Analysis: PYPL AMD NVDA GOOGL

Bob Lang and Chris Versace discuss the markets, exiting PayPal (PYPL) , Advanced Micro (AMD) , Nvidia (NVDA) , Alphabet (GOOGL) , oil and much more.

BOB LANG: Good morning, Action Alerts Plus members. I'm Bob Lang with Chris Versace. Katherine Ross has the morning off today. Chris, let's get right to the markets. What are you watching right now?

CHRIS VERSACE: Well, Bob, you know the markets opened, and they're trading off a little bit. No surprise given some concerns about the heat we saw in the October Producer Price Index. Look, given the number of comments we heard about input costs and subsequent price increases by companies, not much of a surprise. The real focus I think is going to be on what we learn tomorrow with the Consumer Price Index and see how much of those increases are hitting consumer wallets as we head into the consumer-- sorry, into the big holiday shopping season.

Two other quick things, one, some noise perhaps on the Fed front that President Biden might be looking at someone else other than Fed Chair Powell. And then we've also got renewed concerns over the China real estate issues, we'll have to watch again tomorrow for something on Evergrande and a big, big interest payment that's expected.

BOB LANG: Well, Chris, PayPal reported earnings last night, a revenue miss, it lowered full-year revenue forecast too, citing a difficult macro environment. If you check your Alerts this morning obviously you saw that we exited the name. Chris, this is a stock that we talked about quite extensively last week in our monthly call. Give us a quick breakdown here of our reasoning why we did this.

CHRIS VERSACE: Well, there's a couple of different reasons. First on the fundamental side, Bob, I think you hit the nail on the head, this is the second time the company has had missed revenue expectations, they're guiding lower for the current quarter, and they're continuing to invest. And while there might be some long-term, i.e. 2023 opportunity with the name, the reality is in the near term, they are in invest mode, that's going to weigh on margins, that's going to weigh on earnings. So the market is not liking that news at all. As members can see by the share price reception. And look, we're going to have to claw our way back or cut bait and move on to more productive names. And when we add in the technicals that you're about to discuss, we're moving on.

BOB LANG: Yeah. So you make a great point about moving money to fresher names, fresher ideas that are going to make money for us. The last purchases that were made for PayPal were in September before we came in the-- it came on board. And they were far higher than the current price right now. In fact, about 20%-- were down 20% or something like that from those purchases.

So doing the math, you'd probably need about a 25% to 28% gain on the remainder of your money after you've taken this loss just to get back to even. So even though it's painful for subscribers, I know we're taking a hit on it as well too, it's one of those things where if you can find some other ideas out there and you realize that this stock is-- could be done for now. You just move on, you just move on and cut bait as you mentioned.

So heading over to the semiconductors, Chris, NVIDIA CEO Jensen Huang delivered his highly anticipated GTC keynote this morning following AMD's big announcement of a Meta partnership on Monday. Chris, what are you seeing in watching these semiconductors?

CHRIS VERSACE: Well, look, these two companies, in particular, are continuing to win share, whether it's on the data center front for AMD with Facebook metaverse as you talked about, which is going to lead to upward revisions not only in revenue and EPS expectations but price targets. And yes, we are fine-tuning ours after only recently increasing our price target on AMD. So the momentum there is extremely positive.

Over at NVIDIA, this is an interesting one because most people tend to focus in also on data centers but also on gaming. The big push this morning is on that much smaller auto business that they have with a win that looks like we could start seeing autonomous products coming to market as soon as 2024. That's going to be another positive reset for expectations, and yes, NVIDIA price targets.

BOB LANG: Well, before we answer some of your questions, just a little bit of housekeeping here. In our morning notes, Chris, you'll find a breakdown of our trading alerts and clarity on some of the confusion. I think that comes in the last part of the notes. It's really important to read, I want everybody to pay attention to that. And we do appreciate all your feedback. Now, Chris, we have a member question for you. Michael wants to know your latest thoughts on oil and if AAP would ever consider adding a producer or a pipeline?

CHRIS VERSACE: Sure. Let me take the second part first. Would we ever? Of course, we would. We're always looking for opportunities for companies that are going to grow their revenue, their earnings, cash flow faster than the market. And what we see when we identify that we tend to see valuation multiple expansion, that drives alpha, that's really where we want to be, that's the sweet spot.

The question is, where are we now. And yes, oil prices have zoomed, supply remains somewhat constrained. And the global economy is heating up, there's no question about that, so demand for oil will rise. The but here is that President Biden might tap the Strategic-- I have to say this slowly, Strategic Petroleum Reserve. If that is the case, that will weigh on oil prices in the near-term and also too historically when we've seen such pronounced moves in oil prices, typically OPEC or OPEC Plus members, there can be some infighting as some might increase production while others do not. So I don't think in the near-term, I think we'd look for a pullback on oil first and then revisit.

BOB LANG: Chris, yesterday Alphabet hit an all-time high. We had talked about it last week, possibly hitting about 3,000, I think it hit that last Friday at one point, came back down a little bit, but it's still at an all-time high briefly sending the company into the $2 trillion club. A few members are looking to maybe trim the stock. Do you have any advice for them?

CHRIS VERSACE: Well, Bob, you mentioned on the member November call that you thought Google would hit that 3,000 mark. You were right, 100% right. You also used a phrase that I think is very appropriate here is that no one went broke taking a profit. And I think that from time to time it's very prudent to trim the winners, particularly when we've seen such pronounced moves in a stock like Google. There's no harm in doing that. And again, we try not to tip our hands here in these videos but we would probably be opportunistic as well. As we look to continue to funnel capital into new names that subscribers haven't seen before and have excellent prospects of moving higher and driving returns for the portfolio.

BOB LANG: Sage advice, Chris. In a stock-picking environment, we're stock pickers here at the end of the day and you've got to be able to be out there willing to do the work and do the research and find new stocks. So just a quick overview of the technicals of the market here, Chris, the S&P 500, up 12 of the last 14 days, pretty phenomenal run here. And as we spoke yesterday and late last week, the odds are going to favor a little bit of a pullback.

How shallow or how deep that pullback becomes depends on what kind of turnover that we see in the markets and how the technicals move but we are clearly overbought right now. I would say, I'd even go so far as saying the market is begging for a bit of a pullback. So this is a great opportunity for us to review the portfolio that we have for AAP, find out which names are going to make the cut list or going to make the add list, and so forth. And Chris, I think coming into the end of 2021, I think the bullish fever is still out there, but first things first, I suspect we are going to pull back a little bit and maybe make another run at new highs before the end of the year.

So thank you all for joining us. Chris and I will be back tomorrow morning. Thanks, everyone, for spending a little bit of time listening to us. And have a great trading day. We'll see you Wednesday.