Is NVIDIA Undervalued?

With shares of NVIDIA (NASDAQ:NVDA) trading around $13, is NVDA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

NVIDIA is a visual computing company that develops graphics chips for use in personal computers, mobile devices, and supercomputers. The company operates through two segments: GPU and Tegra Processors. The GPU segment offers graphic processing unit processors for consumers desktop and notebook PCs, professional workstations, supercomputing servers and workstations, and industry-standard servers. The Tegra segment offers its processors to tablets, smartphones, and gaming devices. Personal computers, mobile devices, supercomputers, and servers are continuously being used and adopted at an increasing rate worldwide. NVIDIA provides essential components for technology products that affect most people’s home or work life so a company like NVIDIA is here to stay.

T = Technicals on the Stock Chart are Strong

NVIDIA stock has not seen too much positive movement in recent years. The stock seems to be struggling to find value as its price has chopped around over the last several years. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, NVIDIA is trading above its rising key averages which signal neutral to bullish price action in the near-term.

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of NVIDIA options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
NVIDIA Options	34.93%	86%	85%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
May Options	Flat	Average
June Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on NVIDIA’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for NVIDIA look like and more importantly, how did the markets like these numbers?

	2012 Q4	2012 Q3	2012 Q2	2012 Q1
Earnings Growth (Y-O-Y)	49.83%	13.79%	-24%	-54.55%
Revenue Growth (Y-O-Y)	16.13%	12.94%	2.73%	-3.86%
Earnings Reaction	2.91%	-3.86%	-0.61%	6.36%

NVIDIA has seen increasing earnings and revenue figures for most of the last four quarters. From these figures, the markets have been mixed on NVIDIA’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has NVIDIA stock done relative to its peers, Intel (NASDAQ:INTC), Advanced Micro Devices (NYSE:AMD), Qualcomm (NASDAQ:QCOM), and sector?

	5 Best Medical Stocks To Invest In 2014 NVIDIA	Intel	AMD	Qualcomm	Sector
Year-to-Date Return	12.07%	15.42%	14.38%	-0.18%	13.83%

NVIDIA has been an average performer, year-to-date.

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Conclusion

NVIDIA provides valuable mobile, personal computer, supercomputing, and server products to a multitude of consumers and businesses operating in different industries around the world. The stock has struggled to establish a consensus price in recent years but is now setting up to move higher. Earnings and revenue have increased during most of the last four quarters but investors have not been fully convinced. Relative to its peers and sector, NVIDIA is an average performer, year-to-date. WAIT AND SEE how NVIDIA stock reacts during this coming earnings announcement.

Where Will Facebook Stock Go Now?

With shares of Facebook (NASDAQ:FB) trading around $34, is FB an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Facebook is engaged in building social products in order to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about. Developers can use the Facebook platform to build applications and websites that integrate with Facebook to reach its global network of users, and to build personalized and social products. Advertisers can engage with more than 900 million monthly active users on Facebook, or subsets of its users, based on information they have chosen to share.

Social networking has been a powerful movement and tool in recent years, and has had a major influence in the way many companies and consumers operate daily. The company's mobile app has reached 100 million users, and the simple app is most heavily used in emerging markets, where data speeds are usually slower. Facebook reported earnings on Wednesday afternoon that proved analysts wrong, with strong profits from mobile ads. Facebook's ad revenue from mobile was close to nothing a year ago, but in the second quarter, mobile ads made up 41 percent of the site's total ad revenue of $1.6 billion. Chief Executive Officer Mark Zuckerberg predicted, "Soon we'll have more revenue on mobile than desktop."

T = Technicals on the Stock Chart are Strong

Facebook stock has struggled to find a consensus valuation over the last several years. The stock broke out in a big way today, and is now trading at highs for the year. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Facebook is trading well above its rising key averages, which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Facebook options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Facebook Options	33.76%	3%	0%

What does this mean? This means that investors or traders are buying a very minimal amount of call and put options contracts, compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
August Options	Flat	Average
September Options	Flat	Average

As of today, there is an average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very minimal amount of call and put option contracts, and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Facebook’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. The last four quarterly earnings announcement reactions can also help gauge investor sentiment on Facebook’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Facebook look like, and more importantly, how did the markets like these numbers?

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	58.33%	0.00%	-89.46%	-120.00%
Revenue Growth (Y-O-Y)	53.13%	37.81%	40.14%	32.29%
Earnings Reaction	28.74%*	5.61%	-0.83%	19.12%

Facebook has seen improving earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been excited about Facebook’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Facebook stock done relative to its peers, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), LinkedIn (NASDAQ:LNKD), and the overall sector?

	Facebook	Google	Microsoft	LinkedIn	Sector
Year-to-Date Return	26.52%	26.10%	17.56%	77.77%	20.31%

Facebook has been a relative performance leader, year-to-date.

