Portfolio Manager Thomas Vandeventer of Tocqueville Asset Management says NVIDIA Corporation (NASDAQ:NVDA), a semiconductor company that’s made its name in graphic processing, is making strides with its GPU chips, leading to a year-over-year sales increase of 54%.
We’ve owned the stock since the beginning of the year. We’ve been continuing to increase our position, and the story reminds me a bit of the position that Intel (NASDAQ:INTC) was in back when personal computing was really getting legs…The revolution is different, of course, but this company is in the leading and dominant position.
NVIDIA is almost an $11 billion market cap today. And the stock has done extraordinarily well this year, starting the year at $33 a share and closing today at around $86.
The story with NVIDIA is that the GPU chips it manufactures process robust amounts of data because of parallel processing. GPU’s time has come, as their processing approach is ideal in a world of expanding bandwidth and data requirements for everything from artificial intelligence to virtual reality to exploding video streaming and interpreting consumer needs.
Investors who know the name know that they have typically produced the leading graphics processing and rendering chips for games. What they may not know is that today NVIDIA is making great strides in autonomous driving and also in the visualization of not just animations but in virtual reality and artificial intelligence. They’ve just recently introduced a new chip for gaming, which led to an increase of sales of 54% year over year for the latest quarter. The Pascal GPU is actually 10 times faster than the prior previous-generation chip.
Ryan Lynch covers BDCs. Mr. Lynch says right now the valuations for the BDC space look compelling. As far as the environment BDCs are operating in, he says it is a little more mixed, and credit is also mixed for the group. He emphasizes the importance of investors knowing the BDCs they own very well.
Full interview available here.
Mitchel Penn is very positive on BDCs, as his firm believes credit will likely continue to improve in 2017. Mr. Penn says that if there is higher economic growth due to the new administration, that will help the BDCs; however, there is some uncertainty such as whether bank regulators will encourage banks to make more middle market loans. He says less government regulation is a positive for BDCs.
Full interview available here.
Casey Alexander covers business development companies. Right now Mr. Alexander has a measured outlook on the space. He says the potential for increased interest rates is welcome news for the sector. He advises investors to keep their eyes on the credit cycle, as it is now on the positive side and will eventually move to the negative side. Mr. Alexander says investors should not consider BDCs as passive, put-away investments; rather, he advises they take a more active approach managing portfolios within this asset class.
Full interview available here.
Gold and precious metals started the year on a positive note after the Federal Reserve lowered the expected trajectory of rate hikes at the end of 2015. Gold and silver prices increased at the beginning of 2016. In the first half of 2016, the cost cutting measures put in place by miners were being delivered and the increase in gold prices widened margins. Equities performed well, analysts say.
Analysts expect one or two more rate hikes expected over the next 12 months. The expected progrowth policy environment has led to a stronger dollar. Both of these have been short-term macro headwinds for gold.
Globally, the gold miners that have done best are tending to be economies not based on the U.S. dollar, places like Australia, South Africa or Russia. They’ve benefited from the double tailwind of raising gold and falling cost as measured in U.S. dollars.
Full report available here.
Business development companies had a slow start in 2016, but the third quarter saw deal flow increase, which was especially positive for BDCs with capital to deploy. Analysts say BDCs are currently trading around 95% of book value, which is below historical averages, and which could prove enticing to some investors. Analysts, however, say there are reasons to be cautious with the space, saying competition in the middle market from direct lending has increased. If banking regulation decreases, banks could move also into the middle market, further increasing competition for BDCs.
Some analysts are concerned about the credit cycle, saying a negative turn is due, though others say they see no evidence in the data to make those assertions. Some even say credit will likely continue to improve in 2017, as yields on underlying loans appear to have stabilized. Yields on first liens have been trending upward over the last six months, while yields on second liens have trended up slightly.
Analysts discuss interest rates, saying that if short-term rates rise, this might be good for BDCs, because they have floating-rate loans. But if the long-term rises and the short-term stays low, that wouldn’t be as positive for this space. Currently, dividend yields in the BDC space have come down from 12% to 13% levels to an average of 10%. Some BDCs could benefit from higher rates because they have spent years pushing the asset side of the portfolio toward floating-rate loans, which analysts say it means BDCs have outperformed relative to REITs or utilities indices.
Analysts also discuss government regulation, saying less regulation could be good for BDCs. If government spending increases, that could also be positive for BDCs as interest rates could increase. They also say there is potential legislation in Congress which would let BDCs increase their leverage.
Full report available here.
Portfolio Manager Matt Hayner of Madison Investment Holdings says that while U.S. Bancorp (NYSE:USB) is growing deposits and loans, that growth is being offset by interest margin compression.
U.S. Bank is a high-quality, super-regional bank, if you will. It’s different than some of the traditional Wall Street banks, and they have less capital markets business. It’s mostly primarily borrowing and lending, so traditional banking. And of course, for them and for that business model, the interest rate environment has mattered.
And so for U.S. Bank, we’ve seen, over the past couple of years, we’ve seen nice deposit growth for them and certainly in low-cost deposit growth, but really not a lot of opportunity to make a lot of net interest margin or spread, based on a low interest rate environment.
Well, their deposits are growing nicely. Their loans are actually growing nicely as well in the mid single digits. But that spread between what they pay to borrow and what they earn on lending continues to compress. So their growth, like other banks, is being offset by that interest margin compression. And that story hasn’t changed.
John Campbell and Mark Spatt talk about their firm’s diversified small-cap strategy. This strategy focuses on how the market tends to under-appreciate improvements in the fundamentals of small companies. Mr. Campbell and Mr. Spatt believe investors need to have exposure on an ongoing basis to this asset class, and say the expected growth in earnings for small caps is two times that of large caps over the next couple of years.
Full interview available here.
N. Douglas Adams discusses his firm’s investment philosophy, which focuses on contrarian value orientation. He says the uniqueness of the firm is to look for undervalued assets as a way of controlling risk. Mr. Adams focuses on early-stage biotech companies, as he believes this is a very fertile area where great discovery is being made.
Full interview available here.
Keith Trauner discusses GoodHaven Capital Management, LLC and the GoodHaven Fund. Mr. Trauner is a value investor. He uses a concentrated, long-term and disciplined investment approach. The goal of the fund is to compound the shareholders’ money, and Mr. Trauner is one of the two biggest shareholders in the fund. When looking for investments, Mr. Trauner focuses on what is unpopular, unloved or unwanted. He also tries to avoid excessive valuation, excessive leverage and bad management teams. Mr. Trauner doesn’t worry about the things he can’t control, and if he can’t find investments at prices that offer a cushion against loss and reasonable returns, he won’t invest and will hold cash.
Full interview available here.
