The equity rally has not yet abated, especially in the technology stocks. The decision of which stocks to put in one’s portfolio is tough since investors can’t buy everything. Advanced Micro Devices (NASDAQ:AMD) is the default stock to buy into 2020.
In 2018 when stocks were falling off a cliff, AMD stock closed the year up 50% and beat all other S&P 500 stocks. Usually stocks don’t repeat this leadership performance, but this one stock did it again in 2019. There is no reason to doubt that it will continue to shine this year.
Even if it won’t three-peat as the absolute number one stock in the S&P, AMD is sure to be in the lead pack. The underlying assumption for that is that the equity markets don’t correct from these all-time high levels too far.
2020’s Macroeconomic Environment
Last year I wrote about the favorable macroeconomic environment against consensus. This continues to be true this year as we don’t yet have signs of a change. I remain confident that the bulls still have the edge. We are going into an election season and the incumbents will keep this party going at all costs.
The Trump administration is signing a phase one deal with China but they are leaving plenty of other potential facets that remain in the balance. So this is not likely to be a ‘sell the event’ situation. There remains the potential of many negotiation breakthroughs to spur more buying bursts. This leaves the bears at odds with shorting.
Yes, valuations are stretched but perhaps it’s time to revalue some stocks. For example, Apple (NASDAQ:AAPL) has always sold at a relatively low price-to-earnings ratio below 18. Now it is above 26. But maybe it’s Wall Street’s way of repricing it as a service company rather than just an iPhone company. This concept applies to many other stocks, too.
AMD Has an Excellent Team That Will Deliver on Promises
AMD has a strong leadership team and investors are confident that they will continue to execute well on plans. They are up against formidable competition but seem unphased by them. Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC) stocks are also enjoying strong rallies, but AMD is still my chip champ.
If NVDA and INTC are up that means that AMD stock is also up. Why risk the recurring shenanigans that have plagued the other two? This is contingent on Lisa Su remaining as CEO.
AMD valuation is definitely not cheap. But this is a growth stock and investors will pay up now for future results. So as long as this is a bullish market and as long as management is executing this well, then value won’t be an issue. Else, investors will sell it down to retest prior breakout lines. In that scenario, there would be risk down to $35 per share.
Buy the AMD Dip
No, this is not my forecast, but it’s important to realize what is possible even if it’s not probable. I remember the days when it was inconceivable that NVDA fall from $290 to $125, but it did. Tech stocks are stretched. While I believe that AMD will continue to out-perform, I don’t think it’s wise to load up a full position at all-time highs. There is no shame in waiting out a few ticks or waiting for a dip before initiating or adding to positions.
Dips in AMD are buyable opportunities just like it was late November. There are short-term levels that are important to hold. But as long as it stays above $43 per share then the buyers are in control. Shorting AMD now is basically shorting the markets in general.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
