adminIt’s encouraging to see three Club stocks on the bullish side of Goldman Sachs’ new list of 25 tactical trades for earnings season. Asset allocation can be strategic or tactical. Strategic asset allocation generally refers to longer-term investing — think of this as your buy-and-hold approach. Tactical allocation, on the other hand, is more about trying to temporarily allocate assets to shorter-term opportunities in an effort to capture some quick upside. While we normally shy away from this approach, especially ahead of earnings, we find Wall Street notes like this one from Goldman useful for the homework behind the convictions. The three portfolio holdings highlighted on this list are Wells Fargo, Humana and Nvidia. WFC YTD mountain Wells Fargo YTD Goldman Sachs called out Wells Fargo as “one of the best positioned large bank stocks heading into 3Q23 earnings where a) weakening NIMs due to rising deposit costs, b) credit concerns around commercial real estate and other delinquencies driving up reserve builds and c) implementation of Basel 3 Endgame norms are the biggest focus areas for investors.” Wells Fargo (WFC), which reports its quarter Friday, currently trades on the cheap side at 8.3 times forward earnings estimates — below the five-year average multiple of 11.2 times. The Goldman research analysts think Wells Fargo’s management has “adequately de-risked its NIM [net interest margin] guidance to incorporate potentially higher-for-longer policy rates.” They see Wells Fargo’s “lower commercial real estate exposure at 6.6% vs. peer average of 7.5%” this year as a positive. They also predict the bank likely has “a relatively better capacity for share buybacks vs. peers even after accounting for the higher capital requirements.” HUM YTD mountain Humana YTD Humana (HUM) — which trades at 15.8 times forward earnings estimates — was highlighted by Goldman analysts who are “positive on the company’s 2024 outlook.” The analysts see favorable risk/reward with the stock trading at a “lower multiple vs. its 5-year average.” They also have “incremental conviction into next year given stabilizing utilization and a greater understanding of the potential impact of utilization/Medicare Advantage (MA) rate changes on 2024.” In their view, the company is “well positioned to grow MA membership above the market” next year. NVDA YTD mountain Nvidia YTD Nvidia (NVDA) maintains a spot on the Goldman Sachs conviction list, with analysts calling out its “status as the accelerated computing industry standard for the foreseeable future given its competitive moat and the urgency with which customers are developing and deploying increasingly complex AI models.” Nvidia — the Club’s only other “own it, don’t trade it” stock besides Apple (AAPL) — trades at 31.1 times forward earnings estimates. That’s below its 39.4 times five-year average. The analysts predict that “data center demand is not abating anytime soon as NVDA’s GPUs [graphics processing units] have become instrumental for customers looking to generate greater compute power.” With the supply chain showing signs of improvement, the analysts believe that current Street estimates underestimate “the potential gross margin uplift stemming from improving mix (i.e. faster growth in Data Center) as well as the [operating expense] leverage that is inherent in NVDA’s GPU platform-based business model.” Bottom line While we obviously love to see our names on this kind of list, we don’t advise trading around earnings releases. It’s simply too difficult. How often have we seen companies’ results beat estimates and stocks sell off due to profit-taking over high expectations or disappointment with a random line item? Rather, we encourage investors to view the Goldman research as a positive update on names for which we see material longer-term upside, and use it as a guide for listening to management commentary around the upcoming earnings releases. (Jim Cramer’s Charitable Trust is long WFC, HUM, NDVA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
It’s encouraging to see three Club stocks on the bullish side of Goldman Sachs’ new list of 25 tactical trades for earnings season.
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