Can NVDA’s Share Buybacks and AI Innovation Drive the Next Rally?

Posted on by The INO.com Team

NVIDIA Corporation (NVDA) has undoubtedly been one of the hottest large-cap stocks this year, surging over 150% year-to-date and more than 195% in the past 12 months. This stellar performance is driven by the massive demand for its graphics processing units (GPUs), which help run and train AI algorithms.

For the second quarter that ended July 28, 2024, Nvidia’s revenue increased 122% year-over-year to $30.04 billion and 15% from the first quarter. This robust growth exceeded analysts’ expectations, who had forecasted around $28.75 billion. NVDA’s Data Center Group (primarily connected to its AI operations) generated $26.30 billion in revenue, resulting in a 16% sequential gain and a triple-digit growth of 154% over the same period last year.

The company's bottom line remained buoyant, with operating income surging 174% from the year-ago value to $18.64 billion. NVDA’s non-GAAP net income amounted to $16.95 billion or $0.68 per share, compared to $6.74 billion or $0.27 per share in the previous year’s quarter, respectively. The chipmaker is now gearing up for new AI hardware releases based on the Blackwell architecture, which could boost demand in the coming years.

Moreover, it forecasted a revenue of $32.50 billion, plus or minus 2%, for its fiscal third quarter, representing an 81.6% growth from the year-ago quarter. However, this slightly falls short of the analysts’ estimates of $32.91 billion.

Is NVDA’s Buyback a Boost for Earnings or a Sign of Investor Fatigue?

In addition to its strong financials, NVIDIA's board has approved a massive $50 billion share buyback program. This adds to the $7.5 billion remaining from its previous buyback plan. Share repurchases typically boost earnings per share by reducing the number of outstanding shares, making the stock more attractive to investors.

The company has already returned $15.4 billion to shareholders through repurchases and dividends during the first half of fiscal 2025. However, despite the strong financial performance and the buyback announcement, NVDA’s stock dropped around 10% after its earnings report. It seems investors had such high expectations that even strong results weren’t enough to impress them.

“Investors want more, more and more when it comes to Nvidia,” said Dan Coatsworth, investment analyst at AJ Bell. “It looks like investors might not have taken the average of analyst forecasts to be the benchmark for Nvidia's performance, instead, they've taken the highest end of the estimate range to be the hurdle to clear.”

On the brighter side, the company’s upcoming AI-focused chips, particularly the Blackwell architecture, are poised to meet rising demand and could reignite investor confidence. While its production has been slightly delayed, the company plans to ramp up shipments in the fourth quarter, with strong demand already building up.

Alongside Blackwell, Nvidia’s Hopper platform continues to see robust demand, and shipments of its upgraded H200 platform are targeting cloud service providers and large enterprises, with more demand expected in the second half of 2024. Thus, Nvidia still has plenty of fuel left to drive another rally.

Bottom Line

Thanks to the surging demand for its AI platforms, upcoming product launches, and a broadening market, we believe that Nvidia is well-positioned for continued expansion. The recent dip in its share price could simply be a brief pause before the next phase of growth unfolds.

Moreover, analysts remain bullish on the chipmaker’s long-term prospects. Out of 42 analysts that rated NVDA, 39 rated it Buy, while three rated it Hold. The 12-month median price target of $152.44 indicates a 22.9% upside potential from the last closing price. The price targets range from a low of $90 to a high of $200.

Therefore, investors looking for long-term opportunities could consider scooping up the shares of this tech giant before the stock regains momentum.

Pfizer’s Dividend Yield vs. Growth: Is It Time to Rebalance Your Portfolio?

Posted on by The INO.com Team

Pfizer Inc. (PFE), striving to set the standard for quality, safety, and value in the discovery, development, and manufacture of biopharmaceutical products, reported solid second-quarter 2024 earnings and raised guidance for the full year. In the second quarter of 2024, the company’s revenues increased 2.1% year-over-year to $13.28 billion. This was PFE’s first quarter of top-line growth after reporting declines over the past five quarters.

