3 Magnificent Dividend Stocks to Buy in October
Cousin Eddie in the movie Christmas Vacation thought a one-year membership in the Jelly of the Month club was “the gift that keeps on giving the whole year.” But for investors, there’s an even better gift that keeps on giving: dividend stocks.
Three Motley Fool contributors believe they have identified magnificent dividend stocks to buy in October — and all of them are drugmakers. Here’s why they picked AbbVie (NYSE: ABBV), Amgen (NASDAQ: AMGN), and Pfizer (NYSE: PFE).
52 years and counting
Prosper Junior Bakiny (AbbVie): There are many factors to consider when looking for top dividend stocks. Here are three of the most important: a company’s track record of dividend payments, its yield, and — of course — the strength of its underlying business.
AbbVie excels in all these categories. The drugmaker is on a streak of 52 consecutive years of dividend increases when considering the time it spent as a division of Abbott Laboratories (NYSE: ABT). That makes AbbVie a Dividend King. And since it split from Abbott in 2013, it has increased its payouts by 287.5%.
The company’s forward yield also looks competitive. It currently tops 3.15%, compared to the S&P 500‘s 1.32%.
What about AbbVie’s underlying business? Perhaps the best evidence that investors have nothing to worry about on that front is that despite losing patent exclusivity for Humira last year — the best-selling drug in the history of the industry — AbbVie returned to top-line growth in the second quarter. That’s well ahead of the company’s initial projections: Management thought revenue growth would return in 2025.
AbbVie can thank its strong lineup, including its Botox franchise, migraine treatment Qulipta, and the immunology heirs to Humira: Skyrizi and Rinvoq. Those last two drugs have been the company’s biggest growth drivers.
Beyond the current lineup, the pipeline features dozens of programs, including existing medicines seeking label expansions and brand-new candidates. The company shouldn’t have too much trouble earning new approvals and strengthening its portfolio over the years.
The business is well equipped to support regular dividend increases, just as it has in the past. That makes AbbVie a top dividend stock.
A high-yielding stock with a lot of upside
David Jagielski (Amgen): A solid dividend stock to buy this month is Amgen. The pharmaceutical company pays a decent yield of 2.8%, but that’s only part of the reason it makes for a great buy.
Another reason is that the company has been aggressively growing its payouts over the years. Its current quarterly dividend payment of $2.25 is 55% higher than the $1.45 it was just five years ago. That averages out to a compound annual growth rate of 9.2%.
If the company were to maintain that pace, it would take approximately eight years for the dividend to double in value, giving plenty of incentive to stay invested in the company.
And there’s more. Amgen also makes for a fairly cheap growth stock, with many blockbusters in its portfolio. At a forward price-to-earnings multiple of 16, it’s a very reasonably priced investment.
The company also has an extremely promising weight loss treatment in development, MariTide, which might need to be taken only once a month. If it obtains approval, the pharmaceutical stock could have lots of upside given its modest valuation.
At worst, Amgen is a solid dividend growth stock, and at best, it also doubles as a fantastic growth stock with a lot of potential. Either way, it makes for an excellent income stock to buy right now and hold.
An ultra-magnificent dividend stock
Keith Speights (Pfizer): You won’t find a pharma stock with a juicier dividend than Pfizer’s. The big drugmaker offers an ultra-high forward dividend yield of 5.91%. That’s a level that could cause some income investors to salivate.
But is that dividend safe? I think so. Granted, the company’s dividend payout ratio of 443% looks concerning at first glance. This ratio uses earnings, though, that can (and do) fluctuate.
The more important number to focus on with its dividend safety is free cash flow. The company generated free cash flow of $3.44 billion over the last 12 months, according to the London Stock Exchange Group. It paid out $2.37 billion in dividends last year.
Pfizer shouldn’t have any problems keeping the dividends flowing at current levels. I expect the company will continue its 15-year streak of payout increases as well.
Some might worry about Pfizer’s sinking COVID vaccine sales and looming patent cliff. Not me. Yes, they’re both big problems. However, I believe the worst is over on the COVID front. I also think the company’s new products and its promising late-stage candidates should generate more than enough sales to offset the revenue declines resulting from patent expirations.
In addition, I’m optimistic about the prospects for Pfizer’s experimental obesity drug danuglipron. This candidate is still in phase 2b testing for now. But if all goes well in clinical trials, danuglipron holds the potential to be a huge winner for Pfizer later this decade.
Should you invest $1,000 in AbbVie right now?
