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Chart Breakout Part 4 – How I Find Red Hot Stocks on QV

February 12, 2024

For any of my former Quantum Leap and Chart Breakout subscribers who may be reading this alert and have not signed up for my new online Quentinvest service, let me tell you something. I have ruthlessly pruned down what I do to the bare essentials of what works, much like the red-hot lady in the picture. I also use the ease of publishing online to have more regular contact with my subscribers (often every day when markets are exciting). This has transformed what I do. QV online is way, way better than the old print publications were, a whole new ball game if you like.

There is something else you need to know. Quentinvest exists for one reason only: to make money for me as a very active investor and for you guys and girls who follow me. If you are not making money let me know and I will send you off to stand in the corner wearing a dunce’s cap.

How QV Operates

Let’s start at the beginning with the Nasdaq 100 index. This is by a distance the most important index in the world. Forget the FTSE 100. Forget the UK stock market. Forget every other stock market (India is doing well but is too exotic for me). Quentinvest is all about US shares and your portfolio should be too.

There are two important things about the Nasdaq 100 chart. First is the long-term performance which is amazing. Since its creation in 1985, this index has risen 166 times! Over the same period, the FTSE 100 is up 4.4 times and almost all of that occurred before 2000.

It’s All About 3 Sectors – Technology, Technology and Technology

The second point is that we have an exciting new chart breakout on the index right now – in 2024! My reading of what is happening is that a new bull market in US shares began in 2009 led by technology shares. The bull was interrupted in 2022 when inflation and interest rates spiked sharply and triggered a sharp correction. Now things are getting back to normal and the bull market is back with a vengeance with technology shares looking more exciting than ever. The bull is back but as can be seen from the charts above and below it is still early days in the new uptrend.

Now let’s look at a tech-specific index.

Technology Revolution May be the Biggest Revolution in Human History

Again we have a great secular uptrend and an exciting new chart breakout. This chart is totally WOW! What is driving it? Arguably the greatest revolution in human history, the technology revolution is gathering pace and power at an almost frightening rate. The other day there was a news item that said that Sam Altman, of OpenAI/ ChatGBT fame, was trying to raise $5T-$7T to fund an infrastructure build-out to support AI and its latest iteration GenerativeAI!

I thought at first that was a typo and they meant billions but no trillions it is! What an incredible world we are moving into where Altman thinks we need that kind of computing power to support his and the world’s plans for AI. Against this background shares in companies involved in technology are facing unprecedented opportunities which translates into an exciting time for investors and that exciting time is right now!

A simple way to take advantage is to buy shares in ETFs with exposure to the Nasdaq 100 (largest shares on Nasdaq excluding financial shares) and technology. Two I like are QQQ (chart not shown but identical to the Nasdaq 100), which tracks the Nasdaq 100 and XLK, charted below, which tracks a basket of technology shares.

Below are listed the 10 biggest holdings in XLK with Microsoft and Apple commanding an extraordinary weighting. I am guessing that at the next portfolio rebalancing for this fund Nvidia and other semiconductor shares are going to find their weightings sharply increased. The semiconductor sector is playing a key role in driving new technology and has transformed itself into maybe the fastest-growing industry worldwide since oil and gas in the 20th century.

3G = Great Growth, Great Story, Great Chart

Unsurprisingly most of these shares have strong charts and generally fit my basic requirement for consideration as an investment. I won’t touch a share in a company unless it is what I call 3G (great growth, great story, great chart). Once that is established I look for other characteristics like a bit of magic, a heavy emphasis on innovation and ideally ‘something new’ happening which is not just the steady flow of technology enhancements.

Shares recently alerted from this list, many the subject of multiple alerts, include Microsoft, Apple, Nvidia, Broadcom, Adobe, Salesforce.com and Advanced Micro Devices. I also like Accenture and would not be a holder of Cisco or Intel. Microsoft has been alerted many times in its rise to become the world’s most valuable company and Nvidia has been THE most alerted share on Quentinvest over the last year or so. It is no secret to my subscribers that I regard Nvidia as one of the most exciting businesses that has ever existed.

