Stocks had a pretty strong rally on reports that the Federal Reserve would lower the rate at which it increases interest rates. But that rally ended as traders realized that rates would still rise—and a slower pace would allow the increases to continue for longer.
However, we’re likely closer to the end of the rate hike cycle than the beginning. And for investors looking for year-end buys, it could be time to pick up some beaten-down names, particularly in big tech.
That includes a number of chip-related companies, which have been hit so hard this year that they’re well priced for the current downturn.
One of our favorites still well off its lows is Nvidia (NVDA). The graphics processing unit manufacturer is down over 43 percent in the past year. And while revenues have slid by 17 percent, the company’s valuation has gone from 91 times earnings during the boom to under 40 times today.
That may get a bit cheaper in the coming months, but shares are at some of their best valuations in years.
Action to take: Investors may want to use down days to accumulate shares of Nvidia near here. The stock pays a modest 0.1 percent dividend, but it’s an industry leader poised for big returns on a rebound in the chip space that provides the real value for investors today.
For traders, the September 2023 $250 calls, last going for about $8.25, offer the potential for a high-double-digit return or better on a further move higher in shares anytime between now and next September.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.