Adam Gault
Listen here or on the go via Apple Podcasts and Spotify
Victor Dergunov on rolling corrections through recent earnings and his favorite AI-related stocks (0:35). How to ride through the volatility (6:40). The Tesla dynamic and how to pick winners in the market (11:20). EV space, badly beaten down lithium miners (18:30). Gold miners the way to play gold (25:40).
Transcript
Rena Sherbill: Victor Dergunov, always great to have you on Seeking Alpha. Always great to talk to you on Investing Experts. Thanks for coming on the show.
Victor Dergunov: Oh, it’s my pleasure. Thank you so much for having me.
RS: It’s always a pleasure to have you. You run The Financial Prophet. That’s your investing group on Seeking Alpha. What are you talking to subscribers? What are you talking to investors about these days? Where’s your focus at?
VD: So, as usual, our focus is on just having the best possible portfolio, beating the major averages, keeping our finger on the pulse of the markets. Basically, just still interested in those AI stocks actually, because we had excellent run ups put towards the end of 2023 and in Q1 of 2024.
Just amazing runs in stocks like (AMD), NVIDIA (NVDA), Palantir (PLTR), Super Micro (SMCI), and the list just goes on and on of some of our favorite AI-related stocks. And then, of course, recently, we saw just a massive rolling corrections through earnings.
So, I mean, we had stocks like Meta (META) correct by, like, you know, 10% and some stocks by 20% or more. Like, Palantir had an excellent correction from nearly $28 to down to close to $20 recently, and this was after the company reported excellent earnings.
So, of course, we’re watching our favorite companies and we’re buying more stocks on pullbacks. And basically, we’re just looking forward to coming out of earnings season now and how our portfolio should outperform going into the second half of the year.
And we’re expecting really big things to happen in this quarter and in the second half of 2024 and we think that many of our favorite stocks can finish substantially higher from here.
RS: So talk to us a little bit more about the AI kind of sector — of the tech sector. You were on last time talking about Palantir and why you’re so bullish on them.
There’s some dissension among the bullish ranks when it comes to AI these days and some questioning of who can sustain or whether they’re properly valued at this point.
How are you looking at things speaking of your bullishness? What are you looking at the points of light or the highlights that are coming out of those companies and that you continue to look forward to there?
VD: Okay. Excellent questions, of course. And the thing about the – any market, but the AI space in particular, is that it can be kind of cloudy regarding the valuing companies in this rapidly expanding industry because we have different segments. We have the hardware. We have the software. We have the services side.
We have so many different companies like doing really well. For instance, like, of course, NVIDIA is doing just a mind blowing things on the hardware side and the software side and the services side to be honest, because their enterprise business is so powerful and booming.
And then we have companies like AMD that are playing kind of catch up to NVIDIA, and maybe we haven’t seen this huge burst of AI momentum yet from AMD, but I think it’s coming. And I think we just have to be a little bit patient in the space and not expect everything to happen so quickly and at once like we saw with NVIDIA and Super Micro.
And then when Super Micro didn’t preannounce, the market made, like, a big a big deal about it and sold off the stock. I think we need to just stand back a little bit and kind of take a longer term perspective on AI and the market and some of our favorite stocks in the segment. It’s a long ball game. This is not a sprint, it’s a marathon.
I mean this uptrend with this AI-induced uptrend as I call it, it could take years and years, and it could turn out to be massive. So we don’t need to expect all these massive gains all at once. We had an excellent run up like I said towards the end of 2023 and in the beginning of 2024.
Now the market is digesting and reassessing, and it’s saying maybe we came up a little bit too quickly. We came up too much too fast. Now it’s time to consolidate, rotate a little bit, maybe let some of these AI stocks, like Palantir and then like AMD, Super Micro, NVIDIA, and so on, maybe let them — let their valuations come in a little bit and just let the market digest this, the initial stages of the AI boom because we’re going to have more stages, and we’re going to have more rallies.
But in order for all this to be sustainable, we need to go through these periods of expansion and then the consolidation and the pullback phases. These are all healthy elements of the market.
And I think the AI segment just has massive and massive potential. But again we need to be patient and we need to realize that that some of these stocks that have had, like, massive 200%, 300%, 500% moves within like, a year or a year-and-a-half, these we need to see some pullbacks and some consolidation, and then we can talk about more highs later, but don’t expect everything at once.
RS: So how do you ride through the wave of volatility? And also — well, let’s stick there for a second. How do you ride through the wave of volatility when it comes to these stocks? How do you know when to stay in and how do you know when to dip out?
VD: So, again, you just have to be patient, and you have to keep a long term perspective on these stocks. I do some adjusting around the peaks and troughs, but I don’t like day trade or swing trade per se. I manage a portfolio, and of course there will be times when we’ll be adding to positions, like, around the troughs. And we’ll be decreasing some positions and putting some hedges on around the peaks typically.
