It’s the price you have to pay for excellence. And when it comes to Nvidia (NASDAQ:NVDA) it rarely comes cheap. Today though, the value for a hedged NVDA stock momentum trade looks timely and cost effective off and on the price chart. Let me explain.
Locating the next big thing on Wall Street is a never-ending quest. But on occasion, investors are offered a proven opportunity to purchase well-known growth leadership showing little, if any signs of slowing down. And right now, NVDA stock satisfies that criteria.
To be sure, Nvidia maintains the appearance of a richly-priced stock if one was to ask a dyed-in-the-wool value investor for their opinion. But NVDA isn’t here to make Warren Buffet happy or others following that type of approach to buying companies successfully over time.
And here’s the thing, not only have those investors been missing out in NVDA stock, but they’re also going to be left on the sidelines again.
In 2021 alone, shares of Nvidia are up nearly 60% and more than three-fold over the tech-heavy Nasdaq Composite. Since Covid’s bear market bottom, shares are up about 360%. And over the past five years NVDA has gained about 1,300%!
A Bear Market for Everyone
To at least somewhat walk the aisle, there’s always going to be an exception or two to the expensive-looking momentum rule in NVDA. And in 2020 Nvidia’s shareholders did show a brief lapse in judgment.
During the Covid bear market, Nvidia was offered like low-hanging fruit ripe for value-seekers. Still, the multiple compression likely had investors backing off in fear of an optical illusion riper for bearish revision.
Need evidence? Even the Oracle of Omaha was warning the world had changed while famously exiting Delta (NYSE:DAL), Southwest Airlines (NYSE:LUV) and other airliners rather than buying more of the deeply-discounted stocks. Bottom-line, the market foiled even the best of the best.
Today, not much has changed for NVDA stock. Much like electric vehicle giant Tesla (NASDAQ:TSLA) or e-commerce juggernaut Shopify (NYSE:SHOP), Nvidia is a force to be reckoned with given its dominance in top growth markets.
From chips enabling AI to autonomous automobiles, gaming, supercomputers, data centers, cryptocurrencies and more, NVDA’s tenacious business tendrils can be found just about everywhere that involves a computer.
And bottom-line (again), if you’re waiting on the Oracle’s approval to buy NVDA stock, you’re wasting your time, and missing out on a very profitable opportunity in the here and now.
NVDA Stock Weekly Price Chart
Click to Enlarge
Apparently, investors are also wasting their time if they’re waiting on growth-focused Investor’s Business Daily for a RSVP. The good news is NVDA stock has earned an “unbeatable” IBD Composite Rating of 99. However, the outfit has observed enough flaws using IBD’s technical guidelines to label NVDA shares “extended” and suspect for buyers. I respectfully digress.
Technically, and as the provided weekly chart illustrates, Nvidia shares are currently inside a five-week cup-shaped base. It’s a classic platform for high-powered breakouts. But is it perfect? Not by IBD’s standards.
For starters, IBD warns against cups less than seven weeks in duration. Today, Nvidia’s cup is two weeks shy of meeting that criteria. Also, Nvidia’s slightly lagging RS line has those strategists even more worried.
But I’m upbeat Nvidia has enough working in its favor to rally strongly higher. The fact is other indicators are pointing at momentum being able to reassert itself in a meaningful way.
What I’m focused on is NVDA stock’s nice-looking correction of 14% which found support off a 38% retracement level tied to its May pivot low. It’s bullish. There’s more too.
Combined with Nvidia’s bullishly trending Bollinger Band and stochastics just now crossing over in neutral territory, one man’s flawed cup has the earmarks of another bull’s profitable long.
With a pattern breakout about 1% above Thursday’s close, an October $210/$230 collar combination is a favored hedged, long stock strategy.
Simplistically, this kind of position capitalizes on anticipated bullish momentum as the collar maximizes its profits above $230 at expiration. But there’s more to collaring a stock like NVDA.
As a worthy core portfolio holding, a collar on NVDA stock invites investors to favorably adjust during adverse conditions as others are making excuses and wild claims the world has changed, while value in a name like Nvidia stares them in the face.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
