Catalyst Funds Co-Founder, CIO, and Senior Portfolio Manager David Miller joins Yahoo Finance's Julie Hyman for another installment of Good Buy or Goodbye, believing there to be risk surrounding chip giant Nvidia's (NVDA) — whose latest earnings results in February bolstered markets and tech trades — valuation trajectory.
"There's no question that their company is doing incredibly well, and they're going to continue to do well in the near future," Miller states. "The question is will that continue indefinitely? Historically, you've always had boom and bust cycles in semiconductors, chipmakers. It's getting price now like that's over."
On the other hand, Miller cites telehealth company Hims & Hers Health (HIMS) as his Good Buy pick, finding it to be a new solution to several problems traditional pharmacy customers still deal with.
Catch more of Good Buy or Goodbye here, or watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
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JULIE HYMAN: It's a big noisy universe of stocks out there. Welcome to Good Buy or Goodbye. Our goal to help cut through that noise to navigate the best moves for your portfolio.
Let's bring in David Miller, Catalyst Funds chief investment officer and senior portfolio manager. And let's get right to your buy here. And just we'll do a little tease, your goodbye is one of those Magnificent Seven stocks that we just heard Anthony talk about.
But let's get to your stock that you do like first of all and that is Hims and Hers Health. Now, this is an interesting one. It's had a good year to date so far. It came public back in 2019 as part of a DSPAC, right? And so let's get to your bull case here, basically, that it's a grower is your first point.
DAVID MILLER: Absolutely. 47% revenue growth, massive revenue growth. Even when the stock was declining, interestingly enough, it was growing incredibly quickly and massive margins.
JULIE HYMAN: Yeah. And also, the company is now profitable, which is something it hadn't been on a regular basis here. So is this something that now, it's going to be more consistent in terms of its profitability?
DAVID MILLER: Absolutely. So it's one of the few SPACs that I really like and now that they're profitable. When you're profitable, and you have massive margins, and you continue growing in that percentage of their costs that are marketing expenditures continue to decrease, you'll just see that net income continue to grow very rapidly is my anticipation.
JULIE HYMAN: Now, this company, for those people who aren't familiar with Hims and Hers, they provide men's and women's health products online, right?
DAVID MILLER: Exactly.
JULIE HYMAN: So they sell them online. We used to see pre-pandemic they had a lot of ads in the subway here in New York City. So that was one of the ways I first got exposed to them. And what is this sort of-- what problem are they solving for customers that you think is unique?
DAVID MILLER: I'd say they're solving three huge problems for customers. First, is when you're on a medication in the past, you had to go in to a doctor's office. Now, if that were for an embarrassing problem like an ED, or balding, or things of that nature, or things where you just don't want to go to the doctor's office, now you can do it on the computer.
Two, is you used to actually have to go to the pharmacy to then get that medication. They ship it straight to your home in a couple of days. Three is that these medications used to be either very expensive if you paid out of pocket or you'd have to buy it through insurance and a copay. It's actually cheaper to buy these directly than the cost of the insurance copay. So it's saving you money, and it's saving a lot of time, and it's making life dramatically easier, which is why you're seeing so much customer adoption.
JULIE HYMAN: Right. And as always when we talk about these, though, we've got to talk about some of the risks to the potential upside. So if we look in this case, maybe there could be some changing regulation around telehealth.
And there's also competition from Ro, which is another startup. So let's take the first of these first. What could happen on the regulation front?
DAVID MILLER: So there's already been some changes in regulation around the pandemic and when they made it a lot easier to do telehealth. Now, that hasn't affected Hims and Hers yet because they're generally medications that are easy to get, very little in the way of side effects. They're not like significant antidepressants or painkillers that are addictive. They're things that pose little risk, but that could always change.
Second, to the point with Ro. Ro is a direct competitor. They're both great services.
Potentially one will do better than the other. But this is also a very big space and they're both solving a huge problem in removing the need to go to the doctor's office, or the pharmacy, or pay more money. So when you can solve all three of those problems and make life easier for people, there's a good chance they can both do well.
JULIE HYMAN: Interesting. All right, now let's get to your goodbye. And this one, I'm going to venture to say, this is a little bit of a risky call perhaps because it's a very popular stock.
We're talking about NVIDIA. But there are people now who are talking about maybe it's gone too far, too fast. So first of all, you say that it's already growing a lot and it's getting ever bigger. So is it going to be tougher for it to grow going forward at the same pace?
DAVID MILLER: So there's two different issues. Will it continue to grow? Will the net income grow rapidly? Yeah, I think the company is going to grow very rapidly both on the top line and the bottom line.
The real risk here to people who decide to own NVIDIA is they're paying 25 times revenue for a company that has a $2 trillion valuation roughly. There's never been a company in history that's justified that type of valuation at that type of size. You have to really think that NVIDIA is going to be the largest company on Earth to justify that.
Now, will they be? It's certainly possible. But are there less risky ways that you can get a better risk adjusted return? I think so.
JULIE HYMAN: And this is an interesting point that you make as well, back up real quick, that semiconductors tend to be cyclical, tends to be a commodity business. Now, NVIDIA's argument is that the complexity of the chips that they're producing has decommodified it to some extent. Do you not buy that argument?
DAVID MILLER: I do buy their argument.
JULIE HYMAN: OK.
DAVID MILLER: It's clearly true there's enormous demand for their chips right now. Right now, they have a game-changer chip. Nobody in history before would pay a quarter million dollars for a chip. There's no question that their company is doing incredibly well and they're going to continue to do well in the near future.
The question is, will that continue indefinitely? Historically, you've always had boom and bust cycles in semiconductors, chipmakers. It's getting priced now like that's over. There's never going to be another company that's going to compete directly with NVIDIA and that remains to be seen.
JULIE HYMAN: Yeah. And then finally, this kind of sums up what you alluded to a couple of times that it's valued as though it's going to be the biggest company, as though it's never going to see any competition, et cetera.
DAVID MILLER: Exactly. That's the big question. If they could maintain this lead that they have indefinitely, sure, they're definitely going to be worth it. But is there a reason to think 5, 10 years from now other people can't catch up and they're going to have incredibly high, unusual margins forever? My thought is less likely.
JULIE HYMAN: Gotcha. And then the risk to the downside case here is that, in particular, what they just announced, that Blackwell chip, that it is going to be tough to compete against.
DAVID MILLER: Yeah, and it absolutely will be. And to clarify, I'm not saying NVIDIA is a short. I'm saying I'd avoid it. It's certainly possible that AI will be the biggest thing ever and it very likely will be huge. The question is, is it worth $2 trillion today?
JULIE HYMAN: Right, and maybe there's other ways to play it, as you mentioned. Just real quickly here, are you long Hims and Hers?
DAVID MILLER: Yes, I am.
JULIE HYMAN: But you don't have a position.
DAVID MILLER: Don't have a position one way or the other in NVIDIA.
JULIE HYMAN: OK, gotcha. So let's sum up what you're telling investors here. Basically, you say you would buy Hims and Hers given its growth. It costs the tipping point into profitability and it creates amazing value for customers. On the other side, you say avoid NVIDIA given that maybe it's priced for perfection here and will not live up to the very, very lofty expectations being priced in.
I really appreciate it, David. Thank you. And thank you for watching Good Buy or Goodbye. We're going to be bringing you new episodes three times a week at 3:30 PM, Eastern.
