The market was tricky this year, starting with a rocky beginning. We didn't know if we were going to have an up day... ha ha ha. The market was resetting indicators within itself, chopping around as certain stocks held in. Initially, it was healthcare, materials, and stuff like that. Everyone started to chase rotations. In our community, we did a deep dive into rotations, discussing it live in podcasts and talking about inter-rotations like AAPL 0.00%↑ and other market caps. When they tell you that big-cap tech stocks aren't going to lead and they're dead this year, that's when I actually get interested and start buying, as you guys know.
Now, they were basically trying to tell us the small caps IWM 0.00%↑ are dead and those aren't going to be the place to be. And like I was saying, the stock market's job is to convince you that there will not be another small cap rally right before there is another small cap rally. The same thing it did with NVDA 0.00%↑, convince you NVIDIA is topped out and done before it reemerges and creates another leg. It's called basing, and there are a lot of different names for it, but anyways...
So where are we now? What do we do from here?
Okay, cool. Some people participated in AMD 0.00%↑, AVGO 0.00%↑, SMCI 0.00%↑ calls last week, good for them. “What have you done for me lately? What do I do with this thing now, Banana?”
Alright, I'm not an oracle. Like I said, I just work hard and share everything with you guys and try to figure it out together. So I think there's a group of stocks, and a couple of them in particular, that are giving us the yellow brick road, right? And I think unless you're basically a crappy company and don't do well and have a crazy valuation, and you haven't gotten better since your all-time high, now that the market's made all-time highs, algos, institutional portfolio managers – I know how they think, I know how they run money – they're gonna look for something like this. And this is the post that we're gonna springboard this off of, okay?
I did a post where I grouped it together with other stocks and highlighted the "yellow brick road" of what Arista Networks, or ANET 0.00%↑ is showing us with certain stocks. People like to say "leaders lead," and that's the thing here. One thing that's going to happen, and this is where I think the opportunity set is for us, is Arista made this new high and is charging, you can see below in the post.
Google, Amazon, and QQQ are literally almost copying it. Like Salesforce, CRM 0.00%↑. Right now, ServiceNow, NOW 0.00%↑ made a new all-time high. So the opportunity set right? It's like ADBE 0.00%↑, right? It hasn't made a new all-time high. It's a good company, so it's got a date with its all-time highs. NVDA 0.00%↑ charging at new all-time highs. That's just basically called a rerating. I'll talk about that in a minute, alright? So the opportunity set is to look and see what is still below its all-time highs. That's going to be the opportunity, right? So AMZN 0.00%↑, significantly below its all-time highs. Facebook, or META 0.00%↑ still. That's why people are like, "Oh, is Facebook gonna go up every day?" It's just trying to get to that spot where it was because it's in a better place now. It's a better company. It's actually a better valuation and cheaper now at its all-time highs than it was previously at its all-time highs.
So those are the things I'm looking at. That's where I'm putting the heavier weight. Yeah, I'm still gonna try to manage and keep along with AMD 0.00%↑ and NVDA 0.00%↑, but it's hard. Like we said when those things really get going and take off, yeah, if I got like, you know, 1000 shares of something, I'm just gonna hold on to it and ride the waves up and down. If I'm able to, right? But trading it? Is a little more complex because I think of trading in three factors.
Super short-term, so that's like your day and week.
Intermediate, which is days but mainly weeks to weeks is, for me, intermediate.
Longer-term can be weeks but basically months to months, one or two more months out.
And I chart accordingly.
But for the most part, even weekly and monthly charts. You'll never see me posting one-minute and two-minute charts and look how many successful day trades or short-term trades I pile up on other stuff because you need to get the bigger picture of understanding. What's really happening? So if you look at the ANET 0.00%↑ post, that is the roadmap. That's what I explained that things are going to kind of follow. That's the suit there. There's going to be shenanigans and stuff along the way. That's why like as traders, I really like to tell my little brother out there who listens because I don't give financial advice. But when he listens, I can because he's immediate family, and I tell him, you know, BUY TIME, that's really the key because some people miss out. Literally, imagine you had SMCI 0.00%↑ calls or a little position and just like that, then it took off. You know
... so I always like to tell my little brother out there to give a little time to these things.
Warren Buffett has good quotes. Like the stock market makes all its gains in like 8-10 trading days, and you never know when that is. That's why those people just kind of stay in. So as traders, what we're trying to kind of time those things here and there. But you have to give yourself a little bit of time because sometimes even the best of us don't know when that's gonna come.
