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Super Micro Computer Stock Is Down 19% From 52-Week Highs: Here’s Why That’s Great News for Investors

by CoinNews
written by CoinNews

Super Micro Computer (SMCI -1.30%) stock has been pulling back in recent sessions after the company revealed the pricing of its common stock offering, which would dilute existing shareholders. As it turns out, shares of the high-flying server manufacturer are down 19% from their 52-week high, which it hit on March 8.

Savvy investors looking to invest in a top artificial intelligence (AI) stock right now should consider capitalizing on Supermicro’s drop by buying it hand over fist. Here’s why.

Supermicro investors should focus on the bigger picture

Super Micro Computer is offering 2 million shares of its common stock for $875 per share. Moreover, underwriter Goldman Sachs has a 30-day option to purchase an additional 300,000 shares as a part of this offering.

The fact that this announcement came at a time when each Supermicro share was trading at just over $1,000 seems to have dented investor confidence. The company priced the sale at a discount, and the market was quick to press the panic button.

However, a look at the bigger picture will tell us that this is a smart move by Super Micro Computer management because the company aims to raise $1.75 billion in gross proceeds through this exercise. Management adds that the proceeds will be deployed for supporting “its operations, including for purchase of inventory and other working capital needs, manufacturing capacity expansion and increased R&D [research and development] investments.”

The company’s focus on expanding its manufacturing capacity is the right thing to do considering the booming demand for its server solutions that are used for deploying AI chips. On its fiscal 2024 second-quarter earnings conference call, Supermicro pointed out that the utilization rate of its production facilities in the U.S., Taiwan, and the Netherlands was 65%. Management also added that its remaining production capacity was quickly filling up.

Supermicro, therefore, needed to bring new production facilities online to cater to the fast-growing AI server market. Not surprisingly, CEO Charles Liang pointed out on the call:

To address this immediate capacity challenge, we are adding two new production facilities and warehouses near our Silicon Valley HQ, which will be operating in a few months. The new Malaysia facility will focus on expanding our building blocks with lower costs and increased volume, while other new sites will support our annual revenue capacity above $25 billion.

Supermicro is on track to generate $14.5 billion in revenue this fiscal year at the midpoint of its guidance range. That would be more than double the $7.1 billion in revenue it generated in fiscal 2023. Now that the company has already built up a revenue capacity of $25 billion, it would need to bring more capacity online, given how fast the market for AI servers has been growing.

According to Global Market Insights, the AI server market was worth an estimated $38 billion in 2023. By 2032, this market is expected to generate a whopping $177 billion in revenue, for a compound annual growth rate of 18% during the forecast period. Supermicro’s share of AI servers has been improving since it has been growing at a much faster pace than this market.

Considering the lucrative end-market opportunity on offer in the long run, it would make sense for the company to grab a bigger share of this space. This probably explains why management has decided to capitalize on the stock’s terrific surge this year and go for a stock offering to raise more capital. Additionally, Supermicro’s pullback means investors can now buy it at a relatively cheaper valuation.

Another reason to buy the stock following the pullback

Supermicro’s earnings and sales multiples have retreated of late.

SMCI PE Ratio Chart

SMCI PE Ratio data by YCharts.

The stock was trading at more than 90 times earnings at one point this month, while its sales multiple stood at almost 7.5. Some might argue that Supermicro is still expensive as far as its earnings multiple is concerned. However, buying the stock right now is a no-brainer.

SMCI PE Ratio (Forward) Chart

SMCI PE Ratio (Forward) data by YCharts.

Supermicro’s forward earnings multiples are significantly lower than the trailing price-to-earnings ratio because of the massive bottom-line growth that the company is predicted to deliver. Analysts expect Supermicro’s earnings to increase a solid 86% in fiscal 2024, followed by a 40% jump in fiscal 2025 to $30.83 per share.

