Nvidia fuels rally, but where else can investors find value?

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With so much focus on Nvidia (NVDA), investors may be missing out on some other spectacular plays for their portfolio. In addition, some analysts warn that it may not be a good idea to focus on one sector or stock too heavily.

GLOBALT Investments Senior Portfolio Manager Keith Buchanan joins Yahoo Finance to discuss the broadening market rally and alternative stock plays for investors to add to their portfolio, other than Nvidia.

Buchanan explains why one of his top picks is Walmart (WMT): "Call me old fashioned, I like execution and that's what Walmart has proven time and time again. In the heart of the pandemic, coming out of the pandemic, they were able to keep prices ahead of inflation, now inflation is starting to turn down lower. The Vizio (VZIO) purchase... is really an example of where they see the corporation 10 years from now."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

RACHELLE AKUFFO: The tech-fueled rally continues, although losing a little bit of steam today-- but Nvidia hitting a $2 trillion valuation and setting a record for the biggest daily market cap gain this week. And this comes after the chip-maker handily beat analysts' expectations in its earnings report and guidance.

Markets riding high on Nvidia's win, but the rally might need broader participation to survive. To break this down for us, Keith Buchanan, Global Investments Senior Portfolio Manager is here. Good to have you on the show here. So, Keith, what is it going to take, then, to take some of the steam off of this rally that we're seeing and really broaden out some of the gains more?

KEITH BUCHANAN: Thank you so much for having me. Really, AI is real as advertised. There's no denying that this is a revolutionary form of technology that will change every industry and how productive we are as a society. But just the sheer market cap that these corporations have garnered to this point is really hard to really fathom. I mean, there are two corporations that individually have more market cap than the entire Russell 2000 small cap index.

We feel like the market has become a little too top-heavy. We've enjoyed some of the gains of the Mag Seven, so to speak. And we don't feel like the valuation is extreme, even at these levels.

But we feel like this rally at this point is going to have to enjoy broader participation within value, within small cap, within mid cap in order to continue to sustain itself later into 2024. From a valuation standpoint we feel like that can benefit those corporations that execute very well, we saw some of that last quarter as far as earnings reports, especially guidance. And we're looking at those corporations for leadership going into 2024.

RACHELLE AKUFFO: And it's interesting, because when you look at the price movement that we've seen and the valuations, a lot of people are wondering about that balance between rational exuberance and meme stock treatment here. So in terms of what could potentially let the steam out of this rally, what are you looking at?

KEITH BUCHANAN: Look, irrational exuberance is when we make up different new ways to justify where things are. [INAUDIBLE] and price per click, price per book, in some areas, price per website visit in the '90s was a symptom of that exuberance. We're just not seeing it now. The most traditional earnings metric of price to earnings on a go-forward basis next 12 months-- Nvidia is trading at 30 times earnings. I mean, the market, S&P 500, is trading at 20 times.

It's trading cheaper than Chipotle, cheaper than Costco, cheaper than Amazon and Microsoft as well, and even half the valuation of a Tesla. We just don't feel like we have that exuberance just yet. And that's because the earnings expectations have actually outpaced the stock, if you can imagine that. So we don't feel like we're at excessive levels yet, we just feel like the broadening could help sustain this rally further into later into the year.

AKIKO FUJITA: And, Keith, Nvidia's performance this week overshadowing all other stocks. But we did kick the week off talking about retail earnings. And you've got Walmart as one of your top picks. What do you like there?

KEITH BUCHANAN: Call me old fashioned, I like execution. And that's what Walmart has proven time and time again. In the heart of the pandemic coming out of the pandemic, they were able to keep prices ahead of inflation. Now, the inflation is starting to turn down lower. The Vizio purchase, I think, really is an example of where they see the corporation 10 years from now.

Amazon is-- I mean, Walmart is going through an Amazonification, if you will, of their business, as they're seeking different avenues to push advertising to online customers, as we saw more high earning customers come through their doors, the virtual doors, and actually get products through their e-commerce-- being able to push different advertisements to that new cohort of Walmart shoppers is really integral to where they grow the firm-- grow the company over the next 10 years. Vizio just plays a big role in how they-- a different channel to get those advertisements to those customers. We like the way Walmart is executing going into a future Walmart that could look a lot more like Amazon than Walmart of the past.

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