Good morning investors!

Our goal is to provide high quality content that gives our IE+ members an EDGE in the market. We strive to not only adapt, but refine, perfect, and elevate our content week after week.

Last month we introduced our latest addition to the Investor’s Edge catalog: a monthly “Top Stocks to Watch” report. In this exclusive article we will break down 10 stocks that we are watching in the upcoming month and beyond so you can be prepared for what lies ahead.

Grab your coffee and let’s dive in.

Watchlist Performance - February 2024

First, let’s take a look at how our top stocks to watch in February performed:

You can see why we were watching these stocks and what we expected to happen here:

Top 10 Stocks to Watch - March 2024

Here is our March watchlist along with several key valuation metrics that we like to use for our stock analysis:

Nvidia

Nvidia is an American multinational technology company based in Santa Clara, California, which was founded on April 5, 1993. The company designs graphics processing units (GPUs), application programming interface (APIs) for data science and high-performance computing as well as system on a chip units (SoCs) for the mobile computing and automotive market. Nvidia is also the leading supplier of artificial intelligence hardware and software.

Nvidia is up +74.5% this year and is currently the third largest company by market cap, behind only Apple and Microsoft.

Nvidia reported fourth quarter 2024 earnings on February 21, 2024. The company generated a net income of $5.16 per share, beating estimates of $4.59 per share, and rising 769% from the same period the year prior. Revenue rose 265% year-over-year to $22.10 billion, compared to analyst expectations of $20.40 billion. The substantial growth was attributed to robust sales of AI chips, particularly the "Hopper" chips like the H100. 

On top of beating on the top and bottom lines, Nvidia’s operating income rose 983% YoY to $13.6 billion. The Data Center business, which now constitutes the majority of Nvidia's revenue, saw sales surge by 409% to $18.40 billion, with over half of these sales going to major cloud providers. Meanwhile, the gaming business, including graphics cards for laptops and PCs, saw a 56% year-over-year increase to $2.87 billion.

Nvidia anticipates $24.0 billion in sales for the current quarter, exceeding analysts' predictions of $22.17 billion in sales.

Over the last 5 years, Nvidia’s EPS CAGR is 50.8%. Nvidia’s forecasted EPS growth rate for 2024 is 93.4% and analysts estimate an 36.1% CAGR over the next 5 years.

Nvidia’s 5 year dividend CAGR is 0.0%. The company has had stock splits over the years so the values are split adjusted. When you combine the dividend growth and price growth, Nvidia’s 5 year total return CAGR is 85.1%.

Despite Nvidia’s impressive growth, valuations are a bit stretched at these levels. Nvidia is currently trading at a P/E ratio of 66.3x, which is below its historical average P/E of 74.3x but much higher than the industry average of 26.4x. When accounting for future growth, the forward P/E ratio is 34.3x.

Over the last 12 months, Nvidia has generated $26.95B in free cash flow, or $10.96 per share, resulting in a P/FCF of 78.4x. That is in line with its 10 year historical average of 27.0x but above the industry average of 22.4x.

When we combine both our DCF and relative value models, Nvidia has an intrinsic value of 482.88. With NVDA shares currently trading at 859.64, that means there is a 43% premium for the price.

Nvidia is the key to the market right now. While several of the MAG7 stocks have stumbled as of late, Nvidia has continued its upward trajectory and dragged the entire market higher with it.

Valuations are stretched here though, even when taking into account the huge potential for AI and its chips, as well as Nvidia’s tremendous earnings and revenue growth. When looking at its chart and the relative strength index, the stock is due to cool off a bit. And if Nvidia cools, so will the overall market.

That’s why we plan on watching Nvidia closely this month.

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