20200217 News : Most investors recognize that the gold rush is on in 5G
By Nigam Arora
Look at Applied Materials
During the California gold rush, many miners went bankrupt. However many merchants who were selling picks and shovels became rich.
Most investors recognize that the gold rush is on in 5G and artificial intelligence. The gold rush is also on in automotive electronics. Just take a look at a massive move in Tesla's (TSLA) stock. (See this comparison of Tesla and other tech stocks (http://www.marketwatch.com/story/this-is-how-tesla-ranks-compared-with-other-popular-technology-stocks-2020-02-06) and this analysis of Tesla's share-price movement (http://www.marketwatch.com/story/a-perfect-combination-for-teslas-stock-gains-future-fantasies-short-selling-and-fomo-2020-02-04).)
If you could buy only one stock to take advantage of all of these trends without worrying about who would succeed, what would it be? Let's explore with the help of a chart.
The chart
Please click here (https://thearorareport.com/chart-analysis-of-applied-materials-5g-artificial-intelligence-seiconductors) for an annotated chart of Applied Materials Inc.'s (AMAT) stock.
Note the following:
-- 5G and artificial intelligence are huge users of semiconductors.
-- In addition to the gold rushes stated above, there are more gold rushes in IoT (Internet of Things), consumer devices, renewable energy, power management and data centers.
-- The picks and shovels for the present-day gold rushes are semiconductors.
-- Picks and shovels were easy to make; semiconductors are increasingly becoming more complex.
-- Applied Materials is a vendor of equipment used in semiconductor manufacturing.
-- Applied Materials is a second derivative, and semiconductors are the first derivative of the gold rushes.
-- There is an advantage to a large second-derivative semiconductor company such as Applied Materials. For example, Intel (INTC) was big in data centers and Advanced Micro (AMD) wasn't much of a factor. When AMD stepped up with new designs, it started eating Intel's lunch.
Also read:Daniel Newman on why AMD's best days are behind it (http://www.marketwatch.com/story/why-amds-best-days-are-behind-it-2020-02-06)
Another example is Nividia (NVDA), which has reported excellent earnings (http://www.marketwatch.com/story/nvidia-shocks-wall-street-with-surging-data-center-sales-2020-02-13). In our analysis at The Arora Report, Nvidia has a one-year lead in many facets over its competitors. However, prudent investors should be concerned not only about potential rewards but also potential risks. How long will Nvidia be able to maintain its lead? Take a look at Nvidia's chart and you will see it has gone parabolic.
Start your analysis with Arora's Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets. In your risk analysis, ask yourself the following question, "How would the chart look if Nvidia started losing its lead?" You could easily lose 50% to 80% of your money.
In contrast to the examples given above, Applied Materials has relatively low risks in the long term.
-- The chart shows a nicely upward sloping trend line. This is a positive.
-- The chart shows a new trend line with a higher slope that started forming last year. This is a positive.
-- The chart shows that the recent pullback was shallow. This is a positive.
-- The chart shows that during the pullback, the accelerating trend line held. This is a positive.
-- The chart shows that Applied Materials reported good earnings.
-- Earnings were better than consensus and whisper numbers.
-- The chart shows a technical breakout for Applied Materials stock. This is a positive.
-- The chart shows the stock breakout occurred on heavy volume. This is a positive.
-- RSI shows that Applied Materials stock is overbought but there is room to run.
-- When a stock with steadily rising trend lines breaks out like Applied Materials has done, RSI should be used only for tactical purposes and not for strategic stock selection.
-- The chart shows a cup and handle pattern. This is a positive pattern in the stock market especially when a breakout occurs on heavy volume.
--Semiconductor stocks have outperformed the Dow Jones Industrial Average , the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 Index .
Megacap tech stocks
The stock market is led by the five megacaps (http://www.marketwatch.com/story/stock-market-generals-are-marching-ahead-but-the-troops-arent-following-2020-02-12): Apple (AAPL), Amazon (AMZN), Facebook (FB), Alphabet (GOOGL) (GOOGL) and Microsoft (MSFT).
Apple is an obvious user of semiconductors. Many investors are oblivious to the fact that other megacaps are also huge users of semiconductors in their data centers. These megacaps are making significant progress in artificial intelligence and machine learning.
