Value Investor Daily #28

The market is closed today, so here’s a quick recap in case you missed any of our updates or the market activity from last week.

We explored diverse topics, from the erratic nature of high beta stocks to strategic moves by investment gurus, and examined opportunities in small-cap stocks. Here’s a summary of our four highlighted articles:

1. GameStop: When Animal Spirits Run Wild, Value Investors Just Say No

GameStop (NYSE: GME) saw an astonishing 179% increase in its stock price over just two days, only to plummet by 64% shortly after.

This phenomenon underscores the speculative mania often associated with meme stocks, driven by social media hype rather than solid fundamentals.

For value investors, the key takeaway is to remain disciplined and focus on solid fundamentals amidst market frenzy. High beta stocks like GameStop may be tempting but come with substantial risks.

Explore the full story to understand the lessons from GameStop’s speculative roller coaster and why disciplined investing is crucial.

2. JAKKS Pacific Turnaround: Debt Paid Down, Can It Return to Growth?

JAKKS Pacific (NASDAQ: JAKK) has faced a tough year with a 44% stock price decline due to disappointing earnings. However, there’s a silver lining. We looked into the company’s fundamentals and calculated its fair value, estimating that the stock is currently undervalued.

Dive into our full analysis to see if JAKKS Pacific’s current stock weakness presents a buying opportunity for value investors.

3. Guru Watch: 13F Quarterly Updates

Our quarterly update on 13F filings reviewed the latest portfolio adjustments by top investors like Warren Buffett, Daniel Loeb, Bill Ackman, Nelson Peltz, and Michael Burry.

It’s always fascinating to review the moves made by the world’s greatest investors and uncover a treasure trove of ideas. Read the full article.

4. Small Cap Value Idea Down 48% YTD: Semler Scientific 

Semler Scientific (NASDAQ: SMLR), a medical diagnostic products developer, has seen its stock decline by 48% year-to-date. However, the company's strong financials and innovative products suggest it may be undervalued.

Despite Q1 earnings missing expectations, Semler’s robust cash position and strategic initiatives, including new FDA clearances, indicate significant long-term potential. This presents a possible entry point for value investors.

Read our investigation of Semler Scientific.

Market Overview: Weekly Highlights

Fed Minutes

Last week’s lower-than-expected U.S. CPI data eased concerns about the Federal Reserve maintaining high rates for an extended period. However, this data followed the May 1 Federal Open Market Committee (FOMC) meeting, which revealed (on Wednesday) a more hawkish stance than anticipated.

Fed officials remain concerned about inflation, creating uncertainty about the timing of potential rate cuts.

The minutes showed that while the current policy is considered "well positioned," many members are open to further rate hikes if necessary and debated whether the policy is restrictive enough to address economic issues.

Goldman Sachs analysts have revised their expectations for a rate cut, now predicting it will occur in September rather than July, reflecting the Fed's ongoing cautious approach.

Big Earnings Recap

NVIDIA (NASDAQ: NVDA)

NVIDIA’s shares surged over 9% on Thursday after the company reported impressive quarterly results and highlighted the booming demand for its new AI-optimized chips.

The tech giant posted adjusted earnings of $6.12 per share, surpassing the analyst forecast of $5.58 per share, on revenue of $26.04 billion, which also exceeded the expected $24.53 billion.

A significant factor in this earnings beat was a staggering 427% increase in data center revenue, which reached $22.56 billion in Q1, driven by the high demand for AI-related hardware to support various applications, including large language models.

Looking forward to the next quarter, NVIDIA anticipates revenue of approximately $28 billion, plus or minus 2%, well above the analysts' projection of $26.54 billion. 

Additionally, NVIDIA announced a ten-for-one stock split effective June 7, aiming to make its shares more accessible to a broader range of investors and employees.

The company also boosted its quarterly dividend by 150%, raising it to $0.10 per share, or $0.40 on an annual basis.

Target (NYSE: TGT)

On Wednesday, Target's shares fell 8% after the retailer's quarterly earnings report failed to meet Wall Street expectations.

Additionally, the company issued a conservative forecast for the upcoming quarter, attributing it to reduced consumer spending.

In stark contrast to its rival Walmart (NYSE: WMT), which recently posted better-than-expected results and increased its annual outlook, Target's Q1 performance was underwhelming.

The retailer reported earnings per share (EPS) of $2.03, missing the analyst estimate of $2.06 by $0.03. Revenue for the quarter was $24.53 billion, slightly above the consensus estimate of $24.51 billion.

Despite the negative market reaction, several Wall Street analysts, including those from D.A. Davidson and Citi, considered the sell-off to be exaggerated, suggesting that Target’s stock might be oversold.

Zoom Video Communications (NASDAQ: ZM)

Zoom Video Communications delivered an impressive Q1 performance, exceeding analyst expectations for both earnings per share (EPS) and revenue.

The company reported an adjusted EPS of $1.35, which was $0.16 higher than the consensus estimate of $1.19. Additionally, the company's revenue for the quarter reached $1.14 billion, surpassing the Street estimate of $1.13 billion.

Year-over-year (YoY), Zoom's revenue increased by 3.2%, with a significant 5.3% YoY growth in Enterprise revenue, which totaled $665.7 million.

This robust performance reflects the ongoing demand for Zoom's video conferencing solutions as companies continue to embrace hybrid work models.

Looking ahead, Zoom raised its annual profit and revenue forecast, highlighting the success of its efforts to integrate artificial intelligence (AI) and expand its range of services. This optimistic outlook underscores the company's strategic initiatives to meet the evolving needs of its users.

Videos of the Week

Sven Carlin released an excellent video on his value investing mindset that helped him 32x his money over the last twenty years:

And finally, Joseph Carlson broke down the 13F filings of nine super investors. Enjoy!

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