Ticker Reports for June 18^th

Occidental Stock: Buffett’s 9-Day Buying Spree Lifts Stake to 29%

The typical advice in the financial market is to never blindly follow a whale investor like Warren Buffett. However, these investors’ reverse-engineering investment decisions can often prove helpful. Today, Warren Buffett didn’t buy more shares of Occidental Petroleum Co. (NYSE: OXY) because the economy is slowing but because a commodity supercycle could be about to push oil prices higher.

After nine consecutive days of buying, which isn’t usual for Buffett, it looks like the oracle of Omaha found a company worthy of his recent all-time high cash pile held inside Berkshire Hathaway Inc. (NYSE: BRK.A). Buffett’s stake in Occidental is now as high as 29%, which is something to consider going forward.

But Occidental doesn’t operate by itself in the energy sector. Competitors like Hess Co. (NYSE: HES), Chevron Co. (NYSE: CVX), and even Exxon Mobil Co. (NYSE: XOM) are the ones to peg Buffett’s choice against in this coming cycle, and for reasons that will become clear in just a bit, Occidental stock is the one that deserves – not only Buffett’s – the market’s attention.

Buffett’s Insights: Why the Energy Sector is Set to Surge

While not publicly quoted, investors can attempt to navigate Buffett’s mind by breaking down the drivers behind the potential oil rally coming up. Starting at the top, here’s how the U.S. economy is today.

It could be better, as GDP growth was revised to only 1.3% over the past quarter. Now, that only gives the Federal Reserve (the Fed) another reason to consider cutting interest rates this year, where the CME’s FedWatch tool predicts these cuts to come by September 2024.

Another pain point can be found inside the ISM manufacturing PMI index, which has been contracting for over a year and a half. However, the latest issue (covering the manufacturing sector for May) showed the oil industry going on a sudden breakout.

New orders increased, production increased, and employment increased. These three measures carry arguably the heaviest weighing inside the PMI report, so investors can see how the oil industry is getting ready to ramp up production despite being inside a contraction. And that’s good for a cheap stock like Occidental Petroleum.

Warren Buffett Sees Opportunity in Occidental Petroleum’s Discounted Stock

Occidental stock is a potential steal today on a price-to-free cash flow basis. The company’s financials show That It generated a five-year average free cash flow (operating cash flows minus capital expenditures) of $6.4 billion.

Occidental stock has a $54.4 billion market capitalization today, which is 8.5 times its five-year average free cash flow. Exxon Mobil stock is 15.6 times, Chevron is 14.3 times, and Hess is over 100 times.

More than that, Occidental’s free cash flow has grown at a five-year compounded average growth rate (CAGR) of 40%, making it a steady and predictable return on Buffett’s investment.

Because Occidental stock has superior profitability at a discount in this case, Wall Street analysts have chosen to reflect this fact for the next 12 months. Current earnings per share (EPS) growth projections stand at 28.5% for Occidental stock, where its peers also fall behind.

Chevron’s EPS is set to grow by 15.6%; analysts couldn’t find a reason to push Exxon’s future EPS above 8.8%. While Hess got closer to Occidental stock with its 17.3% projection, it still falls behind by over 10%.

With this growth in mind, Buffett isn’t the only one who thinks Occidental Petroleum stock could have some decent upside ahead. Scotiabank boosted its valuations on Occidental stock as high as $90 a share, daring the stock to rally by 46.3% from where it sits today.

Goldman Sachs Supports Warren Buffett’s Oil Investment Thesis

For better or for worse, Goldman Sachs predicts that oil prices could reach $100 a barrel this year. The factors driving this push can be tied to the recent breakouts in the manufacturing PMI or the fact that potential interest rate cuts could boost business activity overall.

As businesses access cheaper financing and demand trends rise on a more confident consumer, oil will be in the eye of the demand storm. Buffett is known for taking the long-term view, so here’s a guesstimate of where that view is.

Rising trends in the artificial intelligence space are also bullish for oil; why? Well, data centers and computing power will draw on a significant amount of energy to function and train these AI models, and that’s where fossil fuel energy sources (like oil) will come into play.

In other words, Nvidia’s success could also be Occidental stock’s success or at least a portion of it.

