The Profit Column: Top-Ticking the ’23 Chip Trade
|
Listen to this post
|
It didn’t take long for a few smart investors to figure out a great trade to make on that story. AI lives in computer chips, right? So… it stood to reason a bunch of capital would quickly make its way there.
Sounds simple, but mind you, this trade took guts. The 2022 bear market nuked hundreds of billions of dollars in market cap from the top semiconductor companies. AMD plunged more than 62% peak-to-trough. Nvidia, one of this year’s biggest winners, fell even more. Only the courageous hit the “buy” button after that carnage.
That’s why so many investors got caught flat-footed by a rebound that rocketed Nvidia to new all-time highs and got appetites a-rumblin’ for tech stocks once again.
Just a handful of investors were able to see this coming. And among them was my longtime friend and growth investing expert, Jason Bodner.
I met Jason back in 2019, and we clicked immediately. Forget those dull-as-dishwater, put-you-to-sleep Wall Street screen readers. Jason is vibrant, passionate, friendly as all get out — and move-the-needle savvy. The man’s got “the knack,” ya know?
That’s why I had to grab hold of him for the newest edition of The Profit Column, your weekly spotlight on a big profit from the investing experts in our network… and a conversation about what made it happen. (If you missed the first dispatch, where we laid out what The Profit Column is all about, go right here to catch up.)
Our lives are busy… our schedules frenetic. But we still make time for regular lunch get-togethers at a great sushi place here in South Florida.
And this time, in addition to the sashimi bento, I wanted to dig into the 34% chip-stock win he booked for his subscribers in just four months. Here’s our conversation…
The Profit Column: Top-Ticking the ’23 Chip Trade with Jason Bodner
Michael Salvatore, Editor, TradeSmith Daily (MS): What’s up, Jason? Thanks for being part of the Profit Column.Jason Bodner, Editor, Quantum Edge Pro (JB): Oh anytime, Mike.
MS: So, I’m curious about this trade on Axcelis (ACLS) you made earlier this year. What was the thought process?
JB: You know by now that every investment decision I make is systematic. I spent years working on a tool that would help me sniff out the best stocks in the market, backed by the biggest money on Wall Street.
Now my subscribers and I have that tool, fine-tuned to peak precision. I call it the Quantum Edge. And, quite frankly, it does a lot of the work for us.
MS: So, how did the Quantum Edge system find ACLS?
JB: ACLS popped up on my Quantum Edge screener not just because it was a semiconductor stock during a great time to own them. It’s because it’s one of the highest-quality semi stocks out there.
At the time I recommended it, it was a fundamental fortress. Sales growth and earnings were both outstanding and growing fast, with the former at a 39% growth rate over three years, and the latter at a 124% jump over the same timeframe.
The company was keeping 20 cents of every dollar it made, a strong profit margin for a company in growth mode. It had very little debt at just 8.8% of equity. Shares traded at just 22 times this year’s expected earnings, which is pretty darned attractive for this kind of growth.
All these are marks of fundamental quality you have to see in the type of stocks I recommend. And they’re the datapoints that feed into my Quantum Edge system.
All together, these datapoints combined to form a rock-solid score of 87.5 out of a possible 100. That’s an excellent fundamental score — at the time, it was in the top 0.6% of all stocks.
MS: The top 1% of stocks sounds like exactly where you should be putting your money.
Just for the audience, what type of stocks do you target?
JB: I’m a diehard optimist, Mike. History shows that I should be. Just look at any long-term chart of the stock market and you’ll see that, 95% of the time, the market sides with optimism.
Bears have their fun every decade or so, but not for long. So, I stay bullish. Life’s easier when you’re bullish.
I say this because the best way to juice this mindset is to buy high-growth, smaller market cap companies with a huge runway for gains.
I have a sweet spot I target — between about $2 and $20 billion market cap. Companies in that range have the best shot at multiplying your money over the long haul, without exposing you to undue risk. ACLS was at the low end of this range, making it an excellent target.
MS: So, getting back to the system, fundamentals aren’t the only thing you screen for. ACLS was also a strong technical picture, right?
JB: It was. ACLS was trading near its 12- and 52-week high at the time. Shares were also above their 50-, 100-, and 200-day moving averages — a strong sign of momentum.
But, it had consolidated between $125 and $135 for the previous eight weeks. It was clear to me that the next big move would be a breakout through the top of that range and on to new highs. Here’s the chart from the day I recommended it. You can see what I’m talking about…
MS: Oh yeah, that stock was ready to fly.
JB: Then given the market environment of the time… the rush into AI… and all these factors, it was a no brainer.
But one final factor made it a trade we couldn’t miss: the Big Money buy signal.
This is the foundation of the Quantum Edge system. It’s able to spot when major institutional capital is flowing into — or out of — any given stock.
We spotted two Big Money buy signals earlier in the year, a sign that institutions saw the same thing we did… and at about the same price we bought it.
That gave me the conviction to pull the trigger.
MS: Sounds like it all came together perfectly.
But then, you sold it a few months later, just when it seemed like AI was about to take over the world…
What led you to that decision? What happened to Mr. Optimism?
JB: A trader who’s optimistic, but irrational, will get played for a fool in any market.
There’s much more to the Quantum Edge system than the individual ratings. Another broad market indicator I like to use all the time is the Big Money Index.
This index shows the full market picture of where institutions are placing their bets. If they’re bullish, the line goes up. If they’re bearish, the line goes down. But if it gets too extended in either direction, we get a strong signal of either to take profits, or get ready to buy.
Here’s the Big Money Index from the day I sold ACLS back in August…
The BMI went overbought about a week prior, and started to turn down. We know now that this signaled the beginning of two brutal months of falling stock prices.
That was my signal to get out. So we sold not just ACLS that day for a 37% gain, but another 59% winner, a 21% winner, a 15% winner, and one small, 15% loss.
My friend, colleague and collaborator Lucas Downey has been talking about it in the Daily quite a lot lately, because today it’s actually sending buy signal… one of the most oversold readings ever.
Safe to say, I’m set to recommend a ton of stocks to my readers right now.
MS: That’s awesome to hear, Jason. Yeah, prices are quite a bit more attractive today than they were when your BMI went overbought.
So how can folks join in on that action?
JB: The doors are open right now to join me at Quantum Edge Pro. Like I said, my watchlist is stacked with names set to take off through the end of the year. I think we could really see some 2023 close out with a bang.
MS: Sounds great, Jason. I know I’ll be following along. Thanks again for catching up today.
JB: Thanks for having me!
Michael here…
As a TradeSmith Platinum member, you already have access to everything Jason publishes in Quantum Edge Pro.
Get the latest on what he’s been up to right here.
That’ll wrap it for this week’s Profit Column. Have a wonderful weekend!
To your health and wealth,
Michael Salvatore
Editor, TradeSmith Daily