Despite a modest year-over-year growth, Pfizer’s overall revenue growth has been sluggish, particularly in the post-pandemic period, as the pharma company lost the revenue boost from its COVID-19 vaccine. During the first six months of 2024, PFE’s revenues came in at $28.16 billion, down 11% year-over-year.

Furthermore, the company reported adjusted income and EPS of $3.40 billion and $0.60 for the second quarter, down 11.4% and 10.4% from the previous year’s quarter. While Pfizer’s adjusted EPS declined year-over-year, it surpassed analysts’ expectations of $0.46.

Dr. Albert Bourla, Chairman and CEO of Pfizer, said, “We are driving progress toward our 2024 strategic priorities through solid execution across the company. I am pleased with the strong performance of our product portfolio in the second quarter led by several of our acquired products, key in-line brands and recent commercial launches. Notably, we achieved exceptional growth in our Oncology portfolio, with strong revenue contribution from our legacy-Seagen products.”

“Overall, I am encouraged by our performance in the first half of 2024 and we remain focused on making a difference in the lives of patients as we continue to advance and strengthen our company,” Bourla added.

Following an improved second-quarter performance that exceeded past expectations, PFE raised its full-year guidance. The company increased its revenue guidance by $1 billion at the midpoint to a range of $59.5 to $62.5 billion. Its adjusted EPS is expected to be $2.45 to $2.65, up from the prior guidance of $2.15 to $2.35.

Pfizer’s Strength: A High Dividend Yield

Pfizer has raised dividends for 13 consecutive years. PFE pays an annual dividend of $0.42, which translates to a yield of 5.8%. The dividend yield of 5.80% is well above the average yield in the pharmaceutical sector. The company has demonstrated a long-standing commitment to returning capital to shareholders, having paid nearly $5 billion in dividends in the most recent quarter alone.

However, PFE’s dividend yield, while appealing, may not fully compensate for the company’s slower revenue growth trajectory. Since the pharmaceutical giant grapples with falling COVID-19 vaccine sales and patent cliffs on blockbuster drugs, future revenue growth may remain muted. This leaves Pfizer in a position where its high dividend yield could mask underlying financial challenges.

While Pfizer offers an attractive dividend yield, growth investors may find more attractive opportunities in faster-growing pharmaceutical companies like AbbVie Inc. (ABBV) and Eli Lilly and Company (LLY).

AbbVie: A Balance of Growth and Income

ABBV presents a compelling case for investors seeking both income and growth. The company boasts a strong product pipeline, particularly in immunology, oncology, neuroscience, and eye care, which positions it for sustained revenue growth. Moreover, AbbVie recently showcased the advancement of the solid tumor pipeline at ESMO 2024 with new data from its innovative antibody-drug conjugate (ADC) platform.

Further, in August 2024, the company completed the acquisition of Cerevel Therapeutics (CERE). This strategic acquisition strengthens its foundation in neuroscience and positions it to deliver sustainable long-term performance into the next decade and beyond.

For the second quarter that ended June 30, 2024, ABBV’s worldwide net revenues increased 4.3% year-over-year to $14.46 billion. Global net revenues from the oncology portfolio rose 10.5% year-over-year, and global net revenues from the neuroscience portfolio grew 14.7%.

“Our business continues to perform exceptionally well, with second quarter results meaningfully ahead of our expectations,” stated Robert A. Michael, chief executive officer of AbbVie. “Based upon the significant momentum of our ex-Humira growth platform, our continued investments in the business and our pipeline progress, we are very well positioned to deliver our top-tier long-term outlook.”

Following an outstanding second-quarter performance, AbbVie raised the 2024 adjusted EPS guidance range from $10.61-$10.81 to $10.71-$10.91.

In addition to these growth opportunities, AbbVie remains committed to rewarding shareholders. The company has a solid dividend track record, raising dividends for ten consecutive years. The company raised an annual dividend of $6.20, translating to a yield of 3.23% at the prevailing share price, making it an appealing option for investors who want a combination of dividend income and growth potential. Its balance of innovation and shareholder returns makes it an attractive long-term investment.

Should You Rebalance Your Portfolio?

For investors focused on maximizing long-term returns, it may be the right time to rebalance their portfolios. PFE’s high dividend yield remains attractive, but those seeking higher growth should consider trimming their positions and reallocating toward faster-growing pharmaceutical companies like ABBV or LLY.