Before you buy stock in AbbVie, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AbbVie wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $765,523!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 30, 2024
David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in AbbVie and Pfizer. Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, and Pfizer. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
3 Magnificent Dividend Stocks to Buy in October was originally published by The Motley Fool
The Subtle Reason Stocks Can Plunge if Kamala Harris Raises the Corporate Tax Rate by 33%
Less than a month from today, on Nov. 5, voters will head to the polls to determine which presidential candidate — current Vice President Kamala Harris or former President Donald Trump — will lead our country for the next four years.
Admittedly, not every decision made in the Oval Office or by our elected officials in Congress has bearing on Wall Street. However, the economic policies put into place by the incoming president and Congress do have the potential to affect corporate profits, and thus the stock market.
While there are potential advantages and drawbacks to the economic proposals of both candidates, the one plan that’s raising a lot of eyebrows on Wall Street is Harris’ call to raise the corporate tax rate by a third — from 21% to 28%.
Although the current U.S. corporate tax rate is at its lowest level since 1939, increasing it by 33% has the potential to set the stock market up for disaster for a very off-the-radar reason.
Stocks could plunge if Harris hikes the corporate tax rate — but not for the reason you might think
Kamala Harris’ plan to increase taxation on businesses stems from persistent and growing federal deficits.
With the exception of 1998 through 2001, the federal government has spent more than it has brought in via revenue every year since 1970. The national debt now sits around $35 trillion, with the annual cost to service this debt coming in at roughly $1.05 trillion as of August 2024, per the U.S. Department of the Treasury. This trajectory isn’t going to be sustainable over the long term.
Based on estimates from the Treasury Department, increasing the corporate tax rate by a third to 28% would lift federal tax revenue by a cumulative $1.35 trillion over the next decade.
However, increasing corporate taxes might have unintended and/or unforeseen consequences for Wall Street.
The logical expectation if the corporate tax rate climbs is that businesses will have less capital to put toward the meat and potatoes that makes them tick. Specifically, we’ll see a slower rate of new hiring, fewer acquisitions, and less in the way of capital spent on research and development. Hiring, acquisitions, and innovation are typically what grow the bottom line for businesses.
But there’s a less-obvious concern that can cause stocks to plunge if the corporate tax rate jumps by 33%. Less available capital to put to work for publicly traded companies might reduce or eliminate what’s been a key source of earnings growth in recent years: share buybacks.
For companies with steady or growing net income, share repurchases can boost earnings per share (EPS). As a company’s outstanding share count declines over time, its EPS should rise, thereby making it more fundamentally attractive to investors.
On a trailing-12-month (TTM) basis ending in March 2024, S&P 500 (SNPINDEX: ^GSPC) companies completed $816.5 billion worth of buybacks, which is technically down from a TTM peak of $1.01 trillion for the period ended June 2022, based on data from S&P Global.
More importantly, 50.9% of the buybacks completed in the first quarter of 2024 were traced to the 20 largest companies by market cap in the S&P 500. Buybacks have been used to fuel earnings growth for America’s largest and most-influential businesses, but this isn’t guaranteed to continue if Harris wins in November and has the votes on Capitol Hill to increase the corporate tax rate by a third.
As an example, the world’s largest publicly traded company by market cap, Apple (NASDAQ: AAPL), has repurchased $700.6 billion worth of its common stock since the start of 2013 and reduced its outstanding share count by 42.2% in the process.
If Apple hadn’t bought back a single share over the last 11 years, its consensus EPS for fiscal 2024 (ended Sept. 30) would be less than $4 and not the current $6.68. Arguably no company’s bottom line has been fueled more in recent years by share repurchases than Wall Street’s largest public company.
If there’s a silver lining to this concern, it’s that a study from Fidelity found that the benchmark S&P 500 rose by an average of 13% following every corporate tax hike since 1950. While this doesn’t guarantee that stocks would rise if Harris increased the corporate tax rate from 21% to 28%, history strongly favors a continuation of the current bull market.
This might be even more worrisome than the prospect of reduced share buybacks
Although share repurchases have been artificially increasing EPS for Wall Street’s biggest companies for years, and a higher corporate tax rate could slow buyback activity, this might not be the most immediate concern for Wall Street. Rather, a historically pricey stock market could be the catalyst that tips equities into a correction or bear market, regardless of who’s elected president on Nov. 5.
