024, the company’s total outstanding debt was $694.80 million. Winnebago Industries completed a $350 million offering of convertible senior notes for refinancing 2025 maturities in the second quarter. Its cash and cash equivalents were reduced to $265.70 million, compared to $309.90 as of August 26, 2023.

Analysts expect WGO’s revenue for the third quarter (ended May 2024) to decrease 10.6% year-over-year to $805.49 million. The consensus EPS estimate of $1.34 for the same quarter reflects a 36.9% year-over-year decline. Additionally, the company missed consensus revenue estimates in three of the trailing four quarters, which is disappointing.

For the fiscal year ending August 2024, the company’s revenue and EPS are expected to decline 10.1% and 35.2% year-over-year to $3.14 billion and $4.97, respectively.

Polaris Inc. (PII)

Polaris Inc. (PII), known for its motorcycles, snowmobiles, and other recreational vehicles, has also felt the pinch. PII’s stock soared as consumers sought outdoor activities during lockdowns. However, the subsequent economic shifts have cooled demand, leading to a decline in stock value. Shares of PII have declined more than 18% year-to-date and around 35% over the past year.

PII’s trailing-12-month gross profit margin of 22.23% is 39.6% lower than the 36.80% industry average. Likewise, the stock’s trailing-12-month EBITDA margin and levered FCF margin of 9.78% and 3.72% are lower than the industry averages of 11.18% and 5.46%, respectively.

PII’s sales decreased 20% year-over-year to $1.74 billion for the first quarter ended April 23, 2024. The company’s sales were negatively impacted by lower volume and net pricing driven by higher promotional activity partially offset by a favorable product mix. North America sales were down 22% year-over-year. Its adjusted gross profit margin declined 29.5% from the year-ago value to $330.70 million.

In addition, adjusted net income and adjusted EPS attributable to PII were $13 million and $0.23, down 89.1% and 88.8% year-over-year, respectively. Its adjusted EBITDA declined 53.8% from the prior year’s period to $110 million. Also, the company’s free cash flow came in at a negative $162.10 million, compared to $35.10 million in the previous year’s quarter.

According to the 2024 business outlook, Polaris expects full-year sales to be down 5 to 7% compared to fiscal 2023. The company anticipates adjusted EPS attributed to Polaris Inc. common shareholders down 10 to 15% versus 2023.

Street expects PII’s revenue and EPS for the second quarter (ending June 2024) to decrease 2.3% and 6.3% year-over-year to $2.17 billion and $2.27, respectively. Further, the company’s revenue and EPS for the fiscal year 2024 are expected to decline 6.2% and 13.7% from the prior year to $8.38 billion and $7.90, respectively.

Bottom Line

Companies primarily operating in the RV industry face ongoing macroeconomic challenges. While the RV and boat market experienced an unprecedented boom during the COVID-19 pandemic, the subsequent decline in consumer demand and economic factors like higher interest rates and inflation have created a challenging environment for these stocks.

Despite this downturn, some companies, including Brunswick Corporation (BC), managed to navigate these choppy waters. However, other companies, including Thor Industries, Winnebago, and Polaris, have not fared as well. Investors should carefully assess their positions in these companies and consider the potential benefits of reallocating their portfolios in response to the changing market dynamics.

Thus, it seems prudent to consider selling struggling recreational stocks THO, WGO, and PII, which have lost their massive pandemic-era gains.

The Future of NVIDIA: Post-Split Valuation and Growth Projections

Posted on by The INO.com Team

NVIDIA Corporation (NVDA), a prominent force in the AI and semiconductor technology industries, announced a 10-for-1 forward stock split of the company’s issued common stock during its last earnings release in May. Shareholders of record as of June 6 received nine additional shares for each share held after the close on Friday, June 7. Trading will commence on a split-adjusted basis at market open on June 10.

This strategic move is poised to reshape the landscape for Nvidia investors and the broader tech market.