Fed Rate Cuts Fuel Gold’s Rise: How to Play the Rally

Posted on by The INO.com Team

The recent Federal Reserve rate cut of 50 basis points has sparked a surge in gold prices. Gold, which reached a record high of $2,635.29 per ounce on Monday, has risen nearly 29% year-to-date. This surge has significantly boosted the appeal of gold as an attractive asset for investors.

Investors often turn to gold during uncertain times, as it is a safe-haven asset. The inverted yield curve, where short-term bond yields are higher than long-term yields, has added to recession fears, pushing more investors toward gold. In volatile markets, gold offers a way to diversify portfolios, protect against inflation, and hedge against broader market risks.

To play this rally, investors can look at gold ETFs such as SPDR Gold Shares (GLD) and VanEck Gold Miners ETF (GDX), which provide exposure to gold prices and gold mining companies, respectively. Additionally, stocks like Newmont Corporation (NEM) and Franco-Nevada Corporation (FNV) are well-positioned to benefit from gold’s continued rise, making them solid options for those looking to tap into the ongoing gold rush.

ETFs to Buy:

SPDR Gold Shares (GLD)

GLD is a popular exchange-traded fund (ETF) that aims to reflect the performance of the gold bullion price before fees and expenses, offering investors a way to track the value of gold without physically holding it. Managed by World Gold Trust Services, LLC, GLD invests primarily in gold, making it a convenient and efficient vehicle for those seeking exposure to the commodity market. It can be used as a short-term position to hedge against equity market volatility and inflation.

As of September 24, 2024, the fund had assets under management (AUM) of $74.32 billion and an NAV of $243.58. GLD has an expense ratio of 0.40%, which is lower than the category average of 0.48%. Its fund inflows came in at $4 billion over the past three months and $759.19 million over the past year. Also, the ETF has a beta of 0.11, indicating comparative stability than the broader market.

In terms of price performance, the ETF has surged nearly 38% over the past year and more than 28% year-to-date.

VanEck Gold Miners ETF (GDX)

GDX seeks to replicate the performance of the NYSE Arca Gold Miners index before fees and expenses. The non-diversified fund usually invests 80% of its total assets in depositary receipts and common stocks of the gold mining industry, thereby delivering an ‘indirect’ exposure to gold prices.

With $15.95 billion of total net assets, GDX’s top holdings include Newmont Corporation (NEM) with a 15.25% weighting, followed by Agnico Eagle Mines Limited (AEM) at 10.05%, and Barrick Gold Corporation (GOLD) and Wheaton Precious Metals Corp. (WPM), at 8.69% and 6.89%, respectively. It currently has 59 holdings in total.

The fund pays an annual dividend of $0.50, translating to a 1.21% yield at the prevailing price level. Its dividend payouts have grown at an impressive CAGR of 38.1% over the past three years and 36.6% CAGR over the past five years. Also, the fund’s four-year average yield is 1.32%.

Over the past five days, GDX’s fund inflows were $104.35 million and $438.16 million over the past month. In addition, its 0.51% expense ratio compares to the 0.48% category average. The ETF’s NAV was $41.24 as of September 24, 2024. Moreover, it has gained more than 43% over the past year and nearly 34% year-to-date. Also, it has a beta of 0.99.

Stocks to Buy:

Newmont Corporation (NEM)

Newmont is the world’s leading gold mining company and a producer of other precious and industrial metals, including copper, silver, zinc, and lead. NEM has the largest gold reserve base in the metals mining industry, underpinned by its world-class ore bodies in top-tier locations.

NEM’s sales increased 64.1% year-over-year to $4.40 billion for the fiscal second quarter that ended June 30, 2024. Its net cash from operating activities rose 112.5% from the prior-year quarter to $1.39 billion. NEM’s adjusted net income came in at $834 million and $0.72 per share, representing 213.5% and 118.2% year-over-year improvements. Also, its adjusted EBITDA stood at $1.97 billion, up 116% year-over-year.

