In a new InvestorPlace presentation, “The Next Wave of Breakout Stocks,” host Chris Hurt admits he has been one of the unlucky ones. He admits to missing out on, among plenty of others, these breakout stocks:
- Energy drink maker Celsius (NASDAQ:CELH), which is up 1,400%
- AI GPU superstar Nvidia (NASDAQ:NVDA), up 1,000%
- And robotics firm Symbotic (NASDAQ:SYM), which has leaped 400%
You might have missed out on these gains, too.
However, there’s a good reason why picking these sorts of winners is so hard: They can look downright ugly before their breakouts.
In 2019, Celsius was a money-losing regional drink maker with no nationwide distribution network. Nvidia had just lost 50% of its value from the cryptocurrency hangover that same period. And in 2022, Symbotic looked more like a busted SPAC than the next AI superstar.
It’s no wonder why Chris and thousands of others wanted to stay far, far away.
We’re seeing the same story play out today. Last week, shares of some of the largest AI-focused firms tumbled as investors reconsidered their high-priced bets. Companies like chipmaker Intel (INTC) have lost almost 50% in a month, which is why some people are comparing last week’s volatility to 1987’s “Black Monday.”
Things are ugly. And it’s not clear which stocks to buy the dip on.
Fortunately, there’s a solution. One that’s taken years to develop. In his latest talk with InvestorPlace Chief Investment Analyst Luke Lango, Chris reveals how Luke and his team have created a quantitative-driven system that’s able to cut through the “ugliness” and help them identify these diamonds-in-the-rough before they bounce back. It’s called Prometheus, and you can learn more about it in their presentation here.
Even better, many of the system’s top picks are also the same ones our InvestorPlace.com writers have been eyeing. Together, we’ve found a handful of companies that human and “machine” believe are set to rebound and potentially turn into breakout stocks.
Nvidia (NVDA)
Perhaps the greatest source of hand-wringing last week came from Nvidia, a company that many believed had grown too large, too quickly. It only took the chipmaker three months to move from a $2 trillion firm to a $3 trillion one earlier this year, which made the selloff equally violent. Last week’s decline has now brought shares down 25% since their July peak – erasing almost that same trillion dollars from Nvidia’s market value.
However, both Louis Navellier and Prometheus see an opportunity to buy the dip. As Louis bluntly puts it, don’t let talk of “bubble trouble” scare you from Nvidia:
It may be overstating it to say that NVDA is in “bubble land.” The GenAI boom took shape in early 2023. Since then, shares have surged by more than sevenfold.
However, earnings have gone up nearly tenfold during this time frame. In FY2023, Nvidia’s earnings came at 18 cents per share. Over the trailing 12-month period, reported earnings have totaled $1.73 per share.
In other words, Nvidia’s meteoritic rise has come with an even greater increase in profits. Shares of the company trade at just 25 times estimated 2025 earnings… hardly the stuff of bubbles. Earnings forecasts have also continued to increase, with the average analyst adding 3% to their earnings per share (EPS) estimates over the past 30 days. This is historically a bullish sign of more gains to come.
Of course, there are some risks that Nvidia will fail to deliver on future earnings. Competition is rising among AI chip producers, just as data center players are facing mounting pressure to cut costs. But that’s precisely why the stock has fallen 25% in the first place. Prometheus awards Nvidia a >90 score, which suggests a rebound is likely over the next four weeks.
KLA (KLAC)
Shares of high-quality KLA (NASDAQ:KLAC) have plunged 20% since July on similar concerns over AI chip demand. Investors are worried about data centers cutting semiconductor demand and have sold KLA along with lower-quality firms.
The Silicon Valley firm is one of the largest global manufacturers of wafer fabrication equipment for semiconductors, specializing in process control. It’s an essential service that helps manufacturers inspect chips during research and production.
The complexity of KLA’s equipment and relevant services means the company has incredible pricing power and scale. It’s roughly four times larger than its closest competitor, according to analysts at Morningstar, and earns over 40% gross margins.
In June, InvestorPlace.com’s Omor Ibne Ehsan called KLA a tech trailblazer that’s paving the way in AI, 5G and Internet of Things:
Although the firm’s growth has moderated recently, I think the company’s consistent ability to surpass Wall Street projections bodes well for its future prospects. As the semiconductor industry continues to boom, driven by insatiable demand for cutting-edge chips, KLAC is poised to thrive. If it maintains its momentum and the Nasdaq soars past 20,000, I wouldn’t be surprised to see the stock catapult beyond the $1,000 mark.