Post-Split Valuation

NVDA was already a leading AI stock in the market, but investor interest in the chipmaker skyrocketed as its 10-for-1 stock split took effect after the market’s close on June 7. Shares of the hottest stock on the S&P 500 surged tenfold on Friday following its much-anticipated stock split.

Moreover, NVIDIA’s stock has gained more than 158% over the past six months and nearly 222% over the past year. Notably, the stock is up over 3,222% over the past five years. During this remarkable run, Nvidia’s market cap of around $3 trillion surpassed those of Amazon (AMZN) and Alphabet Inc. (GOOGL). Before the 10-for-1 split, the stock traded at a lofty $1,209.

The chip giant’s strategic decision to split its stock follows a broader trend among tech giants to make their stock ownership more affordable and appealing to retail investors. With more individual investors gaining access to Nvidia’s shares post-split, increased trading activity and demand are observed, potentially driving share prices higher.

According to data from BofA research, total returns for companies announcing stock splits are about 25% in the 12 months after a stock split historically versus 12% gains for the S&P 500. Thus, stock splits are seen as a bullish signal, often accompanied by positive investor sentiment and increased buying activity.

Solid Earnings And A Healthy Outlook

The stock split isn’t the only reason for NVDA’s latest bull run. The company also reported better-than-expected revenue and earnings in the fiscal 2025 first quarter, driven by robust demand for its AI chips. During the quarter that ended April 28, 2024, Nvidia’s revenue rose 262% year-over-year to $26.04 billion. That surpassed the consensus revenue estimate of $24.59 billion.

The company’s largest business segment, Data Center, which includes its AI chips and several additional parts required to run big AI servers, reported a record revenue of $22.60 billion, up 427% year-over-year.

“Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets,” said Jensen Huang, founder and CEO of NVDA.

“We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI,” Huang added. During a call with analysts, the CEO mentioned that there would be significant Blackwell revenue this year and that the new chip would be deployed in data centers by the fourth quarter.

The chipmaker’s non-GAAP gross profit grew 328.2% from the previous year’s quarter to $20.56 billion. NVDA’s non-GAAP operating income was $18.06 billion, an increase of 491.7% year-over-year. Its non-GAAP net income rose 461.7% year-over-year to $15.24 billion. Also, it posted a non-GAAP EPS of $6.12, compared to analysts’ estimate of $5.58, and up 461.5% year-over-year.

Furthermore, NVIDIA’s cash, cash equivalents and marketable securities were $31.44 billion as of April 28, 2024, compared to $25.98 billion as of January 28, 2024.

According to its outlook for the second quarter of 2025, the company expects revenue to be $28 billion, plus or minus 2%. Its non-GAAP gross margin is expected to be 75.5%, plus or minus 50 basis points. NVDA’s non-GAAP operating expenses are anticipated to be approximately $2.8 billion.

Raised Dividends

NVDA raised its dividend payouts to reward shareholders and demonstrate confidence in its financial strength and growth prospects. The company increased its quarterly cash dividend by 150% from $0.04 per share to $0.10 per share of common stock. The dividend is equivalent to $0.01 per share on a post-split basis and will be paid on June 28 to all shareholders of record on June 11.

While Nvidia's dividend yield is modest compared to its tech peers, its considerable cash flow and strong balance sheet provide ample room for growth.

Dominance in AI and Data Center Markets Fuels Unprecedented Growth Opportunities

NVDA is strategically positioned at the forefront of the AI and data center markets, with a high demand for AI chips for data processing, training, and inference from large cloud service providers, GPU-specialized ones, enterprise software, and consumer internet companies. In addition, vertical industries, led by automotive, financial services, and healthcare, drive the demand.

Statista projects the generative AI (GenAI) market to reach $36.06 billion in 2024, with the U.S. accounting for the largest market size of $11.66 billion. Further, the GenAI market is expected to total $356.10 billion by 2030, expanding at a CAGR of 46.5% from 2024 to 2030.

