Long Term All-Stars Sometimes Become Short-Term Piggy’s

It’s the age-old conundrum – what should one do about a short-term negative move in a company that has great longer-term prospects?  Some investors that own a company called Nvidia are likely thinking about this.   For those that are not familiar with the name, Nvidia could be described as the infrastructure of everything internet.  Their microchip products power or direct traffic in Personal computers, automobiles, Cloud storage and Machine Learning (Artificial Intelligence).    Most major automakers use NVIDIA chips in their auto infotainment systems.  Leading edge automakers Audi, Mercedes, BMW and Tesla, all use their chips to power their auto-assisted driving systems.  If you use Amazon, Google or Microsoft cloud storage systems, NVIDIA powers these, and for Facebook’s Big Sur AI platform (Facebook Live), NVIDIA products are the backbone of that system.

As a result of these business lines, the company’s stock has been producing outsized returns for long-term investors, as the price chart illustrates below. However, those investors that have recently jumped on the bandwagon and even some research analysts late to the story, have recently questioned the future growth of the company and the bumps in price growth uncertainty are starting to form.  

Source: VIP Wealth Solutions & Bloomberg

The age old question comes up:  do you sell or hold the stock through the bumpy start to the year and look beyond the valley?

Warren Buffett would suggest to ignore the noise and focus on the fundamentals and forward-looking growth of the company.  In 5 years, the price will look different.  However, some investors don’t necessarily share that time horizon and are worried about their statement at the end of the next month.

Okay, this is where we get busy with a focus on numbers.  Ignoring the noise, investors should look at the company’s fundamentals.  The reality is that this company has for many quarters, as illustrated below, had positive earnings surprises.  This is a good thing. If you are looking for companies that continually beat analyst estimates, perhaps this is a better BUY at some point than a SELL?

Source: VIP Wealth Solutions & Bloomberg

So what’s the answer?

Warren Buffett still suggests that buying good companies when there is fear in the streets pays off in the longer-term. But he’s looking out 5 years.

Maybe that’s the answer…


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