The first week of June saw a decline in the average stock in the S&P 500 and the Russell 2000 SmallCap Index, despite some positive headlines in the financial press. The market is made up of individual companies, and it is essential to look beyond the broad indexes to get a true picture of what is happening in a diversified portfolio of stocks.
The market can be influenced by high-priced stocks like Salesforce and Nvidia, which can skew the performance of broad-based indexes like the Dow Jones Industrial Average and the S&P 500. Nvidia, in particular, has been a significant driver of the S&P’s return in 2024, with a 4.67% average weight in the index and a 144% total return.
The investment process at The Prudent Speculator is valuation-driven, focusing on buying stocks that are undervalued and have the potential for growth. The goal is to buy stocks that are out-of-favor or underappreciated, with the potential for a market reassessment upward in valuation metrics like sales and earnings. This approach has allowed The Prudent Speculator to buy stocks like Apple, Microsoft, Alphabet, Meta Platforms, and Nvidia at favorable entry points over time.
While Nvidia has seen significant growth and attention, its current valuation metrics are considered expensive by a Value-oriented strategy, with a price of more than 65 times trailing-12-month earnings. Investors looking for exposure to AI technology may consider more reasonably priced alternatives like Broadcom, Qualcomm, Micron, Digital Realty, Intel, and Microsoft, which can benefit from the same dynamics that have propelled Nvidia’s success.
The Prudent Speculator’s weekly Market Commentary provides valuable insights into stock market news, investing tips, and economic trends. For regular updates and free stock picks, readers can sign up for The Prudent Speculator’s newsletter on their website. The content is curated each week to help investors stay informed and make informed decisions in the market.
