Welcome to the weekly mailbag edition of The Daily Cut.
This is where we feature your most pressing questions alongside answers from our Legacy Research experts.
So if you have a question for Teeka Tiwari, Jeff Brown, Nomi Prins, or any of the other members of the Legacy Research team, send them to feedback@legacyresearch.com.
Coming up, are electric vehicles as environmentally friendly as folks think?
But first, a question for Jeff, Legacy’s tech investing expert.
He’s a Silicon Valley insider and early-stage tech investor who worked for about two decades in Asia for semiconductor companies NXP Semiconductors (NXP) and Qualcomm (QCOM). He was an executive at both.
Jeff’s Near Future Report tech investing advisory subscribers have had the chance to make 417% on chipmaker Nvidia (NVDA) so far.
And his recommendation of Taiwan Semiconductor Manufacturing Company (TSM) is up 141% in the model portfolio.
But tech stocks have been under heavy fire during the recent sell-off.
And semiconductor manufacturers – aka chipmakers – have been caught in the downdraft.
Now, one reader wants to know if and when demand for semiconductors will pick up…
Reader question: Hi, Jeff. You have remained extremely bullish on semiconductors. Over the next 5 to 10 years, I am sure you are correct.
You discussed supply disruptions and the technology shock. Never did you anticipate that chipmakers would fall 50% and more – like Advanced Micro Devices (AMD), NVDA, ASML (ASML), etc.
Could you please comment on this and project what you believe will happen to the semiconductor industry?
– Gordon E.
Jeff’s response: Hello, Gordon. Thank you for writing in. Your question highlights an important nuance when investing in the stock markets.
As I’ve written recently, the semiconductor industry has been releasing some incredibly bullish signals…
Last month, Taiwan Semiconductor – one of the most important companies in the industry – announced it expected its revenue to jump “at least” 30% this year. And that comes just two months after it had guided to mid-to-high-20s growth.
TSM is also spending $44 billion this year on capital expenditures, primarily to build more manufacturing capacity. That means that its outlook is bullish not just this year, but for years ahead.
The company followed up all this good news by sharing its path to more advanced chips… which it expects to achieve by 2025. TSM wouldn’t be advancing this quickly if it weren’t seeing demand and economic growth.
TSM is a bellwether for the semiconductor industry. As all this growth, investment, and impressive performance shows, it’s powering ahead at full steam.
But to your point, so far this year, its TSM shares are down about 26% along with the rest of the market. Other companies that you pointed out, like NVDA, AMD, and ASML, have fallen too.
Nothing has changed with my investment thesis. But it surprised me how the market has punished such high-quality growth companies. This hasn’t happened in just semiconductors, but throughout stocks.
The good news is this market environment won’t last.
These companies continue to invest and grow. Once institutional capital returns to the equity markets and growth companies are valued appropriately again, we’ll see higher prices.
There is one soft spot that has emerged in the industry, and that’s related to PCs and smartphones.
The rising costs in gasoline, food, and electricity have reduced discretionary income. That has softened demand for things like laptops, desktop computers, and smartphones. Consumers can hold off for another six months or a year until things improve before buying new ones.
Demand in other areas of the semiconductor industry remains strong, though. Even silicon wafer suppliers have their orders booked out through 2026 to 2028. They can’t manufacture enough to meet the current demand.
There will be some volatility along the way, but the multi-year trend is bullish.
Next, a question for Nomi. She’s a former Wall Street investment banker and the newest member of the Legacy Research team.
Since leaving Wall Street, she’s been helping ordinary investors navigate the distorted markets central banks and governments have created.
She does this by following the money from Washington to investments on Wall Street.
And a lot of that money is flowing into the shift to clean energy – what Nomi calls the New Energy sector.
As we’ve been hammering on here at the Cut, electric vehicles (EVs) are key to this transition. So Nomi has been showing her readers how to play this trend to profit.
But this reader says EVs aren’t as environmentally sound as they present themselves…
Reader comment: Internal combustion engines waste almost all the gasoline that goes into them. Most of the energy extracted from the gas is given off as waste heat.
EVs are a little better. They don’t give off nearly as much waste heat. And they don’t emit much in the way of gases.
But there are a lot of gaseous emissions generated at the power plants that produce the electricity they need to run. EVs are far from being “zero emission,” as Biden claims!
– Thomas R.
Nomi’s response: Hi, Thomas. Thanks for writing in. You’re right. EVs run on electricity that largely still comes from fossil fuels in many parts of the world. I’d also add that manufacturing the vehicle – and, specifically, the battery – takes energy.
But while EVs aren’t exactly zero emissions, they’re far cleaner than fossil-fuel-powered alternatives. Not just a little better.
EVs produce considerably lower emissions over their lifetimes than conventional vehicles.
Take the Nissan Leaf. It’s long been one of the world’s best-selling EVs. It had global sales totaling 577,000 vehicles by February 2022.
A 2019 study showed a Nissan Leaf’s lifetime emissions were about three times lower than those of the average fossil-fuel-powered car.
Plus, studies have shown that the total indirect emissions from EVs pale in comparison to the indirect emissions from conventional vehicles.
One came from the Argonne National Laboratory, a U.S. Department of Energy multidisciplinary science and engineering research center. It found that between 2011 and 2019, EVs offset 1.4 billion gallons of gasoline consumption.
Even when factoring in carbon dioxide emissions from electricity consumption, EVs have reduced emissions by 6.9 million metric tons.
And with hundreds of billions of dollars earmarked for clean energy development worldwide, it’s a safe bet that these figures will continue to improve over time.
We wrap up today with a hopeful message about the current market volatility.
Master trader and friend of the Cut Jeff Clark has had some of his biggest wins in market environments like this.
He unveiled a new trading strategy to take advantage of volatility in a free online briefing last week.
It involves a signal you can use to spot triple-digit trades in advance.
And it’s already handed Jeff’s subscribers the chance to make 300% in just 48 hours. That gain came from one trade – a play on banking giant Citigroup (C).
Those who followed Jeff’s advice have been sharing how grateful they are for Jeff’s guidance.
Keep in mind that not all these readers earned the exact gain Jeff logged in the model portfolio. Some bought and sold at slightly different times.
Here’s a small selection of their thank-you notes…
Reader comment: I was able to take advantage of the 300% trade!!! Would like more like that, please.
– Deborah C.
Reader comment: I made 275% on the Citigroup trade in two days. Very happy with this!
– Paul G.
Reader comment: I made 348% in 48 hours from this trade suggestion. Terrific! I appreciate Jeff’s insights and hope to profit more.
– Dawn M.
Reader comment: This may be the best percentage gain I’ve had on any trade. Great job, Jeff and team. Thanks for sharing your knowledge so a novice like me can learn and succeed. Can’t wait for the next recommendation.
I really enjoy your explanation about why you like each trade and the criteria you used to choose it. I’m really excited to make more money and become a much better trader by following you. Thanks again.
– Sean O.
Reader comment: I have been a Delta Report subscriber for years. I appreciate your daily pragmatic, thoughtful analysis of the market.
I am very excited about your new strategy.
I was unable to enter your Citigroup recommendation, as I saw it too late. Instead, I entered a slightly different trade. I felt confident doing this based on all the education you provide.
That trade went from $0.29 to $1.90, up 555%.
Your teachings and recommendations are invaluable to a retired guy trying to generate wealth in a volatile market.
– Rudiger W.
Here’s the link again to watch the replay of Jeff’s briefing. He gave away three stock recommendations each worth a potential $10,440 or more.
That’s all for this week’s mailbag.
If you have a question for anyone on the Legacy team, send it to feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
July 22, 2022