More recent enthusiasms include Super Micro Computing and ARM Holdings and just to show that I am not completely obsessed with technology I am very keen on a share called E.L.F. Beauty which is disrupting the US beauty and skin care business and starting to replicate that achievement internationally.

This is just the kind of explosive chart I like. You may look at it and think it is too late to buy but the management would not agree. ELF is a phenomenal company. The shares were first alerted in QV at around $80.

In Q3, we grew net sales by 85pc, increased gross margin by nearly 350 basis points, and delivered $59m in adjusted EBITDA, up 61pc versus prior year. Our vision is to create a different kind of beauty company by building brands that disrupt norms, shape culture, and connect communities through positivity, inclusivity, and accessibility. We’ve executed against this vision and delivered exceptional, consistent category leading growth. Q3 marked our 20th consecutive quarter of net sales growth, putting e.l.f. Beauty in a rarefied group of consistent, high growth consumer companies.

We’re one of only five public consumer companies out of 274, that has grown for 20 straight quarters and averaged at least 20pc sales growth per quarter. Across our business, we’ve continued to prioritise three areas with significant runway for growth, color cosmetics, skincare and international. In Q3, e.l.f. Cosmetics grew 46pc in tracked channels, 23 times category growth of 2pc. We increased our share by 305 basis points. Out of nearly 800 cosmetics brands tracked by Nielsen, e.l.f. is the only brand to gain share for 20 consecutive quarters. We’ve more than doubled our market share from about 4.5pc in 2019 to 10pc in 2023, placing us as a number three brand nationally.

Given our momentum, we see an opportunity to double our share again over the next few years. In Target, our longest-standing national retail customer, we’re the number one brand with about a 19pc share, nearly double the share we had in Target just a few years ago. We’re focused on replicating our success at Target across other key retailers and are making great progress towards that ambition. In skincare, we also continue to outperform the category. In Q3, e.l.f. SKIN grew 89pc in tracked channels, 10 times category growth of 9pc. We grew our share by 60 basis points and gained six rank positions, increasing our rank to the number 14 brand as compared to the number 20 brand a year ago, e.l.f. SKIN today holds a 1.4pc share and a significant runway with the number one brand holding 14pc share.

Tarang Amin, CEO, E.L.F. Beauty, Q3 2024, 7 February 2024

ELF’s Plans to Become a Global Disruptor

They don’t plan on slowing down any time soon.

We see significant runway to expand our brands globally. Across categories and geographies, the three fundamental drivers of our business remain the same, our value proposition, powerhouse innovation, and disruptive marketing engine.

What gives me confidence for the future is a significant white space we see in color cosmetics, skin care, and international. We continue to believe we are still in the early innings of unlocking the full potential for our brands. 

Tarang Amin, CEO, E.L.F. Beauty, Q3 2024, 7 February 2024

ELF is a diversion from the point I am trying to make with this alert that when all the stars are aligned – indices, sector ETFs and individual shares breaking higher and boasting spectacular fundamentals, it is time to invest aggressively for maximum profits.

Here is another stock that I think is red hot and it is firmly in the AI space.

This is a fabulous chart for a fabulous business.

Super Micro makes total IT solutions for data centres, cloud service providers (“CSPs”), universities, research labs, and any other entity that may require high-end computing solutions. Total IT solutions refers to hardware (server racks or nodes), software, and networking solutions to manage IT systems at scale. They are an engineering-led business with a majority of employees being engineers and an engineer-by-training CEO with numerous patents to his name.

Their competitive advantage is speed. They seek to always be first-to-market with leading-edge chips designed into a variety of different server configurations. Their Building Blocks architecture allows for custom rack scale solutions so customers can buy exactly what they need; nothing more and nothing less. They are enjoying a first-mover advantage with their liquid cooling solutions, a budding segment of the server market. Their servers are powerful and efficient, they seek to provide industry-leading PUE (power usage effectiveness) and energy efficiency to minimise customers’ TCO (total cost of ownership).

