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NVIDIA, StoneCo, Costco, Dillard's and Tesla highlighted as Zacks Bull and Bear of the Day

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  • NVDA
  • COST
  • DDS
  • TSLA
  • STNE

For Immediate Release

Chicago, IL – November 23, 2021 – Zacks Equity Research Shares of NVIDIA Corporation NVDA as the Bull of the Day, StoneCo Ltd. STNE as the Bear of the Day. In addition, Zacks Equity Research provides analysis on like Costco Wholesale Corporation COST, Dillard’s, Inc. DDS, and Tesla, Inc. TSLA.

Here is a synopsis of all five stocks:

Bull of the Day:

NVIDIA has been a rocket in the past month -- up over 40% since October 25 -- even before two events which sent it higher still.

The two events were (1) its annual GPU Tech Conference on November 9, which is always full of great surprises from Jensen Huang and his teams of engineering wizards; and (2) its Q3 beat-and-raise earnings report last Wednesday.

I wrote and talked about the first event here...

NVIDIA GTC Lessons in 2 Minutes from Professor Huang

In the video, I share a 2-minute clip from Jensen's keynote where he summarizes multiple factors driving the success of the NVIDIA hardware-software stack known as CUDA (Compute Unified Device Architecture).

In the article attached to that video, I describe in more detail five big take-aways from that segment.

I thought it would be fun to view the spectrum of analyst reactions before-during-after these two events -- plus one other catalyst that happened in late October.

Analysts (Besides Yours Truly) Who Saw It Coming

Followers know I've had them buying and holding NVDA near $200 all year. But today I want to show you the entire landscape of other analysts, including a few who've been right there with me.

The rocket commenced a launch sequence on October 26, as Piper Sandler analyst Harsh Kumar raised his price target on NVDA to $260 from $225. His rationale wasn't that compelling -- more gaming GPU sales and higher prices on Ebay to off-set crypto declines -- but his action may have ignited a pending technical breakout above the $230 resistance level that presaged a bigger catalyst.

Then two days later, Meta Platforms announced its name change in alignment with its summer heads-up about Zuckerberg's plans to become a "metaverse" company. While it seems an interesting strategy to distance the mothership from the Facebook Newsfeed, long-time investors knew this was a place the Oculus owner was headed.

Why would this FB strategy shift be important to NVIDIA?

Because NVIDIA had already been working on its Omniverse platform to serve everyone from gamers and creators to industrial engineers and science explorers.

Neither stock did much in the days after the Meta Platforms reveal. But then on November 4, one analyst saw the light...

Wells Fargo analyst Aaron Rakers raised his price target on NVDA to $320 from $245 noting that the "company is expected to officially launch the general availability of Omniverse Enterprise next week at GTC 2021." He expected this to be one of the key highlights.

NVDA shares surged 12% that day on a massive volume of 115 million shares. See how we weren't even to GTC or earnings yet before the rocket launched?

Rakers told investors that he believes NVIDIA Omniverse Enterprise "represents a significant platform expansion strategy" for the company, which also entails a deepening recurring software story. He described Omniverse as a "key enabler and platform for the development of the Metaverse across a wide range of vertical apps, including industrial, manufacturing, design and engineering, autonomous vehicles/robotics, and more."

What is the Omniverse?

While adding that Omniverse could provide a "halo effect" to the company's product portfolio, Rakers went on to describe what the platform actually does, noting that Omniverse is an open virtual platform that allows creators to collaborate in real-time physically-accurate simulations/3D renderings.

This has been a key theme I've described about the synergy between NVIDIA's gaming architectures and its ability to design, test and simulate new chips and software. As a platform for connecting 3D worlds in a shared virtual universe, the key technology powering Omniverse is Nucleus -- a database engine that allows client applications to share and modify 3D assets and scene descriptions.

Nucleus is based on Pixar's open Universal Scene Description technology, which provides a common language for defining digital assets. NVIDIA released an open beta of Omniverse in December 2020, and announced the coming general availability of Omniverse Enterprise in April 2021. Omniverse Enterprise subscriptions starts at $9,000 per year for a workgroup of two creators, 10 reviewers, and 4 Nucleus subscriptions.

Here Comes the Herd

On November 8, an analyst who might have read the Wells Raker report chimed in...

BMO Capital analyst Ambrish Srivastava raised the firm's price target on NVDA to $375 from $250, stating that the recent announcements from Meta Platforms has put the attention on the new fad, but NVIDIA has been "ahead of the curve" in creating an Omniverse "platform" for enabling the metaverse in multiple industries.

Okay, now let's see who also jumped after GTC on Nov 9...

Truist analyst William Stein raised his price target on NVDA to $360 from $257, citing that the company's software investments are "becoming more prominent" after the management introduced new software tools and AI models at its GTC event. Stein added that while investors did not get the gaming RTX40 series or other "obvious" model upside drivers, based on feedback from industry contacts, he was updating his model for higher growth in NVIDIA's Datacenter, Professional Visualization, and Gaming segments.

On Nov 12, this analyst gave a reluctant price target bump...