To be fair, there are a lot of ways for investors to measure value, and everyone has differing levels of risk tolerance. But based on readings from the S&P 500’s Shiller price-to-earnings ratio (P/E), we’ve witnessed only a handful of instances in more than 150 years where stocks have, collectively, been this pricey. The Shiller P/E ratio is also known as the cyclically adjusted price-to-earnings ratio, or CAPE ratio.
Most investors rely on the traditional P/E ratio as a quick and easy way to determine if a stock is relatively cheap or pricey when compared to its peers and its own history. However, the traditional P/E ratio only takes TTM earnings into account, which can be skewed or adversely affected by shock events, such as the temporary lockdowns that occurred during the pandemic.
The Shiller P/E ratio is based on average inflation-adjusted earnings from the previous 10 years. Encompassing a full decade of EPS history minimizes the impact of shock events, which leads to a more accurate measure of value.
When the closing bell tolled on Oct. 3, the S&P 500’s Shiller P/E stood at 36.6, which is more than double its average reading of 17.16, when back-tested to January 1871. Even though lower interest rates and the internet’s democratizing access to information have increased the willingness of everyday investors to take risks, a Shiller P/E of nearly 37 is an outsize reading.
Looking back to 1871, there have been only six total instances where the S&P 500’s Shiller P/E surpassed 30 during a bull market rally, including the present. Following the previous five occurrences, the S&P 500, Dow Jones Industrial Average (DJINDICES: ^DJI), and/or Nasdaq Composite (NASDAQINDEX: ^IXIC), shed between 20% and 89% of their value.
Though the Shiller P/E isn’t a timing tool — i.e., stocks can remain pricey for weeks, months, or in rarer cases multiple years — it does have a flawless track record of foreshadowing big declines in the S&P 500, Dow, and Nasdaq Composite.
While it’s possible Kamala Harris’ plan to raise the corporate tax rate by 33% would be bad news for Wall Street, the biggest enemy for investors right now is historically expensive stock valuations — and this is unlikely to change anytime soon.
Should you invest $1,000 in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $765,523!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 30, 2024
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and S&P Global. The Motley Fool has a disclosure policy.
The Subtle Reason Stocks Can Plunge if Kamala Harris Raises the Corporate Tax Rate by 33% was originally published by The Motley Fool
A Gen Xer can't find a job after 1,000 applications despite years of six-figure roles: 'It's like playing the lottery'
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Sean Tetpon, 55, has applied for over 1,000 jobs in the past year without success.
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Tetpon, a former communications manager, was laid off in 2019 and again in 2023.
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He suspects ageism and intense competition in his industry are factors.
Sean Tetpon, 55, held six-figure positions for years as a communications manager for major companies. But, after applying for over 1,000 jobs over the last 12 months, he and his wife have had to cut every expense possible — and are considering bankruptcy.
Tetpon was financially stable for most of his adult life, working at various large companies, though he was laid off in 2019. In between job applications, he drove for Lyft and landed a job in 2021. However, he was laid off last September and hasn’t landed anything since.
“When the job reports come out, and they paint this rosy picture, it’s not reflecting what’s happening in the white-collar job market over the past year,” Tetpon said. “There continue to be layoffs in corporate America, and as a result, I’m seeing, for the roles that I apply for, many highly qualified candidates out there all competing for a finite number of jobs.”
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Tetpon suspects his age and his industry’s intense competition have impacted his ability to land a job. Still, he hasn’t given up hope and is staying positive in his job search.
“At first, it was disheartening because, like everyone else, I need employment to take care of my family and to pay my bills, but to run into over 1,000 people applying for the same job, I get nervous when there are 100 applicants for the same job,” Tetpon said. “But I applied for them anyway because you never know. It’s like playing the lottery.”
Enduring layoffs
Tetpon was the first in his family to get a four-year degree, graduating from the University of Idaho with a bachelor’s in public communications.
While in college, he got an internship at IBM, which he parlayed into a full-time role and an over 15-year career. He became a global communications manager, which paid him six figures. He then bounced to a few other companies in similar positions.
Despite a high salary, he said he struggled financially for a few years, as one of his five children had a major heart defect, leading to “steep medical bills.”
Tetpon first experienced unemployment from 2019 to 2021, with his first layoff coming shortly before many companies paused hiring during the pandemic. To keep money coming in, he worked as an Uber and Lyft driver and freelanced for corporate clients between “cumbersome” applications.