Over the past year, Nvidia has experienced a significant surge in sales due to robust demand from tech giants like Google, Microsoft Corporation (MSFT), Meta Platforms, Inc. (META), Amazon, and OpenAI, who invested billions of dollars in Nvidia’s advanced GPUs essential for developing and deploying AI applications. In January, META announced a sizable order of 350,000 high-end H100 graphics cards from Nvidia.

As a result, NVDA holds a market share of about 92% in the data center GPU market for generative AI applications.

Bottom Line

NVDA’s recent 10-for-1 stock split has significantly impacted its valuation and market appeal. This strategic move not only made Nvidia's shares more accessible to retail investors but also fueled increased trading activity and demand, driving share prices higher. The stock surged tenfold on Friday when the stock split took effect, reflecting the heightened investor interest.

NVIDIA's strong financial performance, as evidenced by the fiscal 2025 first quarter report, further solidifies its position in the AI and data center market. The company reported threefold revenue growth, driven by the massive demand for its AI processors from major tech companies, including Microsoft, Meta, Amazon, Google, and OpenAI.

The chipmaker’s remarkable growth has propelled it to the third-largest market capitalization globally, surpassing peers such as AMZN and META.

Further, the company’s revenue and EPS for the fiscal year ending January 2025 are expected to grow 97.9% and 108.9% year-over-year to $120.55 billion and $27.07, respectively. For the fiscal year 2026, Analysts expect its revenue and EPS to increase 32.4% and 32.6% from the prior year to $159.55 billion and $35.90, respectively. With a healthy outlook for the future, NVDA continues to attract investors looking for long-term growth opportunities.

Moreover, the recent decision to raise dividends by 150% showcases NVDA's confidence in its financial strength and growth prospects, making it more attractive to income-oriented investors. This move, coupled with the stock split, appeals to different investor demographics and reflects NVDA's commitment to rewarding shareholders while positioning itself for future growth in the AI and semiconductor sectors.

Target vs. Walmart: Which Retail Giant Offers Better Dividend Returns?

Posted on by The INO.com Team

Dividend investing is a cornerstone of many investors’ portfolios, providing a steady income stream and long-term growth potential. Blue-chip stocks are among the most stable and safest investments, but a select few companies excel in maintaining their financial growth and paying consistent, high-yield dividends to investors.

In the realm of blue-chip retail giants, Target Corporation (TGT) and Walmart Inc. (WMT) stand out as formidable players with excellent dividend growth histories. Through strategic investments and acquisitions, robust financial health, and a solid commitment to customer satisfaction, these companies have managed to thrive and offer reliable dividend payouts.

Let’s compare TGT and WMT’s dividend yields, growth rates, and overall financial health to help investors determine which stock offers better dividend potential.

Target Corporation (TGT)

With a $68.17 billion market cap, Target Corporation (TGT) is one of the leading retail corporations in the U.S. that offers a wide variety of products at competitive prices through its extensive network of stores and e-commerce platform, Target.com.

In March, the Minneapolis-based retailer announced plans to invest in its guest experience and long-term growth. The reintroduced Target Circle loyalty program will provide three new membership options, including a free-to-join option, allowing guests to choose how to shop and save. Target Circle has already become one of the largest loyalty programs in retail, with over 100 million members saving millions of dollars annually.

Also, this year, TGT plans to launch and expand its owned brands to offer various options across categories, products, and prices, such as dealworthy, up&up, and Gigglescape. Moreover, Target-owned brands offer quality, value, and innovation, driving more than $30 billion in sales in 2023. Further, the company will invest in the store-as-hubs model over the next decade, planning to build more than 300 new stores and enhance supply chain operations.

Despite significant investments in improving its customer experience and store presence, Target has shown resilience in maintaining a robust financial position. For the first quarter that ended May 4, 2024, TGT’s sales decreased 3.2% year-over-year to $24.14 billion. However, digital comparable sales rose 1.4% year-over-year, and same-day services grew about 9%, led by over 13% growth in Drive Up. It reported net earnings of $942 million, or $2.03 per share, respectively.