So how do we know when we run into a temporary top or a short term peak? Basically, we can tell by several indicators, so we need to look at the technicals. And oftentimes, we see in these bull market cycles, we see prices spiking and we see technical gauges like the RSI, go to 70 or 80, illustrating just how overbought some of these stocks get on a short term basis.
So when we start seeing these technicals get overextended, we can decrease some riskier positions or maybe implement some hedges via covered call strategy or put option strategy, caller option, whatever. Just something that will mitigate some of the risk and maybe increase some of our returns in times of increased volatility, because volatility is what you run into with these high alpha, AI stocks that, they have massive run ups, of, like, 200%, 300%, 400% in several months, then we can have 20%, 30%, or 40%, in some cases 50% corrections in a relatively short time frame.
Then we have consolidation phases, and then we can see more upside after that because again, we’re looking at a long term bull market here.
And some of these short term volatility and basically, volatility spikes we often see around earnings. They oftentimes present compelling buying opportunities like we just witnessed after earnings.
Palantir dropping by 15% to 20%. Excellent buying opportunity. We saw the same thing, a similar dynamic with Meta or Facebook when the company reported, and they didn’t guide as high as the market expected. So there was a considerable sell off, and I purchased some more shares after the 10%, 15% drop or whatever we saw in the stock.
So basically the way we capitalize here is that we stay invested, but we trim around the peaks. We add around the troughs. We hedge a little bit. And we stay invested in the best — the best companies and in the most lucrative sectors that are likely to divest as we advance.
RS: And in terms of when you set out to pick the winners or the thing or the stocks and the names that you like the most in the sectors that you deem worthy, are there certain metrics or is it what you just described, is that basically your process, it’s a combination of fundamental and technical? Or are there specific metrics that you would point to across the board or sector specific?
VD: Yeah. So there there’s the fundamental factors, the technical indicators, then there’s also the kind of, like the psychological dynamic that surrounds the market, and at certain instances and it also can be stock specific. So we kind of combine all of these elements, and we need to look to look toward the future a little bit because it’s always best to have a company that’s going to do well in the future.
And it’s also important to have a company that the market perceives will do well in the future because that’s going to basically the stock price moving higher.
Just take like a company like Tesla (NASDAQ:TSLA), for instance. We can tell that this company is spearheading the EV revolution. We can tell that this company has excellent unique vehicles and if we go back like several years and into Tesla like 4 or 5 years, and this was when we first saw, like, the Model 3 coming out and the blueprints for the Model Y and we can kind of tell that these cars would take over the EV segment and then the auto market.
And then they became the best-selling vehicles, not only in the EV space, but amongst all vehicles. So these are kind of like the things we want to look at. Like, I call it the Tesla dynamic. Basically, a company that can outperform in its industry that you can tell has advantages over its competitors.
Basically, companies that will do well in the future, like Palantir we talked about, I mean, the commercial segment in US, it keeps booming at just expanding extremely quickly. More and more enterprises are using Palantir’s products and solutions and services. So, we’re just seeing, amazing potential with Palantir’s AIP platform.
Now, not only is the government really involved with this company, but we’re really seeing the commercial segment in the US and globally starting to embrace Palantir more and more. And, I think there’s a lot more growth potential in Palantir and many other companies that just have enormous AI potential.
RS: Picking at Tesla for a second, there we had some discussion on this podcast about whether or not it belongs as a Magnificent 7 stock and a lot of the negative news coming out of Tesla and negative sentiment around it. What do you say to the negative news that’s been coming out?
VD: So, I’d say companies often have negative news surrounding them. And I understand that Tesla, it’s like an especially controversial company. And it often has this kind of drumbeat of negativeness surrounding it. But I think the most important thing that we can look at is the company’s record. And, of course, there have been some issues and problems along the way.
But again we need to put this all in perspective, how difficult the industry is. I mean, it’s the car industry. It’s an industry where a new company hasn’t broken into in successfully in so many decades, and Tesla was able to do it.
When people call it just a car company, when I choose to view it as a tech company that its primary products are automobiles. Of course there’s AI potential also at Tesla. And this can all be incorporated with the auto business and the energy generation and storage segment and their growing services businesses.
So really, we’re seeing Tesla expanding quite a bit despite the continued negativeness surrounding the company. And typically, when the negative noise is surrounding the company, this is typically the best time to get into the stock for the long term because we often see rebounds from these pessimistic periods and then the stock usually does really, really well in the following year.
So that’s probably where we are now. We’re at a challenging spot for Tesla, but if you’re a Tesla shareholder, this is probably the time that you want to hunker down and hold on to your shares, maybe do some adding around here like I recently added when the stock fell into the $150, $140 buy in zone. I added some shares.
So, I think that this is an interesting time to be a Tesla shareholder. And I think that being patient with Tesla will continue to be rewarded down the line.