During the quarter, NEM produced 1.61 million attributable ounces of gold and 477 thousand gold equivalent ounces (GEOs) from copper, silver, lead, and zinc. This growth was largely driven by the production of 1.31 million gold ounces from Newmont’s Tier 1 Portfolio.

Analysts expect NEM’s revenue for the third quarter (ending September 2024) to increase 86.2% year-over-year to $4.64 billion, while its EPS is expected to improve 121.9% from the year-ago value to $0.80 in the same period. In addition, it topped the EPS and revenue estimates in three of the trailing four quarters, which is impressive.

NEM’s stock is already up more than 65% over the past six months and has returned nearly 35% year-to-date.

Franco-Nevada Corporation (FNV)

Headquartered in Toronto, Canada, Franco-Nevada operates as a gold-focused royalty and streaming company with a presence in South America, Central America, Mexico, the United States, Canada, and internationally. Operating through the Mining and Energy segments, it manages its portfolio primarily focusing on precious metals, including gold, silver, and platinum group metals.  

On August 13, the company declared a quarterly dividend of $0.36 per share payable to its shareholders on September 26, 2024. With a four-year average dividend yield of 0.93% and the current dividend of $1.44 translating to a 1.12% yield, the company continues to provide consistent returns to its investors. Also, it has a payout ratio of 42.2%.

During the fiscal second quarter, which ended June 30, 2024, FNV reported total revenues of $260.10 million and a gross profit of $178.10 million. The company achieved an adjusted EBITDA of $221.90 million, with a margin of 85.3%, compared to an adjusted EBITDA margin of 83.5% in the prior-year quarter. FNV’s adjusted net income came in at $144.90 million and $0.75 per share in the same period. Also, its cash and cash equivalents at the end of the period stood at $1.44 billion, up 11.1% year-over-year.

Street expects FNV’s revenue and EPS to reach $1.13 billion and $3.32, respectively, in the current year ending December 31, 2024. For the fiscal year 2025, its revenue is forecasted to register a year-over-year growth of 13.7%, reaching $1.29 billion. Also, its EPS is expected to come in at $3.87, up 16.3% from the prior year.

The company’s strong growth outlook is driven by mine expansions and new mine starts, with expectations of up to nine new mines contributing from 2024 to 2028. FNV also holds significant long-term optionality in gold, copper, and nickel, with exposure to approximately 66,800 square kilometers of mineral-rich territory.

Moreover, FNV’s shares have gained more than 8% over the past three months and nearly 16% year-to-date.

Bottom Line

The yellow metal’s long-term prospects appear bright as the gold market is expected to rise to 6.32 kilotons by 2029, reflecting a CAGR of 7.4%. Thus, one can capitalize on the surge without holding it physically through gold stocks (such as NEM and FNV) or convenient gold ETFs like GLD and GDX.

Should Investors Steer Clear of Shipping Stocks After FBI Raid?

Posted on by The INO.com Team

The shipping industry is now under scrutiny following a high-profile FBI investigation into Synergy Marine Group. The raid, which occurred in the Port of Baltimore, is linked to the same company’s role in the tragic collapse of the Francis Scott Key Bridge earlier this year, resulting in the deaths of six workers. The U.S. Department of Justice has filed a $100 million lawsuit against Synergy Marine Group, raising serious concerns about the company's operations. And now, federal authorities, including the FBI, EPA’s Criminal Investigation Division, and the Coast Guard, have boarded another Synergy-operated ship, the Maersk Saltoro, for a court-authorized inspection.

As authorities dig deeper into the incident, questions surrounding compliance, infrastructure safety, and potential financial fallout loom large. With ongoing legal battles, regulatory investigations, and a massive infrastructure rebuild expected to last until 2028, the fallout from this incident is far from over.

These developments cast a shadow over the entire shipping industry, as legal and regulatory issues tend to create uncertainties that make investors wary. Moreover, as shipping companies operate on tight margins, incidents like this could lead to stricter regulations, increased scrutiny, and higher operational costs. As Synergy Marine Group grapples with legal and reputational challenges, investor confidence in shipping stocks may falter. Plus, the possibility of similar issues in other companies might prompt a more cautious approach to investing in the sector, at least in the short term.

