It’s official — the Federal Reserve will cut interest rates by another quarter point. According to the Wall Street Journal, “Seven of 10 officials voted in favor lowering the short-term benchmark to a range between 1.75% and 2%.”
Moreover, some members of the Fed seem to want at least one more rate cut this year.
So what do the markets think of this? Well … it’s not as positive as some people might have liked to see. The major indexes are drifting lower after the announcement. It could be a reaction to the split on the question of further cuts in 2019.
But while we were all waiting for this announcement, smart investors were still reading up on their top stocks. Among the hottest topics today were:
So Is Nvidia Stock a Buy, Or …
First, Nvidia (NASDAQ:NVDA) could do no wrong, going on an incredible run from around $30 in 2016 to dizzying highs near $300 in September 2018. Then it came tumbling back down to around $130. Since then, it has made a few attempts at an upward trend. Can the one NVDA stock has been building over the last month or so finally sustain its momentum?
Thomas Niel looks at a few of the major drivers of Nvidia stock, including artificial intelligence, which he says could be Nvidia’s “saving grace,” and a resurgence of GPU demand. But none of these are exactly lighting up the board right now.
So what does Niel think you should do about NVDA stock? “If the company can reach the high water mark set last year, shares should see material improvement. But until then, sideways trading between $150-$200 per share is likely. Continue to stay on the sidelines with Nvidia stock.”
Buy Splunk at a Discount
Cloud company Splunk has had a rough month, down almost 8%. But as Will Healy puts it, “by buying Splunk stock at these levels, traders may get something they do not expect from data and cloud stocks today: a discount.”
Investors have been worried about the acquisitions of SignalFx and Omnitron, and the uncertainty that these bring to SPLK stock. These moves had a deleterious effect on the stock price.
But Healy takes the opposite view. “Many commentators will often criticize firms for putting their short-term profits ahead of their longer-term needs and those of their shareholders. In this case, in an effort to improve its offerings, SPLK has bought other companies. It also switched to a subscription revenue model that should increase its cash flows over the long-term.”
In other words, this might be a supremely buy-worthy dip.
Making It Rain With … Stock Buybacks?
Will Ashworth takes us on a tour of some of the companies that pay their CEOs big-time with a combination of buybacks and regular compensation.
An article from The Atlantic, written by Jerry Unseem, talks about the pros and cons of stock buybacks and the effect this has on CEO compensation. The article points out that according to a report from Fortuna Advisors, after five years, “the stocks of companies that engaged in heavy buybacks performed worse for shareholders than the stocks of companies that didn’t”
As Ashworth puts it, “Stock buybacks distort earnings growth while regular quarterly dividends ratchet up shareholder expectations. Neither is good for the long-term health of a business.”
But why should you care? Well, there’s that potential impact on the stock performance that Useem reported. But also, if you want to invest in a company it’s worth knowing how much of its money or effort is rewarding its CEO, and whether you think their performance is worth that price.
The Asbestos Cleanup Isn’t a Good Look for GE Stock
It’s great that General Electric (NYSE:GE) is cleaning up asbestos that it’s responsible for selling to the Peterborough, Canada, community over a 35-year span. The company has already removed it from 24 homes and has pledged to do the same if more is found.
But for a company like GE, the optics just aren’t great.
As Will Ashworth points out, “Although Culp has done a good job righting the ship, investors should not own GE stock if they’re looking for a great investment. And after what I’ve read about how GE’s handled its asbestos problem, I can’t say I’d be very proud to admit I’m a shareholder of the company, either. Buy GE stock at your own peril.”
That’s it for today’s commentary. Please feel free to drop us a note at editor@investorplace.com to let us know what we got right and what we got wrong. Happy investing!