To gain an edge in megacap technology stocks and semiconductor stocks, consider using segmented money flows (http://www.marketwatch.com/story/money-flows-into-tech-stocks-are-stronger-than-ever-a-possible-contrarian-indicator-2020-02-11).
China boost
The U.S. dominates the semiconductor industry, and therefore China is highly dependent on U.S. companies. During the trade war, President Trump effectively used the U.S.'s position in semiconductors as a Sword of Damocles. It is natural for China to try to get out of this situation.
Sooner or later the coronavirus will run its course. When China gets in the mode of increasing its semiconductor abilities, Applied Materials will benefit.
More on AMAT:This U.S. company will benefit as China tries to catch up in semiconductors (http://www.marketwatch.com/story/this-us-company-will-benefit-as-china-tries-to-catch-up-in-semiconductors-2020-01-17)
When and how to buy
This stock market is controlled by the momo (momentum) crowd. If you have drunk the Kool-Aid of the momo crowd, then it is real simple -- buy shares of Applied Materials and keep in mind that semiconductor stocks are very volatile.
What if you are a prudent investor? Then you need to bring significant sophistication to buying, holding and managing this stock. The chart link above shows the Arora buy zone.
Is there any advantage to being prudent anymore? Applied Materials' stock is carried in our Model Portfolio from an average buy price of $16. Since our original buy, the stock has fallen numerous times into our newer buy zones, giving investors excellent opportunities. Often when momo crowd was losing money and their stops were hitting, we were buying the stock. The answer to the question asked at the beginning of this paragraph is yes -- in the long term you will generate higher risk-adjusted returns.
Click here for more 5G stocks such as Qorvo (QRVO), Qualcomm (QCOM) and T-Mobile (TMUS). Note that Sprint(S) is being acquired by T-Mobile.
Disclosure: Subscribers to The Arora Report (http://thearorareport.com/)may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora (http://www.marketwatch.com/author/nigam-arora) is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected] (mailto:[email protected]).
-Nigam Arora; 415-439-6400; [email protected]
(END) Dow Jones Newswires
02-15-20 1047ET
Copyright (c) 2020 Dow Jones & Company, Inc.
Story ID: 20200215MW000132
Keywords: COMPANY NEWS, POINT OF VIEW, SEMICONDUCTORS, COMPUTER HARDWARE, DOW JONES ISLAMIC INDEX COMPONENTS, DOW JONES SECTOR TITAN INDEX - TECHNOLOGY COMPONENTS, AUTOMOBILES, MOBILE TELECOMMUNICATIONS, HIGH-YIELD ISSUERS, PERSONAL FINANCE, TELEPHONE SYSTEMS-ALL, NYSE COMPOSITE INDEX COMPONENTS, DOW JONES SECTOR TITAN INDEX - TELECOMMUNICATIONS COMPONENTS, FORTUNE 500 INDEX, DOW JONES INDUSTRIAL AVERAGE COMPONENTS, OPEN ACCESS CONTENT, MARKETWATCH NEWS, FOREX BLOCK, NASDAQ 100 COMPONENTS, DJ U.S. LARGE-CAP INDEX, COMPANIES ON THE CORPORATE BOND SERVICE, S&P 100 INDEX COMPONENT, GRAND CENTRAL ASSET CLASS EQUITIES, COMPANIES ON THE ECONOMIC REPORT, TELECOMMUNICATIONS, SIGNIFICANT STORY, STOCK MARKET NEWS, DJ AUTOMOBILES & PARTS TITANS 30 INDEX, DOW JONES GLOBAL INDEX COMPONENTS, US SMALL CAP INDEX, RUSSELL 3000 COMPONENT, GLOBAL LARGE CAP INDEX, ANALYSTS' COMMENTS & RATINGS OF STOCKS, GLOBAL DOW COMPONENTS, S&P 500 INDEX COMPONENT, DOW JONES GLOBAL TITANS INDEX COMPONENTS, DOW JONES TOTAL MARKET INDEX COMPONENT, DOW JONES NEWS WIRES, INTERNET, TECHNOLOGY
Symbols: AMAT, AMD, INTC, NVDA, QCOM, QRVO, S, TMUS, TSLA
Look at Applied Materials
During the California gold rush, many miners went bankrupt. However many merchants who were selling picks and shovels became rich.