Now that Supermicro is looking to boost capacity through its common stock offering, there’s a good chance it will be able to boost its manufacturing levels and deliver stronger growth, considering the market in which it operates. That’s why savvy investors should consider buying this tech stock as it could regain momentum quickly.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Finance

1 Stock Down 57% From Its 52-Week High That This Wall Street Analyst Expects to Gain 426% in 2024

by CoinNews
written by CoinNews

With a bull market in full swing, is it finally time to dip into some of those high-risk, high-reward stocks that usually soar when investors are enthusiastic? It’s certainly time to consider buying some, as long as you do your due diligence and understand the risks and opportunities.

Wall Street is excited about many of the artificial intelligence (AI) stocks that abound and are changing the way consumers shop, pay, stream, and more. Pagaya Technologies (NASDAQ: PGY) uses AI to assess credit risk and create more lending opportunities, and Wall Street is predicting great things from this relative newcomer.

What does Pagaya do?

Pagaya operates a credit evaluation platform powered by AI that helps lenders of all kinds assess consumer credit risk. Pagaya has relationships with many top brands you know and use, including Visa for its credit card risk management, as well as banks like Ally Financial and SoFi Technologies. For example, it works with Ally, which has been expanding its consumer lending business, to identify pre-qualified credit card customers.

Many lenders are feeling the pinch of high interest rates and are reporting lower sales and margins. But Pagaya continues to demonstrate strength, with increasing sales and improving profits. In the 2023 third quarter, revenue increased 4% year over year, and network volume was up 10%. That may not sound impressive unless you understand that competitors are reporting significant declines. Revenue from fees less production costs (FRLPC), its baseline profitability metric, rose 29% and expanded as a percentage of revenue. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive after a loss the year before, and adjusted net income was $14 million.

Pagaya has been attracting new business as it demonstrates its value, and it recently recruited an unnamed top-five U.S. bank by assets for a personal lending product. It also onboarded a large auto retailer, a real estate company, and more. Management says that 80% of the top 25 U.S. banks are in its pipeline. Between expected interest rate cuts that could trigger an increase in lending and all of this new business, 2024 could be an incredible year for Pagaya.

Two-sided model

Pagaya sells its loans to financial institutions as asset-backed securities (ABS), gaining money to use for new loans. It has been able to source and obtain pre-funding rounds from varied investors. It got $6.6 billion in funding in 2023, and it already announced a new round of $400 billion in funding so far in 2024. Pagaya is the top issuer of ABS loans in the U.S.

Pagaya might be looking to expand into new territory, which could increase its market opportunity. According to The Wall Street Journal, it bid to acquire a company called GreenSky that provides loans for home improvement after Goldman Sachs sold it off in October. It didn’t win the bid, but it might be looking for alternative acquisitions.

Risk vs. reward

Pagaya is a young company in a risky business. It’s highly vulnerable by interest rate changes and fluctuations in the economy. It’s faring quite well under current circumstances, which indicates resilience. But there are still unknowns, and it’s still not profitable on a generally accepted accounting principles (GAAP) basis.

Pagaya stock is down 81% from its first-day opening price and 57% from its 52-week high. That’s partially for the above-mentioned reasons but also because investors are still wary of companies highly connected to interest rate trends.

However, the future looks very bright. The average Wall Street consensus is for Pagaya stock to gain 163% during the next 12 to 18 months, and five of six analysts covering it recommend to buying it. One analyst, Michael Legg from Benchmark, set his price target to $6, implying a 426% gain. He sees the company’s resilience in the current, challenging conditions, as well as its opportunity, as justifying a much higher valuation. At the current price, Pagaya stock trades at a price-to-sales ratio of less than 1.3, which is a bargain for a high-growth stock. While not all analysts agree here, his case looks compelling.

Management gave a recent update that it plans to relocate its headquarters from Tel Aviv to New York because most of its business and all of its lending partners are in the U.S. It also plans to authorize a reverse stock split. Pagaya stock trades for just over $1 as of this writing, and it hopes that a higher price and U.S. base will afford it and shareholders better opportunities, such as the chance for inclusion in certain indexes and to be considered for investment by institutions.

Should you buy Pagaya stock today? If you have an appetite for risk, you may want to open a small position. Even if you don’t, you should keep Pagaya stock on your watch list.