Conclusion

Facebook is a leader in the social networking arena, and strives to provide an unforgettable experience for its users, developers, and advertisers. A recent positive earnings has investors euphoric, and the stock is now trading at highs for the year. Over the last four quarters, investors in the company have been excited, as earnings have been improving and revenue figures have been rising. Relative to its peers and sector, Facebook has been a year-to-date performance leader. Look for Facebook to OUTPERFORM.

Goodyear Shifts Gears

U.S. car sales continue to surge. In August, they jumped 17% from a year ago, to a seasonally adjusted 16.1 million cars and trucks, a level that hasn’t been seen since 2007, before the financial crisis and recession.

Rising car sales are being supported by continued low interest rates and declining unemployment. And the trend looks set to continue: the average car on U.S. roads is now 11.4 years old—a new record, according to August figures from Polk Research.

At the same time, rising wealth in emerging markets continues to expand the middle class in those countries. According to estimates from the Brookings Institution, for example, Asia will be home to 64% of the global middle class by 2030, up from 30% today, while 22% of this group will reside in Europe and the U.S., down from about 50%.

Rates of vehicle ownership remain low in those countries. According to figures from the World Bank, there are just 18 vehicles per 1,000 people in India (not including motorcycles) and 58 per 1,000 in China. Compare that to the United States, with 797. Brazil comes in at 209.

Many Options for Investors

There are a number of ways for investors to profit from the rising auto sales. The obvious approach is to buy shares of major automakers like General Motors (NYSE: GM), Ford (NYSE: F) or Nissan (OTC: NSANY). (We took a close look at Nissan in a September 3 Investing Daily article. Click here to read the full piece.)

Another option is to invest in component makers like Magna International (NYSE: MGA), which makes a range of automotive components, including chassis, seats and electronics.

Tire manufacturing is another sector that benefits from rising levels of car ownership. According to 2012 figures from global market research firm Lucintel, the global tire market is expected to reach an estimated $187 billion in 2017, with a compound annualized growth rate of 4% over the five years between 2012 and 2017.

Goodyear Tire & Rubber Co. (NasdaqGS: GT) is the No. 1 tire maker in North America and Latin America, and No. 2 in Europe. Globally, it sits in third spot by sales, behind Japan’s Bridgestone and Michelin of France. In addition to Goodyear, the company makes tires under the Dunlop, Kelly, Fulda, Lee, Sava and Debica banners. It operates 52 plants in 22 countries around the world.  

Akron-based Goodyear traces its roots back to 1898, when founder Frank Seiberling bought the company’s first plant for $3,500 using money he had borrowed from his brother-in-law. Its business also goes beyond car and truck tires: the company also makes rubber-related chemicals for industrial applications and operates commercial truck service and tire retreading centers, as well as 1,400 tire and auto service outlets.

Goodyear also makes tires for aircraft—another market with bright prospects. More on that below.

Latest Earnings Fuel Optimism

In many ways, Goodyear’s results have mirrored those of the global auto industry. In 2012, it saw higher sales to automakers, but replacement tire sales, which comprise a large part of the overall tire market, remained depressed as the weak economy prompted drivers to hold off on buying new tires for their older cars. Like the overall auto industry, Goodyear has also been weighed down by ongoing weakness in Europe.

Sales declined 7.8% in 2012, to $20.9 billion from $22.8 billion in 2011. Net income fell to $0.74 a share from $1.26.

However, in the company’s second quarter earnings report, which it released on July 30, CEO Richard Kramer said he is seeing signs of sales volumes stabilizing.

During the quarter, Goodyear’s revenue declined 5.0%, to $4.9 billion from $5.2 billion a year ago. Tire unit volumes rose 1%, but that was more than offset by other factors, such as lower sales in other tire-related businesses and unfavorable currency exchange rates. Even with the decline, Goodyear’s revenue topped the Street’s forecast of $4.88 billion.

Net income more than doubled, to a record $181 million, or $0.67 a share from $85 million, or $0.33. Excluding special items, Goodyear earned $0.76 a share, up from $0.57 a year ago and ahead of the consensus forecast of $0.48.

Lower raw material expenses and cost cuts were major factors behind Goodyear’s improved profits. “We reported $177 million of reduced raw material costs during the quarter,” said CEO Richard Kramer in the post-earnings conference call.

Turning the Corner in Europe?

The company saw profit gains across all its divisions. In North America, revenue fell 10%, but operating income gained 8.5%, helped by lower costs.

Latin America also showed strength, with sales gaining 5.6% and operating income surging 41.4%. Europe, the Middle East and Africa was also a surprising bright spot. Revenue in the region declined 1%, but tire sales volumes rose 1%. Operating income soared to $51 million from just $19 million a year ago. The Asia-Pacific region’s operating profits rose 28.2%, despite lower revenue there, as well.