Most investors recognize that the gold rush is on in 5G and artificial intelligence. The gold rush is also on in automotive electronics. Just take a look at a massive move in Tesla's (TSLA) stock. (See this comparison of Tesla and other tech stocks (http://www.marketwatch.com/story/this-is-how-tesla-ranks-compared-with-other-popular-technology-stocks-2020-02-06) and this analysis of Tesla's share-price movement (http://www.marketwatch.com/story/a-perfect-combination-for-teslas-stock-gains-future-fantasies-short-selling-and-fomo-2020-02-04).)
If you could buy only one stock to take advantage of all of these trends without worrying about who would succeed, what would it be? Let's explore with the help of a chart.
The chart
Please click here (https://thearorareport.com/chart-analysis-of-applied-materials-5g-artificial-intelligence-seiconductors) for an annotated chart of Applied Materials Inc.'s (AMAT) stock.
Note the following:
-- 5G and artificial intelligence are huge users of semiconductors.
-- In addition to the gold rushes stated above, there are more gold rushes in IoT (Internet of Things), consumer devices, renewable energy, power management and data centers.
-- The picks and shovels for the present-day gold rushes are semiconductors.
-- Picks and shovels were easy to make; semiconductors are increasingly becoming more complex.
-- Applied Materials is a vendor of equipment used in semiconductor manufacturing.
-- Applied Materials is a second derivative, and semiconductors are the first derivative of the gold rushes.
-- There is an advantage to a large second-derivative semiconductor company such as Applied Materials. For example, Intel (INTC) was big in data centers and Advanced Micro (AMD) wasn't much of a factor. When AMD stepped up with new designs, it started eating Intel's lunch.
Also read:Daniel Newman on why AMD's best days are behind it (http://www.marketwatch.com/story/why-amds-best-days-are-behind-it-2020-02-06)
Another example is Nividia (NVDA), which has reported excellent earnings (http://www.marketwatch.com/story/nvidia-shocks-wall-street-with-surging-data-center-sales-2020-02-13). In our analysis at The Arora Report, Nvidia has a one-year lead in many facets over its competitors. However, prudent investors should be concerned not only about potential rewards but also potential risks. How long will Nvidia be able to maintain its lead? Take a look at Nvidia's chart and you will see it has gone parabolic.
Start your analysis with Arora's Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets. In your risk analysis, ask yourself the following question, "How would the chart look if Nvidia started losing its lead?" You could easily lose 50% to 80% of your money.
In contrast to the examples given above, Applied Materials has relatively low risks in the long term.
-- The chart shows a nicely upward sloping trend line. This is a positive.
-- The chart shows a new trend line with a higher slope that started forming last year. This is a positive.
-- The chart shows that the recent pullback was shallow. This is a positive.
-- The chart shows that during the pullback, the accelerating trend line held. This is a positive.
-- The chart shows that Applied Materials reported good earnings.
-- Earnings were better than consensus and whisper numbers.
-- The chart shows a technical breakout for Applied Materials stock. This is a positive.
-- The chart shows the stock breakout occurred on heavy volume. This is a positive.
-- RSI shows that Applied Materials stock is overbought but there is room to run.
-- When a stock with steadily rising trend lines breaks out like Applied Materials has done, RSI should be used only for tactical purposes and not for strategic stock selection.
-- The chart shows a cup and handle pattern. This is a positive pattern in the stock market especially when a breakout occurs on heavy volume.
--Semiconductor stocks have outperformed the Dow Jones Industrial Average , the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 Index .
Megacap tech stocks
The stock market is led by the five megacaps (http://www.marketwatch.com/story/stock-market-generals-are-marching-ahead-but-the-troops-arent-following-2020-02-12): Apple (AAPL), Amazon (AMZN), Facebook (FB), Alphabet (GOOGL) (GOOGL) and Microsoft (MSFT).
Apple is an obvious user of semiconductors. Many investors are oblivious to the fact that other megacaps are also huge users of semiconductors in their data centers. These megacaps are making significant progress in artificial intelligence and machine learning.
