Nvidia stock is priced for 'absolute perfection': expert

Yahoo Finance’s Brian Sozzi and Alexis Christoforous break down today’s market action with Paul Schatz, Heritage Capital President.

Video Transcript

ALEXIS CHRISTOFOROUS: Good morning to you, Paul. I want to get your thoughts on these jobless claims, back above a million. What does that tell you about the job market recovery during this time?

PAUL SCHATZ: I think you got to be really careful to look at one single number in any kind of environment. But especially in this pandemic environment, when things are so volatile and you're so outside the normal range. So of course, it wasn't a great number. But I caution people to use maybe a four-week average to get a better handle of the trend. I think that one number, one number is uneven, it's lumpy, there may be some abnormalities, anomalies, some things you just can't really analyze so easily from one piece of data.

BRIAN SOZZI: Paul, I have a lot of stocks on my watch list today. It's definitely a Thursday for me. One name is Goodyear Tire. I'm sure you saw President Trump call for a boycott of Goodyear Tire. Stock pulled back. Looking up a little bit here in the early going. But is that a name you go buy on weakness? Look at these auto sales. These auto sales have been red hot. You have an industrial, like Goodyear, doing OK. Are you interested?

PAUL SCHATZ: So the short answer is yes, but not because, first of all, I think, I don't, I've said this for all presidents. Presidents shouldn't pick winners and losers. If it's an American company, we should do our best to support American companies. With that, I think Goodyear falls in the industrial category. And if there's going to be another leg higher in the bull market, which I do think there should be, I think we're going to see the industrial sector and that complex take a moral leadership role. So whether it's, I'm not sure I'm running to buy GM or Ford, but something like a Goodyear Tire would be one I'd look at, along with kind of the broad complex.

BRIAN SOZZI: I know there are a lot of investors out there, they see this type of news. Paul. Helped them understand, does this, would this type of boycott cause a Goodyear Tire to miss on their quarterly earnings? Does it have that type of effect?

PAUL SCHATZ: So it's, remember, over the last three plus years, we've seen very different behavior than we've ever seen from presidents. And I'm not going to opine whether that's good or bad, but it's been very different. So when the president or frankly, his opponents, call for something, you get that binary outcome. You get supporters of the president rushing to do what the president wants them to do, and you get the supporters of the opponents doing the exact opposite.

In the end, do I think it's going to be a big deal and move the needle? I do not. Could it be a penny here, a penny here? Sure. But it's not something I base my investment thesis on. I wouldn't buy it, nor sell it based on how the two sides are going to fight over Goodyear or China or anything else for that matter. It's, this is a highly charged to an epic degree partisan season. I think investors need to take that with a grain, everything with a grain of salt.

ALEXIS CHRISTOFOROUS: Yeah, good point, Paul. I want to throw a couple of other stocks your way, both of them chip-makers, Nvidia and Intel. So I've got Nvidia down about 1% right now. For all intents and purposes, a blowout quarter, right? Revenue jumping 50%. Not enough to lift the stock. Are there concerns there about valuations? And then Intel up about 2 and 1/2% right now, announcing an accelerated buyback plan. Is Intel cheap relatively speaking?

PAUL SCHATZ: All right, let's doing Nvidia first, because it's my middle son's second favorite stock behind AMD. Let's remember, Nvidia melted up from 200 to 500 in six months. So this stock is priced for absolute perfection. And I think what you had is, buy the rumor, sell the news. I don't think it's a big deal that we're selling off. Frankly, we could sell off some more.

The stock is still, has been a home run. It may, it's not going to go 200 to 500 or 500 to 1,000 so quickly. But this is a bellwether. I'll add it to my fab five. It's the fab six or seven of stocks on the NASDAQ. So we're long, and we've been long semis for several years. Actually cut our position in half in the last week in anticipation of some more volatility in the sector. But I think the sector is still a good sector to be in.

Intel's different. Intel's that value stock, it's old and stodgy. While it may still be the granddaddy of semis, fundamentally, as my 15-year-old tells me every single day, AMD is making better chips, their chips are more in demand, and they're not as expensive as Intel's chips. So Intel may be a value play and a low volatility play to get into semis, but if you're a semi investor and you're aggressive, Intel wouldn't be my place to start.

BRIAN SOZZI: Paul, Apple $2 trillion. Are they a value play also?

[LAUGHS]

PAUL SCHATZ: And I see that little smirk on your face.

BRIAN SOZZI: No comment from me.

PAUL SCHATZ: You know, it's the fab five. I know we're in that zone where, is Apple going to peak and collapse? I don't think so. But as we've owned Apple and I've peeled back small percentages along the way, so if a client had 3% of their portfolio in Apple and it went to 6% or 7% or 8% and I peeled back a little bit, people have become outraged.

And I know that's a kind of a cultural thing, that's a sentiment thing, because most people believe it can do no wrong. I never give Apple as a play anymore in the media, because everybody owns it already. So I think you have to be careful. Apple, McDonalds in the '70s was similar to Apple and Amazon in that it had meteoric rise, P/Es went crazy, and the stock went down while earnings soared.

At some point, the market's going to revalue Amazon, Apple, Microsoft, Facebook, Google, and Nvidia. Earnings may continue higher, but the market may not pay the same multiple over time, because the companies are fundamentally sound. I would not throw money into the fab six right now. If I owned it, I would trim a little bit and keep my core position, but I would not be running out to buy more of these stocks. I think the next leg higher in the bull market is going to see different leadership.

ALEXIS CHRISTOFOROUS: I want to ask you quickly about different leadership, and also the V word, which we've been talking a lot about this morning, and that is volatility. This is a typical time of the year, especially an election year, volatility starts to heat up. Are you betting on volatility? And if so, how are you hedging against it? And real quick, tell us where the leadership's going to be in this market, Paul?

PAUL SCHATZ: OK, so let's remember one thing. This is an incumbent election year. Election, except for '08, which I would say, was different, election years in August, September, October do not see big declines. Incumbent election years, we've had essentially no declines in August, September, October all the way back, the last thing we have was in 1956.

So I know it sounds crazy, but typically, the market goes higher August, September, October. And their gains are small. I think, except for the Reagan '84, which is like a 10% August, and that's when we were coming out of a recession, markets are quiet. They're usually plus 1%, 2%, minus, plus 1% to 3%, minus 1% or 2%.

So we may see volatility slightly pick up. I'm not betting on volatility, the alligator mouth popping open. That would be probably after the election. Because I'm going to say on election day and the next day, we're not going to know who the president is going to be. And it could be weeks or maybe even a month. That's when I think volatility could pick up. But I don't think we will see more than an upper single digit decline, worst case between now and the election.

To your point about leadership, if I'm right and there is another leg higher in the bull market, the NASDAQ 100 should not lead. It could equally perform, but I think we should start to see rotation into things like the Dow 30. And as Apple splits coming up next week, its weighting in the Dow is going to get smaller, because the Dow is a price-weighted index.

So other stocks should begin to pick up. I don't think you'll see the semis and the NASDAQ 100 leaders. I do think you could see things like industrials and transports and perhaps materials lead, especially if somehow the yield curve can get a little steeper. But the key is, it's an incumbent election year. It behaves differently than other years.