Here’s our club mailbag email: [email protected] — so send your questions directly to Jim Cramer and his team of analysts. We cannot provide individual investment advice. We will only consider general questions about the investment process or stocks in the portfolio or related industries. This week’s question: What’s a good price to get into a stock with a lot of upside? I want to get positions in NVDA and AAPL, but they are already so high that I don’t know what the right price is. – Ron The first thing to understand is that the price you pay is the value you get. For example, what is the best value: ABC stock at $100 or XYZ stock at $50? It is impossible to answer without considering revenue for each company. If ABC generated $4 in earnings per share and XYZ had $1 in earnings per share, ABC is actually the better value despite the higher price. ABC trades at 25 times earnings, XYZ trades at 50 times earnings. So you need to focus on evaluation. This way you can filter out recent price fluctuations (up or down) and focus on whether the property you’re considering is priced right. Consider what happened to Nvidia ( NVDA ) this year. Despite a big rally, NVDA’s stock actually got cheap based on forward estimates. This is because earnings estimates have risen more than stock prices and fallen multiple times. If you only focus on the stock price increase, you’re missing the most important point: stocks were actually better value after the boom. Valuation alone is not going to determine price action in the short term. Profit takers who are more focused on recent success than selling some stock may fall in price. That’s why we like to buy a little at a time when stocks are going down to reduce our overall cost base. If the stock doesn’t go down after your first purchase, we call it a high quality problem. It is our discipline not to overstep the mark, but we have done so in some circumstances. Each investor must decide for themselves whether this is the right move. Here are some ideas to help you make that decision. You can determine these positions based on valuation metrics such as price-to-earnings multiples or dividend yields to ensure every number you buy. You can also perform some technical analysis. We consider ourselves fundamental analysts rather than technicians, so we are more concerned with setting those price levels using valuation. Here are ways to do some simple technical analysis. For example, one can buy XYZ stock at 22x returns. From there you can determine that the next step is to look at the stock trading at 18x earnings, which is calculated by taking the earnings estimate and multiplying it by 18. How you determine the right position is up to you, but there are a few factors you can consider. The market multiple, growth rate, historical level at which the stock has traded in the past and many others are placed on the industry. We cannot provide individual investment advice on when or how much to buy Nvidia and Apple (AAPL). But these two names are the only ones in the portfolio that we’ve assigned an “Own, Do Not Trade” designation, so we know members are trying to pick their spots. Conduct your own analysis and monitor our alerts. Last week, we said we would have bought more Meta Platform (META) shares if our club trading rules had allowed us to. Meta posted a solid quarter, but the stock was penalized. Shares are now trading at several times lower forward earnings than in April: 17.6 times versus 19.3 times. However, the share price is now higher than it was in April. So it’s a similar dynamic to Nvidia – better value. As earnings season continues, we’ll be sure to provide more ideas on what members should think about going into print after the releases and conference calls. (See here for a full list of INJim Cramer’s Charitable Trust holdings.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive trade alerts before Jim trades. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his trust’s portfolio. If Jim had talked about the stock on CNBC TV, he would have waited 72 hours after issuing a trade warning. The Investment Club information above is subject to our terms and conditions and privacy policy, along with our disclaimer. No fiduciary duty or obligation is, or will be created, by your receipt of any information relating to Investment Club. No specific results or profits are guaranteed.
Here’s our club mailbag email: [email protected] — so send your questions directly to Jim Cramer and his team of analysts. We cannot provide individual investment advice. We will only consider general questions about the investment process or stocks in the portfolio or related industries.
This week’s question: What’s a good price to get into a stock with a lot of upside? I want to get positions in NVDA and AAPL, but they are already so high that I don’t know what the right price is. – Ron