Seeking Alpha, 30 January 2024

The outlook is very exciting.

Nvidia CEO Jensen Huang was quoted last year as saying that AI will require one of the largest infrastructure buildouts in history. He believes this is akin to a new-age industrial revolution. Data centres now need to optimise spend between traditional CPU servers and AI-optimized GPU servers. Super Micro’s business model positions them perfectly to benefit from the increasing spending that is shifting toward GPU servers, and they are quickly becoming the leader in AI-optimised hardware. Super Micro will continuously benefit from CSPs and data centres expanding their AI computing capacity. The more embedded AI becomes in our everyday lives, the more units SMCI will sell.

Seeking Alpha, 30 January 2024

SMCI is walking the talk.

In short, this report was stellar. Absolutely incredible. Management guided for close to $3bn in revenue this quarter and blew that guidance out of the water. This was mostly because of strong secular demand growth and the easing of the supply constraints that sent the stock tanking after the Q4 FY2023 earnings.

The phenomenal 103pc YoY growth has rocketed SMCI far above the industry average growth rates.

Seeking Alpha, 30 January 2024

A lot is going on at SMCI.

CEO Charles Liang also mentioned that Super Micro 3.0 is in “overdrive”. Super Micro 3.0 denotes the strategy shift to becoming a supplier of full IT Solutions. They are planning their next phase of growth with Super Micro 4.0.

The San Jose, Netherlands, and Taiwan facilities are operating at a 65pc production utilisation rate. They are also adding two new production facilities and warehouses in Silicon Valley. They are using the new Malaysia facility to expand their Building Blocks capacity, presumably by designing different systems with leading-edge chips that fit a variety of different server node configurations. More and more customers will be able to order fully customisable AI-optimised racks from SMCI.

This increased production capacity will support their new $25bn annual revenue target. Given the $20bn revenue target aligns with 5,000 rpm or 60,000 racks per year, it follows that we can expect annual production capacity to increase to roughly 75,000 to make the $25bn revenue goal achievable in the coming years.

Seeking Alpha, 30 January 2024

Strategy – Keep Buying my Favourite Stocks and ETFs

Many investors look at these explosively performing shares (listed below) and think it is too late to buy. Not me. My ambition is to own shares in the world’s most exciting businesses. If I do that I make a ton of money. It is an approach I have been refining for 60 years and it works a treat.

Share Recommendations

QQQ. Buy @ $437

XLK. Buy @ $207.84

Nvidia. NVDA. Buy @ $737

E.L.F. Beauty. ELF. Buy @ $175.50

Super Micro Computing. SMCI. Buy @ $799

More to QV than Regular Share Alerts

Just as a footnote, there is much more to Quentinvest than simple share alerts, important as they are. We also advise on strategy with options ranging from a safety-first diversified portfolio approach to an approach so exciting that I call it Kamikaze Plus (KP). You will not believe the returns currently being delivered by this KP approach which is the investment equivalent of swapping your Fiat 500 for a Formula One racing car. Amazingly KP investing, exciting though it is, is not as risky as you might imagine, not least because it works best if you start small and build from strength.

We Deliver Blistering Performance

I am not going to bore you with a ton of numbers but I want you to know that QV achieves spectacular results. Nvidia, now trading over $700, was recommended in early 2023 at $143.27 and has been alerted countless times since. XLK was a later enthusiasm but is already up from $174 to $207. QQQ, which tracks the Nasdaq 100, is up from $310 to $436.75. Not mentioned in this alert but my favourite ETF is QQQ3, a three times leveraged version of QQQ. Since my first 2023 recommendation for this ETF, it has risen from $48 to $182, which is more like what we call a good performance on QV.

ELF was first featured at $88 in May 2023 and has doubled to $176 since then. Super Micro, which is shaping up as an explosive performer, is up from $423 in January 2024 to $780 today!

We also do crypto currencies. My favourite is the daddy of the sector, bitcoin. I recommended bitcoin at $28,124 in March 2023 since when the price has climbed to $48,976. Subscribers know that I see bitcoin as capable of climbing much higher even from here.

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