Tetpon secured a job in 2021, then switched to another position the following year. However, once again, he was unexpectedly laid off in September 2023. He was given a basic severance package, which included a free option to work with a job placement agency, which helped him improve his résumé and interview strategies.
“Each layoff, it’s been a little harder to bounce back because the job market started constricting again right around the time I was laid off,” Tetpon said.
Tetpon has submitted more than 1,000 job applications since that layoff. He estimates that it takes almost an hour to apply for a job.
“Job seeking initially has become a full-time job again — seven, eight hours a day applying for roles,” Tetpon said. “This came back to bite me mentally because it’s such a draining process.”
Of these applications, he’s had nearly 30 interviews, and he made it to the final round for three positions. He said he’s tried tailoring his résumé and cover letter to each position and emphasized characteristics of his portfolio that make him stand out.
Between job applications, Tetpon drives five days a week for Lyft, earning about $3,000 a month. He said he values the flexibility of setting his own hours to prioritize interviews and applications. He’s looking to get back into retail work, even at minimum wage, in positions he enjoys, such as working at a record store.
The layoff has put his family’s financial situation in jeopardy. To make ends meet, he moved into his mother-in-law’s home. He and his wife, a full-time medical technology student with little income, axed many subscriptions, bought the cheapest groceries for about $130 a week, and cut unnecessary spending. Tetpon still has student and credit debt, and he’s eyed bankruptcy as an option. He said he has just 10% of what he’d originally saved left in his 401(k), and he fears he may have to work for the rest of his life.
“It’s scary because I’ve been preparing for retirement for a long time, but now that I’ve basically wiped out savings because of my layoff, I’m now wondering if I will be able to retire,” Tetpon said.
Why he hasn’t secured a job
Tetpon said there are three reasons he suspects he hasn’t landed a job yet.
The first is how his field of corporate communication is highly competitive and prone to layoffs. He said even for smaller companies offering much less than what he earned, hundreds of people would apply, and he would be lucky to land an interview. He said he’s had little luck applying for in-person roles in metro Atlanta, and he’s seen fewer remote opportunities.
Screenshots shared with BI reveal Tetpon applied for positions receiving nearly 4,000 applications just on LinkedIn, not counting people who applied directly.
Tetpon said his second reason is that many companies are nervous about the economy and the upcoming election and are very selective about hiring decisions. He suspects employers are looking for the perfect candidate who fits every aspect of the job description instead of someone with 80% of the skills but with drive.
Part of this, he suspects, derives from ageism. While he hasn’t been able to prove it in his case, he believes for some roles, companies will pass over his application because they want to hire younger talent.
“A lot of companies look at somebody like me with 25 years of experience in the six-figure range, and they have to weigh that against somebody much younger, maybe even recently out of college, who could come in at a much lower range,” Tetpon said.
Tetpon’s third reason is the mental struggle of applying to positions daily. Recently, he’s questioned whether he’s networking enough, applying to the right roles, or spending enough time on applications, which sometimes clouds his efforts.
Still, he said he’s seen employment struggles across the age spectrum. Some of his children are struggling to find their first role, and he’s seen an uptick in LinkedIn posts from people of all ages looking for work.
Tetpon said he learned to customize resumes for each position by including keywords in job descriptions so that applications don’t immediately get rejected. He’s also become more aggressive about networking, reaching out to his past colleagues and having them send open roles or issue referrals.
Tetpon added that taking mental health breaks is key to the job hunt, as job seekers are already “dealing with the psychology of losing a job and sense of purpose.” He believes he will land somewhere soon, noting his experience speaks for itself.
“I want to give job seekers some hope based on what I’ve learned over the past year because while it is tough out there, we can’t give up, and I certainly haven’t given up,” Tetpon said. “Eventually, the pendulum will swing, and they need to be ready to capitalize on that.”
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Read the original article on Business Insider
Trump Returns To Site Of Assassination Attempt, Urges Voters To Vote: 'Our Movement To Make America Great Again Stands Stronger'
Former President Donald Trump returned to Butler, Pa., on Saturday, the site of the July assassination attempt against him. He rallied with supporters and paid tribute to a victim of the incident.
What Happened: Trump made his way back to the location where a shooting took place during a rally in July. The former president, who was wounded in the attack, was accompanied by several notable figures, including Elon Musk.
The rally was organized in honor of Corey Comperatore, a supporter who tragically lost his life in the July shooting. Trump acknowledged Comperatore and other victims of the shooting, leading a moment of silence exactly 12 weeks after the shooting commenced.