RS: In terms of just strictly the EV space, is that a section of the market that you’re bullish on and are there any EV competitors that you are positive about?
VD: Yeah. Absolutely. I’m very bullish on the EV space globally because it is the better technology I guess, if you compare it with ICE vehicles. The EV vehicle is – it is – it’s a more — it’s a cleaner technology. It’s a more energy efficient technology. So technically it is a better technology that should continue to push out the ICE segment and should continue to gain market share in the broader vehicle segment.
And I also believe that Tesla is of course the dominant spearheading company, leading in the segment, and it has competition from traditional automakers like again, Mercedes and Chevrolet and Ford (F). In some respects, it has some competition, especially in the upscale space from the traditional automakers like Mercedes, and like Audi and others.
On the lower end of the market it has more competition from its Chinese counterparts like, well, not counterparts, but competitors. Like, BYD (OTCPK:BYDDF) is probably Tesla’s most competent competitor now that’s more in the EV business rather than the traditional automaker side. Also there’s a company, (NIO), that’s a Chinese premium automaker. So, they closely resemble Tesla in regards to their model offering and so on. So this is also kind of an interesting competitor. But NIO, it’s a company that’s it’s far from being profitable yet.
So Tesla has an enormous advantage because it is highly profitable and it can drop prices on its vehicles if it needs to, and it can engage in other strategies that should enable it to continue leading in its market.
RS: What are some other sectors that you’re bullish on or bearish on for that matter?
VD: So there are many sectors that I’m bullish on. If we stick around the EV space, we can also look at the badly beaten down lithium miners like Arcadium Lithium (ALTM), a company that recently merged. It’s a recent merger of Livent, which is an American lithium company that’s been around for decades.
And it’s actually a very interesting and competent company and an Australian lithium miner. So the combined new company is Arcadium Lithium, and it’s really overlooked by the market and I don’t think the market is valuing the company even close to what it could be worth in the future. So, I think we can look at these kind of lithium miners also.
Albemarle (ALB) is a good lithium mining play that has been beaten down lately. I’m also bullish on some alternative energy companies like, basically as an industry as a whole, but if — who are going look at company specifics, something like First Solar (FSLR) and Enphase (ENPH) are some interesting names that we can look at in the alternative energy space.
There’s the tech sector, but we discussed some AI related stocks like Google (GOOG) (GOOGL) and Amazon (AMZN) and of course Meta. These are some of our favorite, like, AI related stocks.
I also like Snapchat (SNAP) quite a bit because I think it’s very undervalued here. So we have a rapidly growing social media company. The revenues are expanding nicely and the company’s profitability should continue to improve. And ad spending and increased ad spending and AI should also provide favorable tailwinds for Snap and really it had a great earnings report too last quarter, and I think it’s set up nicely to continue to surprise higher from here. So…
RS: Do you think Snap doesn’t get enough attention because of the headline names?
VD: Yeah. Definitely. I think Snap gets overlooked a lot and Meta gets like the lion’s share of the attention and then Snap gets like a lot of the negative news. And then when there’s some negative news flow around the company, the stock gets beaten down really, really hard and it recently went down to like single digit territory, and it was a pretty clear signal to buy Snap because it could be worth a lot more than it is now.
I’m also looking at this interesting company, well I own some shares of this company called the SoundHound AI (SOUN) which handles – like the company’s name – a lot of the sound. The voice segment that has to do with AI and more and more companies are working with voice AI, and more and more consumers are starting to also get into this market. So I think it’s an interesting stock and it’s an interesting place in the market that we can look at.
RS: I’m also interested in hearing why the lithium miners that you mentioned are so beaten down and also how you know when to trust your process and that the market gets it wrong?
Do you ever question when a stock is going down and you feel like it’s going to do well? Do you ever question that process? Or have you been around long enough that you feel like you have enough parameters in place to keep yourself honest?
VD: Yeah. Maybe it’s become like second nature over time just because I’ve been doing this for so long. It’s also important to kind of understand what the market might see in this company in the future, why the market would be more interested in this company like you asked about lithium miners.
So basically there are few issues that have caused the stocks to go down so much. There’s an oversupply of lithium, a temporary oversupply of lithium. There’s a slowdown in EV demand because there’s a global economic slowdown and we have high interest rates. So these are factors that are weighing on the whole lithium demand dynamic.
But we can’t have the supply demand dynamic be out of place for long because the market will correct itself. And when it corrects itself, the price, the oversupply issue will get resolved. So there will be an influx of demand. There’ll be an increase of demand which should cause the price of lithium to move up, to move higher.
And then we could see increased demand after that, supporting the increased supply and supporting the higher price of lithium.
