Shares of Nvidia (NASDAQ:NVDA) briefly entered bear-market territory before firming and heading higher Friday. The 20% drop from the all time highs on Oct. 2 was certainly fast and furious — too much so. Given the improving fundamental backdrop and positive technical outlook, traders and investors alike can look to add Nvidia stock to their portfolios on any further weakness.
Click to Enlarge Aside from just answering some interesting old questions, Nvidia stock is getting decidedly more attractive on a fundamental basis. The price-to-earnings ratio has come down sharply due to the recent carnage and now sits at the lowest levels of the past 3 months. Similar metrics, such as price to sales and price to cash flow, have also tempered dramatically.
It’s important to remember that Nvidia stock has handily beaten earnings over the last four quarters, yet the shares haven’t reflected that strength during that time frame. The combination of growing earnings and a stagnant stock price makes Nvidia stock a comparative value.
Click to Enlarge Nvidia stock had become extremely oversold on a technical basis. The 9-day RSI reached the lowest levels of the past year with readings approaching 20. The prior instances when NVDA reached similar oversold conditions marked significant intermediate-term lows in the stock. Shares are also trading at the biggest discount to the 100-day moving average over the past year, another sign that the selling may be getting extreme.
NVDA had fallen 20% to the first support area at $235 after reaching all-time highs only a few weeks earlier. There is major support lurking lower at the $217 level. Patience is warranted given the heightened volatility in the markets recently.
Click to EnlargeInvestors looking to add Nvidia stock to their portfolio can use a move towards $235 to put on a position. A break of the major support area at $217 is a logical stop-loss to exit the trade.
Resistance is at $260, which also coincides with the 100-day moving average. This would be a likley upside target level to trim out of some of the position or take profits entirely. Nvidia is scheduled to report earnings around November 8, although the official date has yet to be confirmed. More risk adverse traders should exit the NVDA position before the release date to reduce risk.
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