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Ally is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in SoFi Technologies. The Motley Fool has positions in and recommends Goldman Sachs Group and Visa. The Motley Fool recommends Pagaya Technologies. The Motley Fool has a disclosure policy.

1 Stock Down 57% From Its 52-Week High That This Wall Street Analyst Expects to Gain 426% in 2024 was originally published by The Motley Fool

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Finance

Near a 52-Week Low, This Dividend Stock Is Worth Buying in December and Holding Well Beyond 2024

by CoinNews
written by CoinNews

Dominion Energy (D 1.02%) is up 24.1% from its 52-week low — which sounds like a lot until you realize the stock is still down 17.9% over the last year and 36.8% over the last five years compared to impressive gains in the S&P 500.

Still, the comeback is a big move in a short period of time from a stodgy, reliable, dividend-paying utility. But Dominion has been anything but that — cutting its dividend in late 2020 and only slightly raising it since then.

So how could a company that has disappointed investors through capital losses and lower dividend income be a good investment? The answer lies not in where Dominion Energy has been but in where it is going. Here’s why the future looks promising for this utility stock.

Two people wearing personal protective equipment smile at each other at a work site.

Image source: Getty Images.

Twists and turns

For the last four years, Dominion has been on an asset-selling spree. In September, Enbridge announced a $14 billion acquisition (including debt) of three natural gas utilities from Dominion Energy. A few months prior, Dominion sold its remaining 50% non-controlling interest in Cove Point LNG to Berkshire Hathaway Energy (BHE). In 2020, Dominion sold $9.7 billion in energy transmission assets to BHE.

The idea behind the asset sales was to make the company less reliant on volatile fossil fuel industries and transition toward renewables and regulated utility functions. The problem is that Dominion didn’t do a good job communicating its intentions to investors, leaving them to connect the dots to try to figure out what the new company would look like once the dust settled.

To be fair, Dominion did a good job of setting clear emissions reduction goals. The company had spent years transitioning from coal to natural gas and was now transitioning from gas to renewables. There was little doubt about the company’s multidecade plan, but plenty of question marks surrounded the short and medium terms.

A turnaround in the making

Dominion’s Q3 2023 earnings presentation clarified what investors can expect from the business for the rest of the year, in 2024, and even in 2025.

Its estimated 2023 earnings are $2.10, giving the company a 23 price-to-earnings (P/E) ratio. Factoring in $0.80 per share in adjustments — namely $0.50 from interest expense savings from pending asset sales — would bring 2023 earnings to $2.90 — giving Dominion an adjusted P/E ratio of 16.6. That’s a much more realistic valuation for a low-growth utility business.

The earnings presentation also provided insight into Coastal Virginia Offshore Wind (CVOW) — Dominion’s utility-scale wind energy megaproject. The company wants to find a noncontrolling equity financing partner by the end of 2023 or early 2024 to take some of the burden off of the project’s cost. Dominion expects to reach $3 billion on total project investment by year-end compared to a total current capital budget of $9.8 billion. Construction is expected to be completed by the end of 2026.

The project is decently efficient as far as offshore wind goes, with an estimated levelized cost of electricity of $77 per megawatt-hour (MWh). For context, the International Renewable Energy Agency estimates that 2022 levelized cost of electricity for offshore wind was $81 per MWh compared to $33 for onshore wind, $49 for solar PV, and $61 for hydropower.

On Oct. 31, the Biden administration approved the 2.6 GW project, which is currently the largest approved offshore wind project in the U.S. It’s even more massive when put into the context of the administration’s 2030 goal of 30 GW of installed offshore wind capacity — meaning CVOW alone would make up about 9% of the 2030 goal.

CVOW is expensive, but landing a partner and completing the project on time will reduce the financial burden while giving Dominion a cleaner source of electricity for its customers.

A reliable dividend

Dominion reassured investors that it is “100% committed to its current dividend” and is targeting a payout ratio in the 60% range over time. That’s a healthy target that allows earnings to support dividend payments without making the dividend too straining on the business.