As of May 4, 2024, the company’s cash and cash equivalents were $3.60 billion, compared to $1.32 billion as of April 29, 2023.

“Looking ahead, our team will deliver for our guests through lower prices, a seasonally relevant assortment, ease and convenience, as we keep investing in our strategy and efficiency initiatives to get back to growth and deliver on our longer-term financial goals,” said Brian Cornell, chair and chief executive of Target Corporation.

For the second quarter of 2024, Target expects a 0-2% rise in its comparable sales and adjusted EPS of $1.95-$2.35. For the full year, the company projects a 0-2% increase in comparable sales and adjusted EPS of $8.60 to $9.60.

TGT’s solid financial performance and stability translate into attractive returns for investors. During the first quarter, the company paid dividends of $508 million, compared with $497 last year, an increase of 1.9% in the dividend per share.

On March 13, Target’s Board of Directors declared a quarterly dividend of $1.10 per common share, payable June 10, 2024, to shareholders of record at the close of business on May 15, 2024. This will be the company’s 227th consecutive dividend paid since October 1967, when it became publicly held.

TGT pays an annual dividend of $4.40, which translates to a yield of 2.92% at the current share price, which is quite attractive for income-focused investors, providing a solid return on investment. Its four-year average dividend yield is 2.18%. It maintains a payout ratio of around 50%, indicating that the company distributes half of its earnings as dividends, balancing shareholder returns with reinvestment in business growth.

Additionally, Target has a commendable history of consistently increasing its dividend payouts. The company’s dividend payouts have grown at a CAGR of 17.4% over the past three years and 11.4% over the past five years. Notably, TGT has raised its dividends for 55 consecutive years.

In addition to solid dividend growth, Target has demonstrated impressive performance in stock price appreciation. TGT’s stock has gained more than 10% over the past six months and nearly 12% over the past year.

Walmart Inc. (WMT)

With a market capitalization of $540.73 billion, Walmart Inc. (WMT) engages in retail and wholesale business, offering an assortment of apparel, footwear, general merchandise, and groceries at everyday low prices.

Walmart expanded its popular InHome delivery service to an additional 10 million U.S. households, including those in California. In addition to the San Bernardino market, the company expanded its service to include customers in Boston, Detroit, Minneapolis, and Philadelphia, bringing the total scale to more than 50 markets covering about 45 million U.S. homes.

In February, WMT announced an agreement to acquire VIZIO, a prominent American company known for manufacturing consumer electronics. The strategic acquisition of VIZIO and its SmartCast Operating System (OS) will allow Walmart to serve its customers in new ways, including through innovative television and in-home entertainment and media experiences.

Further, this combination is anticipated to boost Walmart’s media arm in the U.S., Walmart Connect, by integrating VIZIO's advertising solutions business with Walmart's extensive reach and capabilities.

WMT, the world’s largest retailer, boasts a robust financial position with steady revenue growth and a solid balance sheet. During the first quarter that ended April 30, 2024, the retailer’s total revenues increased 6% year-over-year to $161.50 billion. Moreover, its global e-commerce sales were up 21%, driven by store-fulfilled pickup & delivery and marketplace.

In addition, the company’s adjusted operating income was $7.10 billion, up 13.7% from the year-ago value, due to higher gross margins and growth in membership income. Its adjusted EPS rose 22.4% year-over-year to $0.60. As of April 20, 2024, WMT’s cash and cash equivalents were $9.40 billion.

Looking ahead, the company expects net sales to increase by 3.5% to 4.5% and operating income to rise by 3% to 4.5% in constant currency (cc) for the second quarter. For the full year, it anticipates to be at the high-end or slightly above its prior guidance (cc) for net sales growth of 3%-4% and operating income growth of 4%-6%.