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3M Stock: Invest Now for Unmatched Quality and Growth Potential

3M (NYSE: MMM) is turning a corner. The company wasn’t hurt by ailing business so much as lawsuits related to legacy businesses that are now primarily in the past. The settlements may still be appealed or amended, but the $18-odd billion in damages is close to the final payments expected. The takeaway is that headwinds are diminishing for this well-positioned industrial giant, and now, catalysts are in play.

Among the catalysts is Bill Brown’s appointment to the CEO suite. Mr. Brown comes from L3Harris Technologies (NYSE: LHX) and brings a wealth of experience and knowledge to the business. His appointment and receding headwinds have the analysts raising their ratings and targets, leading this market higher.

Upgraded Analyst Ratings Boost 3M’s Market Prospects

There is a profound shift in the analysts’ sentiment. Since January, the series of sentiment upgrades and price target revisions have lifted the consensus rating from Reduce to Hold and the high-end of the Hold range, verging on Moderate Buy. The price target is still down compared to last year but up significantly off the lows, leading the market. The consensus projects an 11% upside, with a high-end potential of 30%-40% upside. This could push the market above the long-term moving average, break critical resistance, and reach an 18-month high.

The five latest updates are the most promising. Starting with HSBC in May, the stock has received four upgrades to Buy and five price target revisions ranging from an above-consensus target of $115 to the new high target of $140. HSBC cited the company’s quality and easing headwinds, while Vertical Research makes note of persistent uncertainties but views risk as to the upside. Bank of America and Wolfe Research are baking on the new CEO, whose reputation includes operational intelligence and savvy, practical application. His last project is highlighted by outperformance, which is now expected for 3M.

3M’s Dividend Cut Not a Worry for Investors

Dividend cuts are never a good thing in the eyes of investors, but there are mitigating factors for 3M. Aside from the fact that the earplug and forever-chemical litigation was a cloud over the company that might have led to a cut, the cut is because of the recent spin-off of Solventum (NYSE: SOLV). The spin-off created a stand-alone healthcare company and was paid as a dividend. The cut to 3M’s payment aligns the distribution with payout-ratio targets and keeps it healthy. The yield is also healthy at nearly 3%, with shares trading at $100.

The balance sheet is in good shape despite the settlement payments. Payments have yet to begin but have been structured over 13 years (for PFAS), and reserves have been recorded as sufficient to cover the earplugs. The takeaway is that debt rose significantly over the last year but is offset by increased cash, assets, total assets, and reduced liabilities. Equity is up and expected to continue rising for the foreseeable future.

A Bullish Reversal is in Play for 3M

The technical outlook for 3M is bullish and may soon result in a new high. The market is up 50% from its low and on track to complete a Head & Shoulders Reversal Pattern. The critical resistance is near the long-term exponential moving average at $105. A complete reversal is confirmed if the market can rise above it, and a sustainable uptrend may form. Trading at 14x earnings is a deep value relative to the S&P 500 and pays substantially more in dividends.

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Super Micro AI Stock: Should You Invest After a 275% Increase?

The artificial intelligence (AI) sector is experiencing explosive growth, captivating investors and sending ripples through the stock market. Super Micro Computer (NASDAQ: SMCI) is a leading high-performance computing and AI infrastructure provider. Super Micro’s financials show that it has been a beneficiary of the artificial intelligence boom, witnessing a remarkable 275% surge in its stock price since the start of the year. This impressive performance raises a critical question for investors: is it too late to buy into Super Micro, or does the company still hold significant upside potential?

Super Micro Stock Performance Reaches New Heights

Super Micro’s stock has experienced a dramatic upswing, reaching new heights this year. SMCI’s share price is currently over $885.00, representing a substantial year-to-date gain of 275%. This performance is further highlighted by the stock’s 52-week range, which extends from a low of $213.08 to a high of $1,229.00. The recent trading activity also reflects significant investor interest, with the stock experiencing a volume of 8.85 million shares traded, exceeding its average daily volume of 8.64 million. This heightened trading activity suggests strong confidence in the company’s future prospects.

This surge is directly linked to the rapid growth of the AI market. Super Micro’s core business revolves around providing high-performance servers essential for developing and deploying AI applications. As the demand for AI technologies continues to escalate across most market sectors, Super Micro’s products are becoming increasingly sought after. This dynamic connection between the company’s business model and the AI boom is a primary driver of its stock’s impressive performance.