Wedbush analyst Matt Bryson downgraded NVDA to Neutral from Outperform while also boosting his price target to $300 from $220. The analyst cited valuation for the downgrade with the shares trading at 55 times his 2024 numbers. However, Bryson believes the combination of "unprecedented demand" for both data center and client offerings will allow NVDA to again exceed expectations next week when its reports.

Here were three more reluctant bulls trying to play catch-up with giant price target jumps...

Oppenheimer analyst Rick Schafer raised his price target on NVDA to $350 from $235, raising estimates ahead of the company's results on November 17. He saw upside to consensus estimates for fiscal Q3 led by data center, artificial intelligence and gaming, while noting supply constraints.

Susquehanna analyst Christopher Rolland raised his price target on NVDA to $360 from $250 saying he expected strong results and guidance but could also envision signs of a potential deceleration vs. the "white-hot results" of late.

Credit Suisse analyst John Pitzer raised his price target on NVDA to $400 from $225 ahead of quarterly results. The analyst believes secular tailwinds continue and risk of any crypto-correction is unlikely at least until supply improves in the second half of 2022. While the earnings report may or may not be "good enough," Pitzer believes there is nothing to derail the long-term bullish narrative.

See the pattern? Analysts who were behind because they are still trying to value NVDA as a hardware company instead of a complete hardware-software game-changer.

Post-Earnings Scramble

Let's start with the resident bear of the group...

Deutsche Bank analyst Ross Seymore raised his price target on NVDA to $285 from $185, keeping a Hold rating on the shares. The analyst said the strength of data center will "justifiably garner the majority of investor attention" as the near-term tailwinds appear likely to persist well into 2022 and beyond as NVDA enables a wide array of emerging technologies.

The smart BMO analyst didn't raise his PT, but he did share these additional thoughts after the report...

"NVIDIA is uniquely positioned to benefit from a shift on the computer landscape" said analyst Ambrish Srivastava, who kept his Outperform rating and $375 price target on NVDA. He boosted his FY22 EPS view by 16c to $4.33 and FY23 view by 48c to $5.25 after the Q3 earnings beat. The analyst cited the company's commentary that its visibility into the hyperscale market is better than ever going into a "big" 2022 with only about a quarter of its gaming installed base having migrated to the new Ampere architecture.

And Harsh from Piper, who coincidentally lit the technical fuse on Oct 26, decided to join the crowd...

Piper Sandler analyst Harsh Kumar raised his price target on NVDA to $350 from $260, noting the company provided January quarter guidance well ahead of expectations: NVIDIA expects both gaming and data center to drive growth sequentially in the January quarter, with data center providing a larger contribution.

Well that's what I've been saying for a year: that datacenter would overtake gaming in revenues within 12 months sometime in 2021.

Then here was the post-earnings update from William Stein, who has been a solid NVDA bull for many years...

Truist analyst William Stein raised his price target on NVDA to $389 from $360, praising the revenue and margin upside along with better than expected guidance. Stein also offered this unique observation from his model: the Q3 announcement will also be a "pre-cursor" to Q4, when NVIDIA will guide for "stronger" data center growth in Q1 and FY22.

The Path to $400

One analyst always has to be top of the Street heap on price targets. The first to claim the high ground was John Pitzer at Credit Suisse.

Before I give you the analyst who joined him, let's do a couple more honorable mentions...

KeyBanc analyst John Vinh raised his price target on NVDA to $350 from $260 after the company posted strong beat-and-raise results that were driven by data center strength and steady cloud and enterprise demand.

Raymond James analyst Chris Caso raised his price target on NVDA to $365 from $225, reiterating a Strong Buy rating on the stock. The company reported a "strong quarter and an even stronger guide" as supply increases and as datacenter demand continues to accelerate.

Caso added that while NVIDIA's valuation is elevated, its "level of growth can be found nowhere else in the semi space, and we don't see that slowing anytime soon."

I, of course, cannot argue with that sentiment. Finally, here's our second $400 call...

Needham analyst Rajvindra Gill raised his price target on NVDA to $400 from $245, highlighting the 42% growth in Gaming and 55% growth in Data Center revenue. Gill added that only 25% of the current 250M GeForce installed base is on RTX-enabled cards, suggesting a lengthy upgrade cycle ahead and more Gaming upside.

Meanwhile the analyst noted that NVIDIA's Data Center business is being driven by growth of deep learning Inference as GPU acceleration continues to proliferate in servers with more processors moving to the Ampere architecture.

Bottom line: As I tell my TAZR Trader members, where we own NVDA from $120, always buy the dips. There's nothing better than discovering a stock where you can consistently "average up."

Bear of the Day:

StoneCo provides financial technology solutions in Brazil. The payments company offers an end-to-end cloud-based technology platform to conduct electronic commerce, across in-store, online and mobile channels.

The company has been stuck in a steep earnings downtrend all year. And my colleague Tracey Ryniec was prescient to note its less than stellar profit profile back in January when she profiled Warren Buffett's 5 Most Spectacular Earnings Charts.

I didn't even know he owned it! Here's what Tracey had to say...