Walmart’s extensive global footprint and solid financial health provide a stable foundation for continued, attractive dividend payouts. In February, WMT’s Board of Directors declared an annual cash dividend for the fiscal year 2025 of $0.83 per share on a post-stock split basis. It represents a nearly 9% increase from the $2.28 per share paid in fiscal 2024.

“Dividends continue to be a part of our diversified capital returns approach. We're proud to be increasing our annual dividend for the 51st consecutive year. This year’s 9 percent increase is the largest in over a decade, and a sign of our confidence in our growth potential and cash flow,” stated John David Rainey, executive vice president and chief financial officer at Walmart.

WMT’s annual dividend of $0.83 translates to a yield of 1.24% at the prevailing share price. While lower than Target’s yield, the company still provides a steady income stream for investors. Its four-year average dividend yield is 1.53%. Also, it maintains a payout ratio of 33.46%.

Moreover, the company’s dividend payouts have grown at a CAGR of 3% over the past three years and 2.6% over the past five years. Walmart has a consistent history of annual dividend increases, albeit at a slower growth rate than Target.

Shares of WMT have surged nearly 28% over the past six months and more than 34% over the past year.

Bottom Line

Both TGT and WMT represent formidable investment opportunities with robust dividend credentials and solid fundamentals, making them worthy considerations for income-focused investors seeking exposure to the retail sector. However, while comparing Target and Walmart’s dividend potential, Target emerges as the frontrunner, offering a higher dividend yield and a track record of robust dividend growth.

So, TGT is a relatively more attractive investment option for those seeking better dividend potential within the retail industry.

Intel's AI Ambitions: A Strategic Shift Toward Private Data Storage Solutions

Posted on by The INO.com Team

Intel Corporation (INTC), a titan in the world of semiconductors, is navigating a period of transformative change that is revolutionizing its corporate culture and product development. Traditionally, Intel’s core offerings have been microprocessors that serve as the brains of desktop PCs, laptops and tablets, and servers. These processors are silicon wafers embedded with millions or billions of transistors, each acting as binary switches that form the fundamental ‘ones and zeros’ of computer operations.

Today, the thirst for enhanced processing power is insatiable. The proliferation of Artificial Intelligence (AI), which has become integral to essential business operations across almost every sector, exponentially increases the need for robust computing capabilities. AI, particularly neural networks, necessitates enormous computing power and thrives on the collaborative efforts of multiple computing systems. The scope of these AI applications extends far beyond the PCs and servers that initially cemented INTC’s status as an industry leader.

The rapid advancement of AI has prompted Intel to rethink and innovate its chip designs and functionalities. As a result, the company is developing new software and designing interoperable chips while exploring external partnerships to accelerate its adaptation to the evolving computing environment.

Strategic Pivot Toward AI Ecosystem

At Computex 2024, INTC unveiled a series of groundbreaking AI-related announcements, showcasing the latest technologies that merge cutting-edge performance with power efficiency (especially in data centers and for AI on personal computers). The company aims to make AI cheaper and more accessible for everyone.

Intel CEO Pat Gelsinger emphasized how AI is changing the game, stating, “The magic of silicon is once again enabling exponential advancements in computing that will push the boundaries of human potential and power the global economy for years to come.”

In just six months, Intel achieved a lot, transitioning from launching 5th Gen Intel® Xeon® processors to introducing the pioneering Xeon 6 series. The company also previewed Gaudi AI accelerators, offering enterprise clients a cost-effective GenAI training and inference system. Furthermore, Intel has spearheaded the AI PC revolution by integrating Intel® Core™ Ultra processors in over 8 million devices while teasing the upcoming client architecture slated for release later this year.

These strides underscore Intel's commitment to accelerating execution and driving innovation at an unprecedented pace to democratize AI and catalyze industries.

Strategic Pricing and Availability of Its Gaudi AI Accelerators

Intel is gearing up to launch the third generation of its Gaudi AI accelerators later this year, aiming to address a backlog of around $2 billion related to AI chips. However, the company anticipates generating only about $500 million in Gaudi 3 sales in 2024, possibly due to supply constraints.

