Wednesday, March 27, 2024

"How has this $25 billion fund beaten the S&P 500? Patience — and preparing for ‘the next big thing.’" (NVDA)

This is the best explanation of what NVDA was and was flashing to the market eight years ago that you are likely to find. There is something about getting on the right side of a trend or a trade or a company that, even though things are guaranteed to change, having the inertia of your default position, which is "In" makes things easier. 

You just stay "In". It happened to John Templeton when he went "In" to Japan at 2 or 3 times earnings, it happened with Google as the advertising business took on a life of its own, it happened with Apple, starting with the computers, "The cult of the Mac"  making it easier to stay "In" with the introduction of the iPhone.

One case where it didn't work out, and one that seemed to have the necessary creativity and marketing was Sony: sound systems to televisions to the Walkman to...what? PlayStation? 
They lost their way. 

But three out of four ain't bad and if you are hitting .750 in the big leagues, you are worth $100-200-300 million per year to the adoring fans.

From MarketWatch, March 27:

Tech stocks have been on a wild ride over the past few years, but the Franklin DynaTech Fund has performed very well over long cycles. Here’s how it might get in early on another transformational business cycle.

If you consider yourself a long-term investor, then the past few years have provided you with a lesson on how important it is to be patient.

Matt Moberg co-manages the $25 billion Franklin DynaTech Fund with Rupert H. Johnson Jr., who serves as the vice chair of Franklin Resources and helped found the fund in 1968.

“You have to be a long-term holder if you want to invest in innovation,” Moberg said during an interview with MarketWatch. He pointed to Nvidia Corp. NVDA , the fund’s largest holding, as an example. Moberg and Johnson first purchased shares of Nvidia for the fund in 2016.

“You need to have a 10-year view, not a three-year view,” he said, adding that concerns over Federal Reserve policy or economic events were more important to investors with shorter outlooks.

Back to Nvidia: From the end of 2016 through the end of 2022, the stock rose 455%. Great. But during 2022, Nvidia’s shares took a 50% dive. What more evidence do you need that a long-term investor must remain committed for many years?

Nvidia’s stock more than tripled in 2023. So far in 2024 it has risen another 92%. Here’s a look at numbers that might be comforting to long-term investors who are considering Nvidia even now.

Moberg said that when he and Johnson decided to buy Nvidia shares in 2016, he could not have predicted that the company, which had been a market leader for PC video cards, would wind up dominating the market for the graphics processing units installed by data centers to support their corporate clients’ deployment of generative-artificial-intelligence technology.

“You do not know when new innovations are going to hit, but you want to be prepared,” he said.

When discussing the top holdings of the fund, he said: “Our top 10 looks a lot like other peoples’ top 10s. The game is to find stocks earlier in the cycle.”

Here are the largest 10 holdings (out of 95) of the Franklin DynaTech Fund as of Feb. 29, according to Morningstar:

Company Ticker % of Franklin DynaTech Fund as of Feb. 29 End of quarter during which shares were first purchased by the fund
Nvidia Corp. NVDA 11.4% 6/30/2016
Microsoft Corp. MSFT 7.6% 6/30/2015 Inc. AMZN 7.3% 6/30/2007
Alphabet Inc. Class A GOOGL 3.7% 9/30/2004
ServiceNow Inc. NOW 3.6% 6/30/2012
Mastercard Incorporated Class A MA 3.3% 3/31/2008
ASML Holding NV ADR ASML 3.0% 9/30/2012
Meta Platforms Inc Class A META 3.0% 7/31/2023
Synopsys Inc. SNPS 2.9% 12/31/2018
Cadence Design Systems Inc. CDNS 2.9% 12/31/2016
Source: Morningstar

Moberg said that turnover within the portfolio is normally between 20% and 25% each year, and that the typical stock is held for four to five years. But among the largest 10 holdings, five have been held more than 10 years.

Looking ahead when selecting stocks
Moberg said that he and Johnson were “trying to find S-curves for adoption” among companies already showing accelerating paces for the growth of sales and earnings. Then they dig deeper to decide whether or not the company has “a long growth runway” springing from innovative products or services....

....Further ahead — a possible innovation wave
Keeping in mind that the type of innovation that has helped Nvidia dominate the GPU space is impossible to predict, Moberg provided an example of an industry that might be riding another wave of world-changing innovation: genomic medicine.

“We do not know when genomics will hit. Last year, more drugs were approved than over the previous five years. You want to be well positioned for when growth will happen,” he said....


Also at MarketWatch, March 9:

25 of the best-performing stocks in the S&P 500 appear to be better values than they were a year ago. Nvidia is one of them.

As noted in "I Have Heard Of This Nvidia You Speak Of (first call for a $10 trillion market cap) NVDA": 

*In 2015 we started using a boilerplate intro to the company, here's a 2016 version saying "Focus on the AI/Machine Learning":
NVIDIA: Don't Buy the Stock For The Autonomous Car Stuff (or virtual reality) NVDA; TSLA; IBM

The stock is up $2.21 (+2.64%) at $85.85. [divide that by 4 to account for the stock split in 2021]
Yesterday the usually very reliable Investor's Business Daily headlined a story "Nvidia Upgraded On Growth In Car, Cloud, Virtual Reality Fields". As we say in our standard intro to the stock:
Before we go any further, our NVIDIA boilerplate:  
We make very few calls on individual names on the blog but this one is special. 
They are positioned to be the brains in autonomous vehicles, they will drive virtual reality should it ever catch on, the current businesses include gaming graphics, deep learning/artificial intelligence, and supercharging the world's fastest supercomputers including what will be the world's fastest at Oak Ridge next year.
Not just another pretty face.  
Or food delivery app.

The company was doing the R&D in these different areas and was so attuned to what "might" be, that when the opportunity arose they were right there.

 Now the question is: Is the double top for real (implying a fall to the last major unfilled gap at 660-ish) or is it the start of a series of bounces against resistance before breaking through to the upside?

NVDA NVIDIA Corporation daily Stock Chart

A reminder, that February decline-then-gap-up was the lead-up and reaction to the earnings release that everyone knew would be very good but was an absolute blowout. Everyone knows the next report is going to be very good but....