By Louis Navellier. Originally published at ValueWalk.
In his Daily Market Notes report to investors, while commenting on Jim Cramer implying that value stocks will outperform growth stocks, Louis Navellier wrote:
Q4 2021 hedge fund letters, conferences and more
Our survey this week revealed that retail investors are bullish, with 82% believing that the markets will end 2022 in the black.
Cramer’s Call
The recent weakness in NASDAQ even caused CNBC’s Jim Cramer to imply that growth stocks will lag in 2022 and value stocks will outperform. The biggest problem I have with Cramer’s “value declaration” is that it will soon be proven obsolete when the fourth-quarter announcement season commences and it’s “every stock for itself.”
Semiconductor stocks are expected to announce the strongest fourth-quarter results in years. The Consumer Electronics Show (CES) is now underway and most of the latest and greatest consumer products – like televisions, virtual reality, video games, 5G, and electric vehicles – now require more high-powered semiconductor chips than ever. If you have any spare cash to invest, I strongly recommend that you buy some of my favorite semiconductor stocks, like KLA Corporation (NASDAQ:KLAC), Kulicke & Soffa Industries (NASDAQ:KLIC), NVIDIA Corp. (NASDAQ:NVDA), and United Microelectronics Corporation (NYSE:UMC).
Another big deal at CES was the many new electric vehicles (EVs), like the Chevy Silverado pickup. Sony is also getting into the EV business, and the Mercedes Vision EQXX offers a 620-mile range.
All of these new EVs are still two or more years away from production due to an acute shortage of lithium-ion batteries. In fact, even though Ford is now in the process of almost doubling the production of its F-150 Lightning, it still cannot compete with Tesla. The reason is that Tesla’s Shanghai plant is making EVs with less efficient but cheaper iron-phosphate batteries made by CATL. In the U.S., Tesla is still utilizing Panasonic’s lithium-ion batteries, but CATL’s batteries increasingly dominate its international sales. Right now, Tesla’s competitors are waiting for the production of lithium-ion batteries to increase, so they are losing potential EV sales until battery production catches up with demand.
America’s appetite for electronics will not diminish – and that will fuel NASDAQ and the tech recovery.
This appetite for new technology also likely caused the trade deficit to soar in November. The Commerce Department reported last week that the trade deficit rose to $80.2 billion in November, nearly reaching an all-time high. Imports surged 4.6% in November, while exports rose by only 0.2%. The good news is that this robust consumer demand is positive for GDP growth.
The Atlanta Fed revised its fourth-quarter GDP estimate last Tuesday to an annual pace of 7.4%. Combined with strong U.S. dollar windfall profits for multinational stocks and this is setting us up for a truly outstanding fourth-quarter announcement season.
As any stock market climbs higher, the leadership typically becomes narrower, so the institutional buying pressure is anticipated to chase fewer stocks as year-over-year comparisons become more difficult. Fundamentally superior growth stocks are poised to continue as market leaders. Superior fundamentals are very important as the stock market becomes more selective. We have seen many stocks appreciate in excess of 100% since 2020 and many more growth stocks should break out in the upcoming months.
What was most impressive about the latest NASDAQ rallies is how growth stocks rebounded on light trading volume, which brings up the question of how well they will perform on higher trading volume.
You may wonder why so many companies with strong cash flow also float so many robust corporate bond offerings. It’s because companies can borrow at interest rates that are well below the rate of inflation and then turn around and buy back their own shares for a greater return on equity. Wall Street does not care if it sells stocks or bonds. Despite all the news reports that some billionaires (like Tesla’s Elon Musk and Microsoft CEO Satya Nadella) are selling a record amount of stock, stock buy-backs also hit a record high in the third quarter and were also likely strong in the fourth quarter. New stock offerings will likely suffer, but corporate bond offerings will likely remain robust, so stock buy-backs are expected to remain strong.
Easy Money
This year is expected to be characterized by a passive Fed that will keep Treasury bond yields well below inflation. Although the Fed is expected to increase short-term interest rates, based on the Federal Funds Rate, from 0% to 0.75%, the fact that interest rates will remain well below inflation should cause millions of new investors to turn to the stock market in search of inflation protection as well as higher yields. In other words, this “Goldilocks” environment of low-interest rates and steady growth is expected to persist.
Although the Fed is in the early innings of their Modern Monetary Theory (MMT) experiment, their massive money printing has yet to cause interest rates to rise much. We still have higher rates in the U.S. than Europe or Japan, which attracts foreign capital and helps strengthen the dollar. International buying pressure represented 69% of the bids at the most recent 10-year Treasury auction, which is one reason why the Fed can reduce their quantitative easing.
Bunny Stocks
By late 2022, the stock market will become increasingly distracted by the mid-term elections, after which the leadership in Congress is expected to change. Then, if the Biden Administration decides to cooperate with the new Congress, like Bill Clinton did, that could save Joe Biden’s legacy. Wall Street usually loves gridlock. That means the political environment should soon be much more favorable for growth stocks.
This is a good time to remember that small- to mid-capitalization growth stocks are “bunny stocks” that typically “hop” around at quarterly announcement time, so I fully expect that our patience will be rewarded in the upcoming weeks as wave after wave of better-than-expected results are announced.
Navellier & Associates owns Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), Ford (NYSE:F), KLA Corporation (NASDAQ:KLAC), Kulicke & Soffa Industries Inc. (NASDAQ:KLIC) and United Microelectronics (NYSE:UMC), in managed accounts. One client owns Tesla (NASDAQ:TSLA), per client request in managed accounts. Louie Navellier and his family personally own Nvidia (NVDA), Microsoft (MSFT), Ford, (F), Kulicke & Soffa Industries Inc. (KLIC), and United Microelectronics (UMC), via a Navellier managed account and Nvidia (NVDA) in a personal account, but do not own KLA Corporation (KLAC), Tesla (TSLA).
Coffee Beans
Traffic on a North Carolina highway was brought to a standstill when a herd of elk approached the road and decided to cross. Elk are native to the area, but populations dwindled due to over-hunting by European settlers in the late 1700s. The National Park Service started to reintroduce elk to the region in 2001. Source: UPI. See the full story here.
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