That’s the normal rate at which the market should function, certainly with lithium prices being considerably higher from here which will be very bullish for the large lithium miners, because there are not that many really. It’s only several companies that control basically most of the lithium that comes online. So, yeah, that’s something that I’m quite bullish on.
And I think we need to look at and identify areas in the market, pockets in the market that get irrationally undervalued. Also like many Chinese stocks. I have — we have a Chinese segment in our portfolio, and it’s actually the best segment this quarter. It’s up by over 15%, so it’s doing very well.
Big Chinese tech companies like Baidu (BIDU), Alibaba (BABA), PDD Holdings (PDD), Tencent (OTCPK:TCEHY). Their stocks have been obliterated in recent years. And they are irrationally cheap and I know that there are geopolitical concerns about Taiwan and some things of that nature, but really comes down to these are companies or businesses. And they should be valued properly whether the business is in China or it’s in the US or Japan or Taiwan or wherever.
I don’t think that these companies deserve to trade at such low multiples just because they’re labeled like Chinese companies especially when growth returns to China. And these companies start showing more growth prospects in future months. I think these stocks can do exceptionally well and the market has undervalued these high quality Chinese companies for a long time now.
RS: Speaking to more of the macroeconomic picture, there’s been some discussion on this podcast and in general about gold these days and how that figures in given where we’re at macro wise. How are you thinking about gold? I know you wrote about it about a month ago on Seeking Alpha. How are you thinking about gold these days?
VD: Yeah. I’m very bullish on gold, and I have a significant gold and silver mining segment in my portfolio. That’s about – it’s about 18% of all holdings. So it’s very significant. And I’m very bullish on it because we are around the top of an interest rate cycle. So we have peak rates now or we’re around peak rates. Perhaps we saw them last year.
Nonetheless we will likely see much lower rates in the future as the Fed starts to cut rates and then QT comes to an end likely by the end of this year. We should have lower interest rates in the second half of this year and of course next year.
And then we have the open door for more QE down the line because quantitative tightening should end by the end of the year. And of course as the new easing cycle goes, some other easing measures outside of just cutting rates are. The market has become quite accustomed to QE programs. So that’s something that we could see in the future and these are all very beneficial things for gold because they will most likely expand the monetary supply. So there will be many more dollars in circulation.
So this is a very bullish dynamic for gold and silver, other precious metals, materials in general because it will lead to more waves, probably will lead to more waves of inflation down the line.
And this is a very bullish setup for gold because interest rates should drift lower. So that bonds are a competing asset class. So we have kind of gold standing out and shining. It represents kind of like a stable currencies, stability when we have monetary easing and basically devaluation of fiat currencies all around us.
So we have this gold that’s very nice. And we have it moving to new all-time highs recently. And there’s really no resistance ahead. So we can see $2,500 maybe $2,700 oil — I’m sorry, gold, possibly by the end of this year or in early 2025. And this bull market can continue for some time and also very bullish on silver here because silver can even outperform gold and we could see silver go to, like $50 or higher possibly within a relatively short timeframe.
RS: And is your favorite way or best advice for retail investors to play that with ETFs? And also curious what you have to say about the miners.
VD: I think the best way to play gold is through the high quality gold miners. We can play them through the ETFs, also gold mining ETFs. Probably if you want to play gold through gold mining ETFs, like (GDX) and (GDXJ), I think it’s fine. We can also use (SLVP). It’s like silver and gold mining ETF. So it’s pretty nice. But probably the best way is to have like, just a combination of basket of high quality gold and silver mining stocks.
Like for instance, I have Agnico Eagle Mines, (AEM); I have Kinross Gold, (KGC); I have Barrick Gold, (GOLD). I have Pan American Silver, (PAAS); and I have like a couple of ETFs. I also have Hecla Mining (HL). It’s like a smaller cap silver mining company, but also very interesting. So I think the best way to play gold and silver is through the companies, through the miners.
RS: And those miners specifically based on what you were discussing before, how you look at companies and decide which are the winners?
VD: Yeah. Exactly. Basically you want to go with the best of breed miners, the ones that have the best management teams, the ones that show the best potential for the most growth and the highest profitability potential. So the best companies.
RS: I want to thank you again for another robust conversation. Anything that you feel like we left out or would benefit investors to pay attention to these days?
VD: I noticed that people, there’s so much short term thinking out there in the market like, you know, where’s the market going to be in like two weeks or like a month or 3 months from now.
I think we should move away from this kind of short term mentality, and we should maybe focus on, like, at least where the market’s going to be in like, 6, 12 months, a year or 2 years down the line. We want to invest accordingly to where the market is going to be, where the trends, where the positive trends are going to take, the sectors and the best stocks in those sectors.
That’s how we focus on what’s going to outperform. The best returns are going to be on the companies that do best in the future.
RS: That’s the prophecy that Victor provides at the The Financial Prophet. He’s looking towards the future. He’s not looking backwards.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.