“Tonight, I return to Butler in the aftermath of tragedy and heartache to deliver a simple message to the people of Pennsylvania and the people of America: Our movement to Make America Great Again stands stronger, prouder, more united, more determined, and nearer to victory than ever before,” The Hill quoted Trump saying at the rally.
“If we win Pennsylvania, we will win the whole thing. The whole thing will be won,” Trump added.
Musk shared the stage with Trump, endorsing the former president and expressing criticism towards Democrats.
Also Read: Polls Suggest This Candidate Holds Slim Lead In Presidential Race With One Month To Go
“The true test of someone’s character is how they behave under fire. We had one president who couldn’t climb a flight of stairs and another who was fist pumping after getting shot,” Musk said during the rally.
Trump’s reappearance in Butler attracted a large audience, matching the size of his earlier rallies. The former president highlighted the significance of Pennsylvania in the forthcoming election and encouraged his supporters to cast their votes.
The rally takes place amidst polls indicating a close contest between Trump and Vice President Harris in crucial swing states, with Election Day less than a month away.
Why It Matters: The return of Trump to the site of the assassination attempt signifies his resilience and determination. His endorsement by Elon Musk, a prominent figure in the tech industry, could potentially sway voters.
The rally’s large turnout indicates a strong base of support for Trump, which could be pivotal in the upcoming election. The emphasis on Pennsylvania, a key battleground state, underscores the state’s importance in determining the election outcome.
With the race between Trump and Harris tightening, every vote and every rally could make a significant difference.
Read Next
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3 Stock-Split Stocks to Buy Before They Soar as Much as 215%, According to Select Wall Street Analysts
Over the past few years, there’s been a resurgence in the popularity of stock splits. The practice was commonplace in decades past, but had fallen out of favor, only to rebound in recent years. Companies will typically embark on this course after years of strong business and financial results, resulting in a surging stock price.
Evidence suggests that the strong performances that precipitated stock splits tend to continue. Companies that conduct stock splits deliver stock price gains of 25%, on average, in the year following the announcement, compared with average increases of 12% for the S&P 500, according to data compiled by Bank of America analyst Jared Woodard.
Here are three stock-split stocks that still have a long runway ahead, with upside of as much as 215%, according to select Wall Street analysts.
1. Broadcom: Implied upside 36%
The first among our stock-split stocks that represents a compelling opportunity for investors is Broadcom (NASDAQ: AVGO). The company offers a host of software, semiconductor, and security products that run the gamut in the mobile, broadband, cable, and data center spaces.
Indeed, the company reports that “99% of all internet traffic crosses through some type of Broadcom technology.” This means that Broadcom’s technology will be instrumental in the adoption of artificial intelligence (AI).
The company’s recent results are telling. In Broadcom’s fiscal third quarter (ended Aug. 4), revenue jumped 47% year over year to $13 billion, driving adjusted earnings per share (EPS) up 18% to $1.24. The company continues to integrate VMWare, which has pressured earnings, but management is expecting a more meaningful contribution in fiscal 2025. Broadcom also increased its full-year revenue guidance to $51.5 billion, which would represent growth of nearly 44%.
The company’s track record of solid, consistent growth led to a 10-for-1 stock split in July. The stock has more than tripled since the start of 2023 — which coincided with the onset of the AI revolution — but many on Wall Street believe the best is yet to come. Rosenblatt Securities analyst Hans Mosesmann maintains a buy rating on Broadcom stock and a Street-high, split-adjusted price target of $240. This represents potential upside for investors of 36% compared to Friday’s closing price.
Mosesmann suggests that management’s guidance is conservative, leaving the potential for upside revisions. He sees particular opportunities in Broadcom’s application-specific integrated circuits (ASICs) and ancillary products that support networking and switching, which will see increased AI-related demand. He also posits that the integration of VMWare will boost Broadcom’s results.
Mosesmann isn’t alone in his bullish prediction. Of the 39 analysts who rated the stock in September, 35 rated the stock a buy or strong buy, and none recommended selling.
Investors might be surprised to learn that Broadcom stock trades for less than 28 times next year’s expected earnings, which I believe is a bargain, considering its long track record of growth and expansive opportunity.
2. Nvidia: Implied upside 85%
The second stock-split stock with a long runway ahead is Nvidia (NASDAQ: NVDA). The company’s graphics processing units (GPUs) have become the gold standard for a variety of applications, including video games, cloud computing, and data centers. This technology is also instrumental in processing generative AI, providing the computational horsepower that makes it possible.