The recent selloff now means Ehsan’s $1,000 target price represents almost a 40% upside from current prices. The company scores a strong 88 with Prometheus, and analysts have raised their current-year earnings estimates by 5% over the past 30 days.
Microsoft (MSFT)
Joel Baglole writes this week that a buying opportunity has finally opened up with Microsoft (NASDAQ:MSFT), a company that markets have sold off:
Microsoft delivered a Q2 print that was strong overall and exceeded Wall Street targets on the top and bottom lines. Most analysts raised their targets on Microsoft stock after the Q2 earnings were made public…
However, MSFT stock has been pulled lower since the beginning of July amid the broad pullback in technology securities. In the last month, Microsoft stock has declined 13%. This presents a golden opportunity to buy the dip in a best-in-class stock that has a track record of rewarding shareholders.
Essentially, Microsoft is beginning to catch up in enterprise-focused cloud computing – an area that Amazon.com (NASDAQ:AMZN) once dominated. Azure cloud service revenues rose 29% in the quarter, well ahead of Amazon’s 19% growth rate. It’s an increasingly lucrative segment that’s helped increase Microsoft’s quarterly revenues by $4.5 billion. InvestorPlace.com’s Faisal Humayun additionally notes that Microsoft’s Azure AI could bring in as much as $200 billion in five years, making it a solid firm to buy the dip.
Prometheus awards Microsoft a strong score of 88.
Symbotic (SYM)
Last month, InvestorPlace.com writer Eddie Pan noted that warehouse automation firm Symbotic had fallen 25% on weak guidance. (Yes, the same one that previously rose 400%.) He explains what’s going on with the AI darling:
Guidance is where Symbotic struggled. The company guided for fourth-quarter revenue of between $455 million and $475 million and adjusted EBITDA between $28 million and $32 million. Analysts were expecting revenue of $516.84 million, meaning that the midpoint of Symbotic’s revenue missed the target by a significant 10%.
A deeper read shows that revenue forecast cuts were a direct result of a planned in-sourcing initiative, which will decrease revenues in the near term and increase profits for the long run. Management realized that much of its outsourcing was costing the firm too much and has opted for slower, more profitable growth.
That’s why Pan also notes that Wall Street analysts expect the Massachusetts-based firm to quickly recover.
The recent stock market selloff now provides a perfect opportunity to jump in on this high-potential stock. Prometheus award shares a score of 87.8, putting it in the top 2% of large-cap companies.
Intel (INTC)
Finally, our most contentious buy-the-dip pick this week is Intel (NASDAQ:INTC), a firm I previously noted had lost almost 50% of its market value in a month.
The reasons for Intel’s decline are obvious… at least in hindsight:
- Innovation. In 2018, the company failed to deliver its 10-nanometer CPU, and has been catching up with subsequent standards ever since.
- Competition. Arm architecture is now rivaling Intel’s x86 platform in performance; some believe Intel could lose as much as 50% market share in CPUs from this.
- Strategy. Intel has lagged GPU makers in developing AI-specific chips, leaving the sector wide open for players like Nvidia and Advanced Micro Devices (NASDAQ:AMD).
Perhaps worst of all, Intel’s latest products appear to have been rushed. Many of its 13th and 14th generation CPUs are allegedly causing instabilities in both desktops and servers.
However, selloffs can sometimes go too far. As InvestorPlace.com’s David Moadel wrote last week, it’s time to buy Intel’s stock because no one else wants to:
At this point, there’s practically nothing left for Intel’s shareholders to fear…
It’s hard to envision the rainbow that’s coming when it’s storming. Intel is going through a rough period, but Intel CEO Pat Gelsinger assured that the aforementioned decisions (layoffs, dividend suspension) were “painful and hard” but necessary…
Unless you really think Intel’s headed for Chapter 11, now’s the time to exercise your contrarian muscles and buy a few shares.
Gelsinger is also putting his money where his mouth is. This week, the veteran executive bought 12,500 shares of his company’s stock. And he might be onto something. Prometheus awards Intel a score of 85, suggesting that the selloff has finally gone too far.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Thomas Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Tom Yeung’s Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad.