Popular Stocks Come Down to Earth

Be careful when everyone is chasing the same investments.

Recently a number of investors have realized that euphoria only lasts so long. Recent examples include Tesla, Nvidia, and Super Micro Computer. On Friday Nvidia dropped 10% in value and Super Micro dropped 23.14%. Of course, any index fund with large holdings of NVDA and/or SMCI felt the pinch.

The question now, for many investors, is should I buy on the dip? SMCI has a STRONG BUY QUANT rating on Seeking Alpha. NVDA has a HOLD rating. TSLA is down 18.57% YTD and has a HOLD rating. TSLA’s P/E ratio is a ridiculous 53.60. I would not be buying Tesla at today’s price. SMCI has a much better P/E of 32.51, so it would be of more interest to me.

NVDA also outshines TSLA in the P/E ratio department: 30.58.

Recommendations

TESLA

I would avoid buying shares of Tesla. I think the price cuts Tesla will need to make in order to grow sales will eat away at their profit margins. In fact, a recent Seeking Alpha headline proclaimed: “Tesla cuts U.S. prices by $2K across its Model Y, S and X cars.” In other words, subtract $2K from the profit of each electric vehicle that is sold.

This might be a good way to get market share, but I suspect there will be a lot of recent buyers who will be upset by the declining prices of new vehicles. If they want to sell their used Tesla, it will be worth much less. TSLA is down over 40% YTD. That would give most investors a real headache. It is a harsh reality that euphoria and speculation can be very painful.

SUPER MICRO COMPUTER

Super Micro Computer (SMCI) is a tempting investment. If I were going to buy 10 shares worth about $7,200 based on Friday’s closing price, I would buy the shares one-at-a-time. This would be especially true if the share price continued down next week. The reason is simple: If SMCI hits the expected EPS (Earnings Per Share) growth that is forecasted for 2024-2026, this could be a good time to dip your toes in the SMCI water.

Bear in mind that SMCI, Super Micro Computer, dropped to $713.65/share on Friday. That means every share was worth -$214.83 less than it was on Thursday. If you owned 100 shares, the pain would be noticed. Reality may be setting in. Certainly never invest more than 5% of your total investment dollars in shares of any company, no matter what the QUANT reading is.

NVIDIA Corporation

NVDA (NVIDIA Corporation) dropped to $762.00 per share on Friday. This is a decline of -$84.71 per share in a single day. As a dividend growth investor, NVDA has zero appeal. The dividend yield is 0.02% and the 5-year growth rate is 0.64%. However, the anticipated EPS growth rates for 2025-2027 are quite amazing. If they are true, then slowly buying NVDA shares might be a wise long-term move if you don’t need the dividends.

Full Disclosure

We do not currently own shares of TSLA, SMCI, or NVDA. They are not candidates for the Easy Income Strategy and buying shares is not for the fainthearted.