StoneCo is the only one on this list which doesn’t have a pristine earnings record. It has beat just 2 out of the last 4 quarters but it’s up 100% over the past 6 months so it deserves to be included along with the others. This Brazilian digital payments and finance company went IPO in the fourth quarter of 2018 and that’s when Berkshire got in.

The story did not get any better last week when Stone reported Q3 earnings.

StoneCo came out with a quarterly loss of $0.78 per share versus the Zacks Consensus Estimate of $0.12. This compares to earnings of $0.16 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of -750%. A quarter ago, it was expected that this company would post earnings of $0.15 per share when it actually produced earnings of $0.32, delivering a surprise of 113.33%.

Over the last four quarters, the company has surpassed consensus EPS estimates just once.

StoneCo, which belongs to the Zacks Internet--Software industry, posted revenues of $281.2 million for the quarter ended September 2021, surpassing the Zacks Consensus Estimate by 46.79%.

This compares to year-ago revenues of $173.85 million. The company has topped consensus revenue estimates three times over the last four quarters.

Despite this impressive topline growth, the stock is down over 80% since the February peak near $95. And after last week's report, shares dropped over 40% on a massive volume of 87 million shares.

This tells me there may be some major strategy shift or regulatory change in Brazil that has so severely affected their business outlook.

But you'd never know that watching the ARK Invest team which added 294,000 shares last Wednesday on the post-earnings plunge at an average price above $21.

StoneCo may have a great future ahead serving Brazil and more of South America. But until the earnings revisions stop going down and start heading back up, I'd be careful. The Zacks Rank will let you know.

Additional content:

Wall Street Poised for Thanksgiving Week Rally

Investors, at present, are concerned about whether the US stock market will gyrate during the Thanksgiving week or will there be a sustained upward movement? No doubt, there are issues that may derail the stock market’s upward journey. Investors are apprehensive about the spread of new covid cases in Europe and beyond, which may in due course affect the global economy vis-à-vis equity markets.

However, if history is a guide, the stock market has time and again done well during Thanksgiving week. At the same time, recent upbeat data on retail sales, labor market conditions, and industrial production do confirm that consumers and the broader economy are in pretty good shape, which certainly bodes well for stocks in the near term.

Thus, prospects of near-term gains undoubtedly should be heartening to investors. Hence, it’s prudent for them to now invest in growth stocks like CostcoDillard’s and Tesla for better returns.

Stock-Market to Perform Well During Thanksgiving Week

The US stock market, historically, has performed well during Thanksgiving week. Citing a MarketWatch article, per Bespoke Investment Group, the S&P 500 in the Thanksgiving week gained an average 0.60 percentage point since 1945. Wednesday or the day before Thanksgiving registered the best returns.

CFRA’s chief investment strategist, Sam Stovall also stated that “there’s a two-thirds likelihood the market is up on the day before Thanksgiving and a 57% likelihood the day after Thanksgiving, and a 71% likelihood that it’s up on Monday,” as mentioned in a CNBC article.

And why won’t the market do well in the said period? Recent encouraging economic reports should boost stocks to end in the green this week and beyond. Despite an increase in the cost of goods and services, consumers did splurge in the month of October. Citing another CNBC article, sales at US retailers increased 1.7% last month, per the Commerce Department.

Additionally, during the same month, in the United States, 531,000 new jobs were added, while the jobless rate declined to 4.6%, quoting a financial times article. To top it, industrial output in the United States bounced back in October and topped expectations.

3 Top-Ranked Growth Stocks to Buy Right Away

With consumers splurging on discretionary items, new jobs being added, and industries ramping up production to meet a surge in demand, the economy as well as the stock market is surely poised to chug along in the near future. This calls for investing in the following three growth stocks that possess a Zacks Rank #1 (Strong Buy) and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale sells foods and general merchandise through membership warehouses. Costco Wholesale’s recent strategy to penetrate the e-commerce business has strengthened its position among its peers.

Costco Wholesale’s strategy to sell its products at a discounted price helped the company attract value-seeking customers. The Zacks Consensus Estimate for its current-year earnings has moved up 5% over the past 60 days. COST’s expected earnings growth rate for the current year is a steady 9.7%.

Dillard’s is a departmental store chain that features fashion apparel. Dillard’s quarterly performance in recent times has been commendable. Demand for Dillard’s products continues to gain steam despite global supply chain disruptions.

Dillard’s strength in men’s as well as children’s apparel bodes well. The Zacks Consensus Estimate for its current-year earnings has moved up nearly 20% over the past 60 days. DDS’ expected earnings growth rate for the current year is a staggering 1,268.86%.

Tesla has lately joined the coveted $1T club. Tesla has been the second-fastest company to reach the milestone. Tesla’s future prospects look bright. This is because demand for an electric car is expected to climb in the near term as more and more countries are now striving to reduce carbon emissions (read more: Tesla is a Screaming Buy as It Joins the Elite $1T Club).

The Zacks Consensus Estimate for its current-year earnings has moved up 16.8% over the past 60 days. TSLA’s expected earnings growth rate for the current year is a superb 167%.

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