To regain trust, shipping companies will likely need to prioritize transparency, safety improvements, and risk mitigation. However, these efforts could drive up costs and squeeze profitability across the industry.

Given this backdrop, investors should steer clear of A.P. Møller - Mærsk A/S (AMKBY) but keep an eye on Matson, Inc. (MATX). Let’s evaluate the fundamentals of these stocks:

Stock to Avoid: A.P. Møller - Mærsk A/S (AMKBY)

AMKBY operates globally in the ocean transport and logistics sector, providing a wide range of services, including container shipping, terminal handling, and supply chain management. Despite its robust service offerings, the company has faced significant challenges recently.

For the fiscal second quarter that ended June 30, 2024, AMKBY’s revenue decreased 1.7% year-over-year to $12.77 billion. Its EBIT fell 40.1% from the year-ago value to $963 million, while its profit for the period came in at $833 million, down 43.9% year-over-year. The company’s earnings per share also dipped 40% from the prior-year quarter to $0.51. Also, its cash flow from operating activities amounted to $1.63 billion, indicating a 41% decline from the same quarter last year.

Analysts expect AMKBY’s revenue and EPS for the current year (ending December 2024) to be $53.18 billion and $1.56, respectively. For the fiscal year 2025, both its revenue and EPS are expected to decline by 7.9% and 76.6% from the prior year to $48.97 billion and $0.37, respectively.

Adding to the bleak outlook, shares of AMKBY have declined more than 12% over the past nine months and nearly 8% year-to-date. Given these challenges and declining financial metrics, it may be wise for investors to steer clear of this stock for the time being.

Stock to Watch: Matson, Inc. (MATX)

Matson is a long-established player in ocean transportation and logistics services, founded in 1882. It plays a critical role in connecting the domestic non-contiguous economies of Hawaii, Alaska, Guam, and Micronesia with its fleet of specialized vessels, including containerships and custom-designed barges.

In the second quarter of 2024 (ended June 30), MATX delivered strong financial results, with total operating revenue rising 9.6% year-over-year to $847.40 million. Its Ocean Transportation segment showed even stronger growth, with an 11.8% increase in revenue, reaching $689.90 million. The company’s operating income stood at $109 million, up 32.3% year-over-year, while its net income grew 40.1% from the year-ago value to $113.20 million. Also, its EPS came in at $3.31, up 46.5% year-over-year.

Matson's consistent performance is reflected in its shareholder returns. On September 9, the company paid its shareholders a quarterly dividend of $0.34 per common share, representing a 6.3% increase over the previous quarter. With a decade of consecutive dividend growth, MATX pays an annual dividend of $1.36, yielding 0.98% at current price levels. Its dividend payments have grown at a CAGR of 9.5% over the past three years and an 8.9% CAGR over the past five years.

Street expects MATX’s revenue for the fiscal third quarter (ending September 2024) to increase 16.9% year-over-year to $967.68 million, while its EPS estimate of $4.66 for the same period indicates a 37.2% year-over-year growth. It is no surprise that the company has topped the EPS and revenue estimates in the trailing four quarters, which is excellent.

In terms of price performance, the stock has returned more than 60% over the past year and nearly 30% year-to-date. Further, analysts’ average price target of $148 indicates a 4.5% upside from the last price, making it a stock worth watching for investors seeking solid growth potential and steady returns.

Why MCD’s Pricing Strategy Makes It a Buy

Posted on by The INO.com Team

McDonald’s Corporation (MCD) has once again struck a chord with customers through its clever pricing tactics. The fast-food giant’s $5 meal deal, which was first introduced in May, has turned out to be a big hit with customers feeling the pinch of inflation. Originally planned to run for just four weeks, the deal was so successful that McDonald’s extended it through the summer.

However, the timing of this extension wasn’t accidental. The move came after MCD’s global comparable sales dipped by 1%, and net revenues remained flat compared to the previous year, in the second quarter ended June 30, 2024. The company needed a way to attract more customers, and this budget-friendly bundle turned out to be the perfect solution, with 93% of franchise owners supporting the extension until the end of August.

