Analysis: NVDA VIAB AAPL CBS T

The U.S. equity markets are pushing higher on Tuesday with yields stabilizing and WTI Crude pushing up against the key $60 threshold. Several stocks in the portfolio have made headlines today, and below we provide our latest thoughts on Nvidia (NVDA) , Viacom (VIAB) , and Apple (AAPL) .

Nvidia

Shares of Nvidia are outperforming on Tuesday thanks to an analyst note from Piper Jaffray, who initiated the stock with an Overweight rating and $200 price target. The basis of their call was Nvidia's exposure to attractive end markets, opportunities for "significant" margin expansion, as well as an "excellent entry point."

On gaming, the analysts believe the segment "is on track to grow meaningfully in the second half of calendar 2019," despite near-term headwinds like in the inventory channel which they expect will be cleaned up as the company moves through the April quarter. One long-term drive they see in this segment is the growth of eSports, whose players have heavily adopted the use of GeForce GPUs. In the data center, they think the Mellanox deal "adds another lever of growth" to the business, which doubled in both fiscal 2017 and 2018, and have over 50% year over year growth in fiscal 2019. And in autonomous driving, the analysts continue to expect Nvidia to deliver mid-teens revenue growth over the next several years. "In the current automotive transformation," they wrote, "every single aspect will require some level of computing, which is why we believe NVIDIA will be successful in this market."

Regarding margin expansion, the analysts think margins can expand several hundred basis points over the next few quarters as the inventor channel corrects and data center becomes a larger percentage of the company's total revenue. Piper Jaffray also points to Nvidia's ability to drive operating leverage, evidenced by the past few years of expenses increasing at 14% CAGR compared to 26% revenue CAGR. Shares are trading roughly 3% higher in reaction to the analyst call.

Recall that we scaled deeper into our Nvidia position on Monday around the lows of the day at ~$172 in our Alert here. In addition to our general bullish thesis around the company's gaming chip dominance, data center double-down through the Mellanox deal, and exposure to autonomous driving, we felt that yesterday's pullback failed to reflect the upbeat Investor Day event from the week prior. We'll continue to hunt for opportunistic levels to scale deeper into our most recent initiation.

Viacom

The NY Post reported late Monday night that CBS (CBS) and Viacom have resumed merger talks. Sources told the Post that Viacom's renewal contract with AT&T (T) (a positive outcome for VIAB that we wrote about in our Alert here) represented a "major hurdle to getting back to the negotiating table." We've heard merger speculation between the two companies heat up before and it is possible that CBS wanted to see what type of leverage Viacom had against its pay-TV customers before re-engaging in merger talks. Viacom's successful campaign and avoidance of a blackout proved that it still has a place in cable, likely due to the strong demand for Nickelodeon that many households with toddlers cannot live peacefully without.

As we said yesterday, we believe the Viacom-AT&T agreement should act as a clearing event for VIAB. Due to AT&T's previous comments about bending the cost curve, many had thought Viacom would be dropped from DirecTV, and this created an uncertainty that many stayed away from. But now that a deal has been made, the overhang on the stock should be removed and we expect many to welcome the company's improved profitability profile and undeservedly low price-to-earnings multiple. In addition to the AT&T deal relief rally, we are seeing M&A speculation begin to rebuild into the stock off the Post's reporting. VIAB is trading up roughly 6% in today's session and is now near $28, but we think there is still more ground to be made up.

Apple

Lastly, we want to follow up on Apple's big Services event from Monday (see our Alert here for a breakdown of the event). After yesterday's "sell the news" reaction which we predicted in our Alert here, shares are gaining in today's session despite the mixed reaction to the announcements and some of the unknown price points. What members should keep in mind here is that the new products and initiatives will be incremental positives to the Services revenue stream, the sticky business that commands a higher price-to-earnings multiple compared to hardware. As a result of yesterday's announcements as well as previous sell-side commentary around stabilizing smartphone trends, we are raising our price target to $220, reflecting roughly 16.5x FactSet consensus calendar year 2020 earnings.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long NVDA, VIAB, AAPL.