Institutional Investors Show Strong Confidence in Super Micro

Beyond the generally positive sentiment surrounding the AI market, a closer look at Super Micro’s ownership data and recent trading activity reveals a compelling trend: institutional investors are placing substantial bets on the company’s future. Institutional investors, such as hedge funds, large investment firms, and pension funds, typically have access to more information and resources than retail investors, and their moves often signal significant market insights.

The recent detection of uncommon trading activity in Super Micro’s options chain proves this institutional interest. These trades, often involving large volumes of options contracts, suggest that these investors anticipate further price increases shortly. This bullish sentiment is reflected in the data, which reveals a total trade value of $923,502 for calls and a total trade value of $111,500 for puts. This activity suggests that most large investors lean towards a bullish outlook for Super Micro.

Reviewing Super Micro’s analyst community data reveals a predicted price range for Super Micro spanning from $250.00 to $1,500.00 with a consensus of $954.38. This significant range, with the high end extending significantly higher than the current price point, suggests that these analysts see substantial upside potential in Super Micro’s stock, with the current consensus price reflecting a 7.5% increase and the high-end projection predicting a near 70% increase. This analyst data suggests that Super Micro’s stock price is expected to move significantly, with a wide range of potential outcomes. Overall, the analyst community appears to be optimistic about Super Micro’s future prospects.

Evaluating Super Micro’s Core Business Model

While the AI market hype and institutional activity are significant drivers of Super Micro’s stock price, assessing the company’s underlying fundamentals is crucial in determining its long-term viability. Super Micro’s business model is centered around designing, manufacturing, and distributing high-performance servers tailored for a wide range of applications, including cloud computing, data centers, and the rapidly growing AI market. This strategic focus positions the company to capitalize on the continued expansion of the AI sector.

Examining Super Micro’s financial health reveals mixed signals. The company boasts a market capitalization of $49.63 billion, indicating its significant scale and prominence within the market. Analyst ratings are generally positive, but the company did experience a quarterly revenue decline, which could raise concerns for some investors. This decline may be attributed to short-term factors such as supply chain disruptions or the sector’s cyclical nature. Still, it is an important data point to monitor in upcoming earnings reports.

Industry Momentum and Potential Challenges for Super Micro

Super Micro’s stock performance reflects the broader positive sentimentsurrounding the AI sector. Broadcom (NASDAQ: AVGO) is a leading connectivity, semiconductor, and software provider with significant AI-related growth. Broadcom’s recent earnings report was positive and has further fueled optimism within the sector.

Similarly, Oracle (NYSE: ORCL), a major player in cloud computing and infrastructure, has provided encouraging guidance relative to the AI sector. Oracle’s fourth-quarter earnings call indicated a growing demand for AI-related technologies. This positive momentum from industry leaders reinforces the favorable conditions for Super Micro’s growth.

However, investors should remain aware of the potential risks that could impact the company’s trajectory. Despite its rapid growth, the AI market is becoming increasingly competitive. Super Micro will need to continue innovating and developing new solutions to maintain its market share and compete with other prominent players.

Another key consideration is valuation. The significant stock price increase has pushed Super Micro’s price-to-earnings P/E ratio to 49.74. This suggests that the stock may be trading at a premium valuation compared to some of its peers, prompting investors to consider whether the current price reflects future growth potential or indicates a potential overvaluation.

Finally, it’s essential to acknowledge the inherent volatility associated with the stock market, particularly in high-growth sectors like AI. While the current momentum is positive, investors should be prepared for potential short-term corrections or fluctuations in the market.

Investment Considerations for Super Micro’s Stock

Super Micro’s impressive performance and position in a dynamic growth market like AI present compelling reasons for investors to consider the company. Favorable industry trends, strong institutional activity, and the potential for continued AI market expansion create a favorable environment for the company’s future. However, investors must carefully weigh these factors against the recent revenue decline and the potential for overvaluation.

While Super Micro has undoubtedly benefited from the AI boom, its stock price has risen significantly. This begs the question: has the stock already factored in much of its future growth? Investors must consider their risk tolerance, investment timeline, and due diligence before committing to this stock.