“We anticipate volume growth in the second half of 2013 compared to last year, with a 3% to 5% increase in the third quarter, driven by continued improvement in emerging markets and slow but steady recovery in mature markets,” said Kramer. The company also said that it expects full-year operating income of about $1.5 billion, at the high end of its previously announced forecast of $1.4 billion to $1.5 billion.

Aviation Tires Are a Growth Area

As mentioned, the company is also a leading maker of aviation tires, having made its first airplane tire back in 1909, just six years after the Wright Brothers made their first flight. Today, Goodyear makes tires for commercial and military aircraft, as well as spacecraft.

This business’s sales should gain along with global aircraft demand. As Investing Daily managing director John Persinos reported in a December 17 article, $4.5 trillion worth of new passenger jets are expected to be sold over the next two decades. Two-thirds of those planes will be headed for the Asia-Pacific region, as rising wealth in the area drives up demand for air travel.

Goodyear shares have risen sharply so far in 2013, including significant jumps in the wake of the latest earnings report and on news of rival Cooper Tire & Rubber Co. (NYSE: CTB) being taken over by India’s Apollo Tyres.

To be certain, Goodyear faces a number of risks. The tire business is highly competitive, and the stock is volatile, with a beta rating of 2.26 (meaning that it is more than twice as volatile as the overall market). The company’s long-term debt is also high, at $6.3 billion—above its $5.2-billion market cap—though it does hold $2.6 billion of cash on its balance sheet, up from $2.3 billion a year ago. Goodyear also remains heavily reliant on replacement tires and needs a recovery in that market.

On the positive side of the ledger, Goodyear’s sales should stabilize as auto sales continue to rebound in the U.S. and emerging markets. Replacement tire demand should also pick up in the longer term, in light of the fact that consumers have been putting off purchases for much longer than usual.

The stock’s trailing-twelve-month p/e ratio is 17.0, but it trades at just 8.6 times the average analyst earnings estimate of $2.46 a share for this year. Analysts estimate that Goodyear’s earnings could rise to $2.73 a share in 2014.

Did Microsoft Just Buy Another Tablet Launch?

Nokia's (NYSE: NOK  ) rumored "Sirius" tablet was expected to launch as early as this month, just as Microsoft  (NASDAQ: MSFT  ) is likely preparing to launch two new Surface models in the near term. That would potentially mean Microsoft effectively has three tablets about to be launched.

Meanwhile, Microsoft runs a big risk of alienating other OEMs that it now competes with directly. This risk could even potentially bleed into other markets that matter more to Microsoft, since many of these manufacturers also make PCs and other Windows devices.

In the following video, Erin Kennedy discusses the implications of Microsoft's deal with Nokia with Evan Niu, CFA, and Eric Bleeker, CFA.

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Hot Low Price Companies To Watch For 2014

Unemployment Above 25% in Spain and Greece

If the European economy has improved at all, it has not shown up in unemployment numbers among the region’s weakest nations.

According to Eurostat, within the region:

Among the Member States, the lowest unemployment rates were recorded in Austria (4.8%), Germany (5.3%) and Luxembourg (5.7%), and the highest in Greece (27.6% in May 2013) and Spain (26.3%).

Compared with a year ago, the unemployment rate increased in seventeen Member States and fell in eleven. The highest increases were registered in Cyprus (12.2% to 17.3%), Greece (23.8% to 27.6% between May 2012 and May 2013), Slovenia (9.3% to 11.2%) and the Netherlands (5.3% to 7.0%). The largest decreases were observed in Latvia (15.7% to 11.5% between the second quarters of 2012 and 2013) and Estonia (10.1% to 7.9% between June 2012 and June 2013).

The figures for young people were absolutely brutal:

In July 2013, 5.560 million young persons (under 25) were unemployed in the EU28, of whom 3.500 million were in the euro area. Compared with July 2012, youth unemployment decreased by 53 000 in the EU28 and by 16 000 in the euro area. In July 2013, the youth unemployment rate was 23.4% in the EU28 and 24.0% in the euro area, compared with 22.9% and 23.3% respectively in July 2012. In July 2013, the lowest rates were observed in Germany (7.7%), Austria (9.2%) and Malta (10.6%), and the highest in Greece (62.9% in May 2013), Spain (56.1%) and Croatia (55.4% in the second quarter of 2013).

Overall, the region’s jobs situation was stagnant:

The euro area (EA17) seasonally-adjusted unemployment rate was 12.1% in July 2013, stable compared with June.The EU28 unemployment rate was 11.0%, also stable compared with June. In both zones, rates have risen compared with July 2012, when they were 11.5% and 10.5% respectively.