I know NVDA 0.00%↑ and those things are on a lot of people's minds, and people get FOMO. It's tricky because two things. If I was just dead honest with my little brother, it's still not a bad valuation here, and that's why it's like, yeah, you see it go up 20 bucks, you don't want to chase it then, but in some places, if you buy time and have shares, for my little brother out there, you have to plant your flag. And always timing, like the perfect 10 bucks off or 20 bucks off. It's tricky, right? It's like, yeah, when I get in, it's going to go down. Well, that happens to everyone. But here's what a rerating means. Okay, there's times where a stock is running, like hype, like a meme stock or just the market. We all know it. Like CVNA 0.00%↑ is running. Or AMC 0.00%↑ or GME 0.00%↑. Those are kind of older memes. But you know what I'm talking about, like AFRM 0.00%↑, okay, that's a good company though. But it's running, like crazy... Okay.
And it's just anybody's guess. Guess what? Valuation is like 60 PE, a 50 PE, 40 PE based on that. Smart people can give different types of flavors for different things and make it sound smart. But it's really like, what are you willing to pay for that thing? Anytime the valuation is too high, just got to make sense of the intrinsic value. But a rerating is a little bit different. Okay, a rerating is like putting it there, and now we're just starting over. It's like a new security. It's like an IPO at that price. Okay? And Wall Street understands this terminology and institutions to some degree. It looks like they're FOMO chasing, but they're just getting as many shares as they can because they know it's being rerated. They know the math. Our community knows the math really well. Okay?
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Because I'm lucky, my mom was a PM and had a PhD in mathematics. She instilled that in me at a very young age, and I dedicated my life to it in stocks. And I'm usually not because I'm anything special; I'm a dumbass, trust me. But I dedicated it to be good at that part, and I knew that my math would catch on the rest of Wall Street, and it started happening through the analyst community. I was going to be an analyst at one point, so I kind of know how they think, but that's a conversation for another day.
But anyways, so this is the math. Just say it real quick, and this is just being put there. It's just being rerated there. Okay? So based off of a couple of months in this last year, this was the out year, then now we're already in it, but the math goes like this:
They're basically having $20 EPS (it will probably be higher, closer to $22-$24) EARNINGS PER SHARE. That's what NVDA 0.00%↑ guided at, like easily.
CONSERVATIVELY.
No one's even disputing that. Okay? They are already at about $16-$18 EPS, and they guided up, and people already think it will be $22-$24 EPS, but let's just say $20 EPS and be conservative. $20. When a company is growing 130% one year and is set to grow 60%, and then 50%, but then hold that 40% to 50% for many quarters to come, it has to usually trade close to its revenue growth. So if a company grows 40%, it trades at a 40 multiple, 30% grows at a 30 multiple, so what we're gonna do is take NVDA 0.00%↑ that is growing at 40%-50% and give it a conservative multiple or delta (spread) of 30 PE on a $20 dollars earnings per share. Now it's all coming together, see? 20 times 30 = $600 per share. That's just what the normal value is. That's a cheap valuation! That's just where it belongs. Okay? That's the rerating. $600 a share. $20 of EPS times 30.
Now it should really be $22-$24 EPS, and it should probably get a better multiple once people see that it's not going to get decimated and other companies not going to come knock it off its rockers. That's all nonsense. Okay? NVDA 0.00%↑ got a long runway, okay, a long backlog here. So you're probably gonna get $22-$24 EPS times 35 PE, right? It starts to take you to 640-680. There's people like Barclays and other analysts coming out with 35-45 multiples on $24-$26 bucks earnings per share. That starts to put you in the 700s. So that gives you an idea, but the rerating is 600 bucks a share.
Okay, and it's just like getting there, and you've got to be careful chasing even short-term profits, and they're still trading, but that's the thing. That's giving the people an explanation of FOMO and why reratings work like that. We have the forecast. Look at the "can you hear me now" Arista network charts. The reason I labeled the newsletter like that is because, can you hear me now? It's telling you the roadmap. Can you hear me? Where are we going here? And now the SP500 made an all-time high. Usually, there's an expansion, you contend there's shenanigan. They are gonna try to knock us off our socks, but I think for the most part, we're going to start getting a rally to all-time highs in the stocks that are still trading them. Now, in February, I am concerned about a little bit of a bigger pullback.
We'll talk more about that later. I love you guys. You know how much I love my community. We're grassroots, organic. It just happened on accident, and sometimes the best things happen on accident. Okay. Love you guys. Later, see you in chat.
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