To broaden the availability of Gaudi 3 systems, Intel is expanding its network of system providers. The company is now collaborating with Asus, Foxconn, Gigabyte, Inventec, Quanta, and Wistron alongside existing partners like Dell Technologies Inc. (DELL), Hewlett Packard Enterprise Co (HPE), Lenovo Group (LNVGY), and Super Micro Computer, Inc. (SMCI), to ensure Gaudi 3 systems are available far and wide once they hit the market.

But what caught attention at Intel's announcement was the company's attractive pricing strategy. Kits featuring eight Gaudi 2 AI chips and a universal baseboard will cost $65,000, while the version with eight Gaudi 3 AI chips will be priced at $125,000. These prices are estimated to be one-third and two-thirds of the cost of comparable competitive platforms, respectively.

While undercutting Nvidia Corporation (NVDA) on price, INTC expects its chips to deliver impressive performance. According to their estimates, a cluster of 8,192 Gaudi 3 chips can train AI models up to 40% faster than NVDA's H100 chips. Additionally, Gaudi 3 offers up to double the AI inferencing performance of the H100 when running popular large language models (LLMs).

Intel Continues to Ride with 500+ Optimized Models on Core Ultra Processors

In May, INTC announced that over 500 AI models now run optimized on new Intel® Core™ Ultra processors. These processors, known for their advanced AI capabilities, immersive graphics, and optimal battery life, mark a significant milestone in Intel's AI PC transformation efforts.

This achievement stems from Intel's investments in client AI, framework optimizations, and tools like the OpenVINO™ toolkit. The 500+ AI models cover various applications, including large language models, super-resolution, object detection, and computer vision, and are available across popular industry platforms.

The Intel Core Ultra processor is the fastest-growing AI PC processor and the most robust platform for AI PC development. It supports a wide range of AI models, frameworks, and runtimes, making it ideal for AI-enhanced software features like object removal and image super-resolution. This milestone underscores Intel's commitment to advancing AI PC technology, offering users a broad range of AI-driven functionalities for enhanced computing experiences.

Robust Financial Performance and Outlook

Buoyed by solid innovation across its client, edge, and data center portfolios, the company delivered a solid financial performance, driving double-digit revenue growth in its products. Total Intel Products chalked up $11.90 billion in revenue for the first quarter of 2024 (ended March 30), resulting in a 17% year-over-year increase over the prior year’s period. Revenue from the Client Computing Group (CCG) rose 31% year-over-year.

INTC’s net revenue increased 8.6% year-over-year to $12.72 billion, primarily driven by growth in its personal computing, data center, and AI business. Intel’s Data Center and AI (DCAI) division, which offers server chips, saw sales uptick 5% to $3.04 billion.

Also, the company reported a non-GAAP operating income of $723 million, compared to an operating loss of $294 million in the prior year’s quarter. Further, its non-GAAP net income and non-GAAP earnings per share came in at $759 million and $0.18 versus a net loss and loss per share of $169 million and $0.04, respectively, in the same quarter last year.

For the second quarter, Intel expects its revenue to come between $12.5 billion and $13.5 billion, while its non-GAAP earnings per share is expected to be $0.10.

Bottom Line

Despite vital innovations and solid financial performance, INTC’s shares have lost nearly 40% year-to-date and more than 3% over the past 12 months. However, with over 5 million AI PCs shipped since the December 2023 launch of Intel Core Ultra processors, supported by over 100 software vendors, the company expects to exceed its forecast of 40 million AI PCs by the end of 2024.

With the growing demand for AI chips, INTC could see a significant increase in Gaudi chip sales next year as customers look for cost-effective alternatives to NVDA's market-leading products. Moreover, if Intel's reasonable pricing resonates with prospective customers, the company could capture significant market share from its competitors.