Dominion is likely years away from a dividend raise. As mentioned, its forecast 2023 adjusted earnings per share are $2.90, while its dividend sits at $2.67 per year. The current payout ratio on adjusted earnings is 92%. So earnings are going to have to increase by quite a bit before it can justify a raise. In the meantime, the existing dividend appears safe, and that’s good enough, considering the stock yields 5.4%.

Dominion is worth buying now

Dominion deserved to fall, given its murky outlook. But now, Dominion is on track to look like a much better company.

The valuation could look reasonable very soon. The dividend is solid and has room to grow once earnings improve. And the utility is becoming safer and more dependent on clean energy, which is the right long-term move even if Dominion mishandled some of the steps to getting there.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.

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Finance

2 Magnificent Dividend Stocks Trading Near 52-Week Lows to Buy Now and Hold at Least a Decade

by CoinNews
written by CoinNews

Shares of Johnson & Johnson (JNJ -0.30%), Altria Group (MO -0.10%), and stocks in general recently received a boost from the Federal Reserve, which appears unmotivated to raise interest rates in the near term. Despite the recent lift, these magnificent dividend stocks are still way down over the past year

At their beaten-down prices, these stocks offer above-average yields and that isn’t all they have in common. Both of these high-yield stocks are underpinned by excellent businesses that appear poised to steadily deliver a growing portion of their profits to patient investors.

Pair of individual investors looking at a device.

Image source: Getty Images.

Here’s why you could regret not taking advantage of their beaten-down prices.

Johnson & Johnson

If you’re like most Americans, you know a few people who’ve had a knee replacement, but you probably don’t realize how many of those new knees were sold by DePuy Synthes, a Johnson & Johnson subsidiary. The company recently reported that medical technology sales that rose 10% year over year to $7.5 billion in the third quarter.

Once a hospital trains its surgeons to use a Johnson & Johnson product, retraining them to use a competitor’s is a huge expense that administrators would rather avoid. In addition to switching costs that benefit its medtech segment, Johnson & Johnson’s pharmaceutical segment gets all kinds of pricing power from patent-protected market exclusivity. For example, sales of Darzalex, a multiple myeloma treatment that first earned approval from the U.S. Food and Drug Administration (FDA) in 2015, are on pace to reach $10 billion this year.

At recent prices, shares of J&J offer a 3.1% yield, which is much better than wht most dividend payers offer. The average dividend-paying stock in the Dow Jones Industrial Average offers a yield of just 2.1% at the moment.

Earlier this year, Johnson & Johnson spun its consumer-goods segment off into a new company named Kenvue. Now that it’s focused on medical technology and pharmaceuticals, faster-than-usual growth could follow. Management expects more than $10 per share in adjusted earnings this year, but its dividend payout is set at just $4.76 per share annually.

With plenty of wiggle room to make payout increases in the near term and advantages that could help earnings grow all the way through the decade ahead, this stock is a screaming buy.

Altria Group

If you aren’t concerned about your portfolio’s ESG rating, consider Altria Group (MO -0.10%). Shares of the company that markets Marlboro brand cigarettes in the U.S. offer a huge 9.6% dividend yield at recent prices.

Huge dividend yields usually mean there’s concern about the underlying business’s ability to grow earnings. Steadily declining cigarette sales are why investors are nervous about Altria Group, but they probably shouldn’t be. The company has raised its dividend payout 58 times over the past 54 years.

I’ve listened to investors complain about smoking’s declining popularity for decades, but this complaint ignores how easy it is to raise prices on packs of Marlboros. In the third quarter, Altria estimates that domestic cigarette industry volume decreased by 8% year over year. But Altria reported third-quarter revenue net of excise taxes that decreased just 2.5% year over year, thanks to price increases and rising sales of non-combustible products.

Marketing regulations make it impossible to develop new cigarette brands, so we can reasonably expect price increases to offset declining volume for at least another decade. Altria is also taking steps to ensure customers who give up combustible cigarettes keep using its nicotine-delivery products. In June, Altria completed a $2.75 billion acquisition of NJOY Holdings, which is the only company with FDA authorization to market a line of pod-based e-vapor products.