The bundle, featuring a choice between a McDouble or McChicken, fries, nuggets, and a drink for just $5, became a crowd favorite, with nearly two-thirds of buyers opting for the McDouble. Buoyed by its success over the summer, attracting “tens of millions” of customers, McDonald’s extended the deal once again, this time through December in select U.S. markets.

Joe Erlinger, President of MCD’s USA, stated, “Together with our franchisees, we’re committed to keeping our prices as affordable as possible, which is why we’re doubling down with even more ways to save.”

While the $5 meal deal is certainly a wallet-friendly option, it’s more than just a low price. It’s the company’s calculated response to inflation. As grocery bills and dining-out costs climb, a $5 meal serves as a welcome relief, easing the financial pressure on customers. This strategy is especially targeted at middle-income consumers, a large part of McDonald’s customer base, who typically earn between $48,000 and $65,000 annually.

Moreover, these offers reflect the chain’s commitment to maintaining value, a word that was mentioned nearly 90 times during the company’s most recent earnings calls. And judging by the continued popularity of these deals, it’s clear that customers are “lovin’ it.”

Alongside the value deal, McDonald’s has rolled out a series of other promotions, like $0.50 Double Cheeseburgers on National Cheeseburger Day and $1 10-piece Chicken McNuggets each week. Promotions like free medium fries with any $1 purchase on Fridays, running through the end of 2024, further add to the company’s value-driven approach. These offers aren’t just about saving customers money; they’re also designed to drive more foot traffic into restaurants. The company aims to draw customers in, with the hope they’ll spend more by upgrading their meals or dining with others.

Since the launch of the bundle in late June, McDonald’s has seen a notable increase in in-store visits. Data from foot traffic analytics firm Placer.ai revealed that on the day of the launch, June 25, McDonald’s experienced its busiest Tuesday of the year, with an 8% spike in visits compared to its year-to-date average. Similar trends continued into July, underscoring how well the $5 bundle resonated with consumers.

Does This Move Call for a Price War?

As grocery price inflation shows signs of slowing, more consumers are opting to eat at home. According to the U.S. Census Bureau, restaurant sales increased by 2.7% year-over-year to $94.50 billion in August but remained flat over the last four months. When adjusted for inflation, the sales actually declined by 1.3% compared to August 2023, as reported by the National Restaurant Association.

In this competitive landscape, where consumers hold the power, MCD isn’t the only fast-food chain experiencing increased customer visits. Taco Bell announced a $7 Luxe Cravings Box alongside its $5 Taco Discovery Box and Cravings Value Menu in June. Similarly, Burger King extended its $5 “Your Way Meal” bundle and introduced new items under its “Fiery Menu.” Wendy’s has also joined the fray, offering a $3 breakfast bundle and a $5 combo known as the “Biggie Bag.”

While these promotions may attract short-term traffic, experts caution that they can also set a precedent for consumer expectations regarding discounts. Kristin Lynch, senior director of strategy and analytics at Paytronix, warned, “McDonald’s will have to consider the value associated with their loyalty program.” He believes balancing value and customer expectations is essential, with 166 million loyal members contributing 25% of system-wide sales.

Amid signs of slowing consumer demand, the chain has announced a new store format emphasizing digital kiosks. Some locations are upgrading from traditional menu boards to digital screens designed to showcase promotions and popular items, while printed menus will still be available for those who prefer ordering the old-fashioned way. These enhancements aim to meet the increasing demand for digital options while improving service speed and accuracy.

Bottom Line

As consumers tighten their budgets amid rising prices, fast-food chains are struggling to attract lower-income customers. A recent survey found that nearly 80% of Americans have reduced their fast-food spending because they find it too expensive. In this context, McDonald’s decision to extend its $5 meal deal into winter reflects a strategic response to an ongoing economic struggle that has yet to fully recover.

What started as a summer special has now become an important strategy to bring back budget-conscious diners. This move addresses complaints about rising prices and highlights McDonald’s focus on offering value during tough times. While the company continues to introduce deals, it’s also working on improving its marketing and cutting costs to boost sales.

For investors, MCD’s resilience and ability to adapt its marketing strategies make it a compelling investment opportunity. Therefore, investors could consider scooping up this fast-food giant’s shares, which have returned more than 15% over the past three months.