Can These First-Half Big Winners Continue to Lead the Way?

By TradeSmith Research Team

I’m a hockey guy, not a baseball fan. But just past the midpoint of the year – and with all the successes stocks have logged so far – a baseball analogy seems to be the proper play here.

You see, we’re rounding second … and we’re digging for third.

And we’ve already built ourselves a nice little lead.

With a 31.7% gain, the first half of 2023 was the Nasdaq’s best in 40 years.

It wasn’t quite that history-making for the S&P 500. But its 15.9% first-half lift was that bellwether’s best showing in four years… and a heck of a lot better than what we saw in 2022.

And those index numbers don’t even tell the full story; they don’t demonstrate the size of that lead we’ve actually built.

As you know, those index gains are usually peanuts compared to the stocks leading the way.

That was absolutely the case again this year.

In my screens this week, I pulled up the best-performing stocks of 2023 by market cap – mega cap, large cap, medium, and small cap.

The gains range from 78% to 410%.

But that’s looking in the rearview mirror.

The question now is whether those big winners are likely to keep cranking out the gains – or if their first-half momentum is unsustainable.

That’s what our Quantum Edge system is designed to tell us, so let’s run these first-half champions through it and see what we learn…

Best-Performing Mega Cap: Nvidia

As a member of the growing-but-still-exclusive “Trillion-Dollar Club” for market value, chip innovator Nvidia (NVDA) definitely qualifies as a mega cap. Maybe even super mega cap.

And though it’s harder for mega-cap companies to generate massive market-value gains, NVDA has bucked that trend.

But this isn’t due to some smoke-and-mirror exercise in financial engineering. Nvidia is an outstanding company that pioneered graphics processing units (GPUs), which redefined computer visuals by giving them their own silicon “brains” that operate independent of the central processing unit (CPU).

That sparked massive growth in videogaming. And now, 30 years after its founding, NVDA is a leader in yet another massive growth driver – chip-focused artificial intelligence applications.

The all-things-AI mania helped ignited a 190% surge in Nvidia shares in the first six months alone.

I wouldn’t necessarily plan on another 190% in the next six months. But Nvidia has all the ingredients for continued share-price growth in the years to come… and probably sooner than that.

Its Quantum Score registers an almost ideal 77.6, which is smack dab in the middle of the targeted buy zone. Its technicals rate an even more powerful 88.2, which is not surprising after that incredible first half of the year.

At 62.5, Nvidia’s fundamentals aren’t quite as potent. That’s in large measure due to minimal one-year sales growth (and higher debt than I like to see). It’s also because of a super-rich valuation: The stock trades at 55.9 times expected earnings.

Verdict: The near-term may be a little less certain, with the stock pretty close to being overheated. However, if you’re in for the long term, NVDA is likely to make you money in the years ahead.

Best-Performing Large Cap: Shopify

Shopify (SHOP) is the Canadian e-commerce service provider that makes it easier for customers to start, run, and grow a business.

Shares have rallied nearly 80% so far this year. And a big chunk of that has come since early May, when the company topped forecasts for first-quarter sales and profits. Shopify grew rapidly during the pandemic as online business soared, but things slowed down as stores reopened and inflation tightened consumer purse strings.

SHOP’s Quantum Score is solid right now at 70.7, which is at the very low end of my optimal buy range.

It’s also worth noting that the technicals are driving that overall score. SHOP’s Technical Score of 82.4 is disproportionate to its Fundamental Score of 54.2. Specific concerns are a negative profit margin of 61.8% – a less-than-alluring metric with a stock that trades at more than 186 times expected earnings.

Verdict: Things are looking better for Shopify’s business prospects. And management has taken important steps to reduce costs, which will also help in the long run. But from a data standpoint, the turnaround is too early in the making, which calls into question how long the current momentum can last.

The negatives still outweigh the positives on SHOP.

Best-Performing Medium Cap: Symbotic

Symbotic (SYM) does some cool stuff. The company provides robotics and technology to retailers and wholesalers, offering an automated product distribution system as well as inventory-management systems.

It also uses AI in its software, and that has no doubt helped drive the price up 227% here in 2023.

Sales and earnings are expected to continue to grow, with the company estimated to become profitable in its 2024 fiscal year.

That said, SYM is a lot like Shopify in that its ratings are heavily weighted to the technicals, which are compensating for poor fundamentals.

The company’s Quantum Score is 55.1, which puts it in the “avoid” zone for me. Its technicals rate high at 76.4 – again, to be expected after a big move – but the fundamentals are quite poor, scoring just 25.

In addition, SYM just went public last June, so it only has a few quarterly reports under its belt.

Verdict: At this point in the company’s history, SYM is more of a bet on the future than a sound investment based on quantitative data. It may end up being a huge winner, but I’m not seeing enough in the data to confirm that yet.

The whole point of my system is to have a good idea of your moneymaking probability, and in this case, the Magic 8 Ball might answer, “Cannot predict now.”

If you do decide to invest, I recommend that you be prepared to hold for the long term. And also be prepared for surprises along the way, not all of which may be pleasant.

Best-Performing Small Cap: Carvana

It’s not too surprising that the smallest stock on the list cranked out the biggest gains. What’s more surprising is that it’s Carvana (CVNA), the car vending machine company.

Shares have zoomed 410% here in 2023.

But this is where context is important. I also need to show you the stock over the last three years – because it’s a very different picture.

While past results can never fully predict future price action… which chart does it best?

According to my data, it’s more likely the three-year chart.

Carvana’s Quantum Score is just 58.6. That’s so-so to begin with, and it’s surprisingly low for a stock that’s up nearly 5X just this year.

Its Technical Score is strong at 76.5. It has to be, given this year’s surge.

But the Fundamental Score is just 33.3, which is a major red flag. Estimated earnings growth is negative for the next one and three years. The profit margin is also negative, and the company is not expected to turn a full-year profit through at least 2025. Some estimates go out to 2027.

Verdict: There are too many negatives in the data right now for me to be comfortable committing money to Carvana. News flow is also often negative about the company, and while higher used car prices have helped, the risks at this point outweigh the possible rewards.

Taken together, my data and analysis indicate a greater chance that these four stocks will not repeat their first-half moonshots… and could even hit some bumpier patches. Nvidia is one stock I can see buying for the long term, knowing there could also be some ups and downs with it.

My data shows better opportunities out there – stocks with some of the strongest fundamentals in the market that also have technical momentum and Big Money buying. Those are the highest-probability investments for your hard-earned money.

And with a big finish to 2023 that I’m predicting, they also stand to be some of the biggest gainers.

Talk soon,

Editor, Jason Bodner’s Power Trends