To gain an edge in megacap technology stocks and semiconductor stocks, consider using segmented money flows (http://www.marketwatch.com/story/money-flows-into-tech-stocks-are-stronger-than-ever-a-possible-contrarian-indicator-2020-02-11).
China boost
The U.S. dominates the semiconductor industry, and therefore China is highly dependent on U.S. companies. During the trade war, President Trump effectively used the U.S.'s position in semiconductors as a Sword of Damocles. It is natural for China to try to get out of this situation.
Sooner or later the coronavirus will run its course. When China gets in the mode of increasing its semiconductor abilities, Applied Materials will benefit.
More on AMAT:This U.S. company will benefit as China tries to catch up in semiconductors (http://www.marketwatch.com/story/this-us-company-will-benefit-as-china-tries-to-catch-up-in-semiconductors-2020-01-17)
When and how to buy
This stock market is controlled by the momo (momentum) crowd. If you have drunk the Kool-Aid of the momo crowd, then it is real simple -- buy shares of Applied Materials and keep in mind that semiconductor stocks are very volatile.
What if you are a prudent investor? Then you need to bring significant sophistication to buying, holding and managing this stock. The chart link above shows the Arora buy zone.
Is there any advantage to being prudent anymore? Applied Materials' stock is carried in our Model Portfolio from an average buy price of $16. Since our original buy, the stock has fallen numerous times into our newer buy zones, giving investors excellent opportunities. Often when momo crowd was losing money and their stops were hitting, we were buying the stock. The answer to the question asked at the beginning of this paragraph is yes -- in the long term you will generate higher risk-adjusted returns.
Click here for more 5G stocks such as Qorvo (QRVO), Qualcomm (QCOM) and T-Mobile (TMUS). Note that Sprint(S) is being acquired by T-Mobile.
Disclosure: Subscribers to The Arora Report (http://thearorareport.com/)may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora (http://www.marketwatch.com/author/nigam-arora) is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected] (mailto:[email protected]).
-Nigam Arora; 415-439-6400; [email protected]
(END) Dow Jones Newswires
02-15-20 1047ET
Copyright (c) 2020 Dow Jones & Company, Inc.
Story ID: 20200215MW000132
Keywords: COMPANY NEWS, POINT OF VIEW, SEMICONDUCTORS, COMPUTER HARDWARE, DOW JONES ISLAMIC INDEX COMPONENTS, DOW JONES SECTOR TITAN INDEX - TECHNOLOGY COMPONENTS, AUTOMOBILES, MOBILE TELECOMMUNICATIONS, HIGH-YIELD ISSUERS, PERSONAL FINANCE, TELEPHONE SYSTEMS-ALL, NYSE COMPOSITE INDEX COMPONENTS, DOW JONES SECTOR TITAN INDEX - TELECOMMUNICATIONS COMPONENTS, FORTUNE 500 INDEX, DOW JONES INDUSTRIAL AVERAGE COMPONENTS, OPEN ACCESS CONTENT, MARKETWATCH NEWS, FOREX BLOCK, NASDAQ 100 COMPONENTS, DJ U.S. LARGE-CAP INDEX, COMPANIES ON THE CORPORATE BOND SERVICE, S&P 100 INDEX COMPONENT, GRAND CENTRAL ASSET CLASS EQUITIES, COMPANIES ON THE ECONOMIC REPORT, TELECOMMUNICATIONS, SIGNIFICANT STORY, STOCK MARKET NEWS, DJ AUTOMOBILES & PARTS TITANS 30 INDEX, DOW JONES GLOBAL INDEX COMPONENTS, US SMALL CAP INDEX, RUSSELL 3000 COMPONENT, GLOBAL LARGE CAP INDEX, ANALYSTS' COMMENTS & RATINGS OF STOCKS, GLOBAL DOW COMPONENTS, S&P 500 INDEX COMPONENT, DOW JONES GLOBAL TITANS INDEX COMPONENTS, DOW JONES TOTAL MARKET INDEX COMPONENT, DOW JONES NEWS WIRES, INTERNET, TECHNOLOGY
Symbols: AMAT, AMD, INTC, NVDA, QCOM, QRVO, S, TMUS, TSLA