Declining cigarette volumes didn’t stop Altria Group from more than doubling its dividend payout over the past decade. Despite the rapid raises, it needed less than 80% of the free cash flow it generated over the past year to meet its dividend commitment. Buying some shares now to hold for at least 10 years looks like the right move.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson and Kenvue. The Motley Fool has a disclosure policy.

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Finance

2 Exceptional Dividend Stocks Near 52-Week Lows. Are They Bargains Now?

by CoinNews
written by CoinNews

This hasn’t been a sensational year for the dividend stocks already in investors’ portfolios, but you could hardly pick a better time to be a buyer. The risk-free returns institutional investors can receive from long-term Treasuries have risen to levels we haven’t seen since before the global financial crisis kicked off about 15 years ago. 

The ongoing flight to safety has reduced demand for reliable, dividend-paying stocks to a lower level than many investors can remember. While higher interest rates are wreaking havoc on stock prices, they won’t unravel the competitive advantages that allow these companies to consistently outperform.

Confident investor looking at a laptop screen.

Image source: Getty Images.

In addition to the general lack of demand for dividend payers, both of these companies have issues of their own that have driven their stock prices down near 52-week lows. Let’s take a closer look to see if they’re bargains with a good chance to deliver heaps of passive income or just cheap. 

Johnson & Johnson

Johnson & Johnson (JNJ -0.11%) has raised its dividend payout for 61 consecutive years, but a wonderfully reliable track record hasn’t stopped its stock price from falling in 2023. At recent prices, shares of J&J have slid about 12% from a peak they set in July and offer a 3.1% yield.

Over the past 10 years, J&J has been able to raise its dividend payout by 80% thanks mostly to growing contributions from its medical technology and biopharmaceutical businesses. Earlier this year, the company spun off its consumer-health business into a new outfit named Kenvue.

J&J’s remaining operating segments are still diverse enough to stave off nearly any disruption. For example, its medtech segment sells a lot of replacement knees and robot-assisted systems that help surgeons install them. While COVID-related lockdowns were keeping patients out of surgical centers, J&J’s pharma segment filled in the gap with blockbuster sales of its COVID-19 vaccine.

J&J’s vaccine sales fell off a cliff this year, but its medtech segment has come roaring back. Now that the company can focus on medtech and pharmaceuticals, dividend growth could accelerate in the years ahead.

At recent prices, the stock trades for 11.3 times trailing-12-month earnings. That’s a bargain price for a dividend grower you can rely on.

British American Tobacco

Other than being near 52-week lows, British American Tobacco (BTI -0.23%) and J&J don’t have much in common. While healthcare needs keep rising, demand for cigarettes is declining steadily.

This tobacco giant’s stock is trading at an incredibly low valuation of just 6.4 times trailing-12-month earnings because cigarette sales are falling even faster than anticipated. In the first half of 2023, cigarette volumes fell 5.7% year over year.

With help from price hikes, British American Tobacco reported total combustible-product sales that rose 0.2% year over year at constant currency. Sales of the company’s non-combustible products rose 15.3% year over year, but this segment is responsible for less than one-fifth of total revenue.

Declining cigarette volumes are disappointing, but this company has enduring pricing power that can continue to make up the difference. British American Tobacco owns popular brands, like Newport, American Spirit, and Camel, the youngest of which is already over 40 years old. Heavy advertising restrictions that went into effect after these brands established themselves make it impossible for upstarts to build new brands that can compete.

British American Tobacco’s payout has risen 18.2% since it began issuing a quarterly dividend in 2018. It probably won’t be the fastest-growing dividend in your portfolio, but there’s a good chance the 9.4% yield it offers at recent prices can keep moving in a positive direction. Put it together and this stock looks like a bargain now that’s hard to pass up.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and Johnson & Johnson and recommends the following options: long January 2024 $40 calls on British American Tobacco P.l.c. and short January 2024 $40 puts on British American Tobacco P.l.c. The Motley Fool has a disclosure policy.

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