This has, in turn, fueled blockbuster results for Nvidia. For its fiscal 2025 second quarter (ended July 28), Nvidia delivered record quarterly revenue that climbed 122% year over year to $30 billion, while its diluted earnings per share (EPS) soared 168% to $0.67. The results were propelled higher by the company’s data center segment — which includes the chips used for AI — as revenue surged 154% to $26.3 billion.
That marked Nvidia’s fifth consecutive quarter of triple-digit sales and profit growth, while its stock has risen 754% since the start of 2023, leading to a 10-for-1 stock split. The stock has been on a roller-coaster ride in recent months, first losing more than a quarter of its value, then staging a remarkable recovery, and now sits less than 8% off its all-time high.
There’s likely more to come — but don’t just take my word for it. Rosenblatt analyst Hans Mosesmann reiterated his buy rating and Street-high price target of $200 on Nvidia, which represents potential gains of 60% compared to Friday’s closing price.
The analyst believes investors are missing an important element of Nvidia’s success, saying: “The real narrative lies in the software that complements all the hardware goodness. We anticipate this software aspect will significantly increase in the next decade in terms of overall sales mix, with an upward bias to valuation due to sustainability.”
He isn’t the only one who believes Nvidia has further to run. Of the 60 analysts who issued an opinion in September, 55 rated the stock a buy or strong buy, and none recommended selling.
I don’t have any doubts about the potential for Nvidia stock to go higher from here. In fact, I think the analyst’s price target might well be conservative.
3. Super Micro Computer: Implied upside 215%
The last of our trio of stock split stocks is admittedly the most controversial. Super Micro Computer (NASDAQ: SMCI), also known as Supermicro, has been a leading provider of custom-designed servers for more than 30 years.
The company’s secret weapon is the building-block architecture of its rack-scale servers. By designing interlocking major components, Supermicro customers can create the system that’s best suited to their specific needs — and price range — rather than simply taking something off the “rack.” The company is also a clear leader in the area of direct liquid cooling (DLC), which is uniquely suited to handle the rigors of AI. CEO Charles Liang estimates that Supermicro controls between 70% and 80% of the DLC market.
In its fiscal 2024 fourth quarter (ended June 30), Supermicro generated record revenue that climbed 143% to $5.3 billion. At the same time, the company delivered adjusted EPS that jumped 78% to $6.25. While declining profit margins raised eyebrows, Liang blamed a temporary bottleneck of component parts and product mix for the decline and expects a rebound in due course. That said, the company’s track record of strong results preceded a 10-for-1 stock split, which was completed earlier this week.
Supermicro has become a battleground stock in recent weeks, however. In late August, a short report by Hindenburg Research alleged accounting irregularities, sanctions violations, and undisclosed third-party transactions, among other accusations. The following day, Supermicro delayed the filing of its annual report, citing a need to assess the “design and operating effectively of its internal controls.” If that weren’t enough, a report emerged suggesting the U.S. Justice Department was investigating the company, according to the Wall Street Journal.
Despite the resulting uncertainty, some on Wall Street are undeterred. In the wake of these revelations, Rosenblatt analyst Hans Mosesmann maintained a buy rating and a split-adjusted Street-high price target of $130 on the stock. That represents potential upside of 215% compared to Friday’s closing price. The analyst suggests the recent stock price correction “seems over the top when considering the Hindenburg dynamic as old news or inaccurate.”
Not surprisingly, others on Wall Street have taken a “wait and see” approach. Of the 18 analysts who covered the stock in September, nine still rate the stock a buy or strong buy. The rest recommend holding, and none recommend selling.
As a short seller, Hindenburg Research has a vested interest in driving the stocks it targets lower, so its motives are suspect. Furthermore, it has a mixed track record, so its conclusions shouldn’t be considered gospel.
For investors with the stomach for a little risk, I think the opportunity of owning Supermicro stock outweighs the risk represented by the — as yet — unsubstantiated claims by a short seller. And as a Supermicro shareholder, my money is where my mouth is. Finally, at just 21 times earnings, Supermicro stock is a bargain.
Should you invest $1,000 in Broadcom right now?
Before you buy stock in Broadcom, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Broadcom wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $765,523!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 30, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Nvidia and Super Micro Computer. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
3 Stock-Split Stocks to Buy Before They Soar as Much as 215%, According to Select Wall Street Analysts was originally published by The Motley Fool