Stephanie Link from Hightower anticipates a challenging and potentially volatile quarter for Nvidia due to supply chain issues, China restrictions, and other headwinds, though she remains cautiously optimistic about its long-term demand and earnings potential. She also highlights opportunities in Costco and Gap, emphasizing their strong fundamentals and growth prospects, while maintaining a strategic, active approach to market fluctuations.
In the video, Stephanie Link, Hightower’s chief investment strategist and CNBC contributor, discusses the upcoming earnings reports for Nvidia and other major stocks. She highlights Nvidia’s significant presence in the S&P 500, accounting for about 6%, which makes it a stock that many investors are watching closely. Despite this interest, she anticipates a challenging quarter for Nvidia, citing various headwinds such as China restrictions, supply chain issues, slower rack production, and power consumption problems. She expects the quarter to be “messy,” with earnings guidance likely to be lowered due to these factors, particularly a projected 10% hit from the H2O issue. However, she notes that the stock has already recovered 36% from its lows in April, and emphasizes that the core demand for Nvidia’s products remains strong, with an estimated earnings power of around $5 per share this year.
Link points out that Nvidia’s current challenges are primarily supply-side issues rather than demand problems. She suggests that these issues are well-known and largely priced into the stock, making it a potentially volatile but not necessarily fundamentally weak investment. She is interested in how Nvidia’s stock will trade following its earnings release, given the mixed outlook and the recent recovery. Her overall tone indicates cautious optimism, recognizing the company’s importance in the market but acknowledging the headwinds it faces in the near term.
The conversation then shifts to Costco, which Link does not currently own but considers a strong long-term investment. She notes that Costco is expected to report earnings soon, and she anticipates a good quarter based on recent data, including a 6.7% increase in same-store sales in April and a 4.2% rise in global traffic. Although she mentions that Costco often experiences a sell-off after earnings, she would consider buying on a significant decline, especially if the stock were to pull back 5-10%. Despite its high valuation at 50 times earnings, she justifies this by the company’s high percentage of recurring revenue from membership fees, which provides stability and long-term growth potential.
Link also discusses her position in Gap, which she owns and has seen a 22% increase year-to-date. She attributes this positive performance to the turnaround efforts led by CEO Richard Dixon, who previously successfully revitalized Mattel’s Barbie brand. She highlights recent improvements in Gap’s sales across multiple divisions, increased market share, and innovative product designs under creative director Zac Posen. The stock is currently trading at 12 times forward earnings with a modest yield of 2.3%. She indicates that if Gap’s stock pulls back from its recent gains, she would be inclined to add to her position, viewing it as a good long-term investment.
Finally, the discussion touches on how macroeconomic factors influence her investment decisions. She mentions that her overall cash position has decreased from 9% to a lower level, reflecting her active engagement in the market. She notes that recent market movements have been affected by political developments, such as announcements related to Trump, which have caused some volatility. Despite these fluctuations, her approach remains focused on identifying quality companies with strong fundamentals and growth prospects, and she is prepared to make strategic purchases if market conditions present attractive entry points.