If someone tells you that equities right now “kind of look like they’re whistling past the graveyard,” it’s bound to sow some discomfort. And if that someone happens to be quant investing guru Cliff Asness, maybe discomfort is a mild term – alarm might be of better use here.
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In any case, that is how the billionaire feels about U.S. stocks at present. He recently proclaimed that he would rather park his cash elsewhere. Due to the returns on offer, Asness believes U.S. Treasuries are where it’s at, claiming he’s “more of a bond than a stock guy at this point.”
Does that mean the cofounder of AQR Capital Management – a company overseeing over $100 billion in assets – has entirely given up on stocks? Not exactly. The investing sage has still been cherry-picking the best names as he sees fit, and during Q3, he snapped up shares by the bucket load of two very different segment leaders – Nvidia (NASDAQ:NVDA) and ADM (NYSE:ADM), specifically.
Evidently, Asness sees these stocks cutting through all the market noise, and he is not alone here; turning to the TipRanks database, we find both are rated as Strong Buys by the analyst consensus. Let’s see how Nvidia and ADM have attained that status.
Nvidia
Asness might say he sees better value elsewhere than in stocks at the moment, but he’s still keeping a foot in the market and doing it in a similar fashion to how others have done it this year: by loading up on Nvidia stock. During Q3, the billionaire purchased 224,039 shares, amounting to a 20% increase in his NVDA holdings and bringing his total haul to 1,374,486 shares. These currently command a market value of $661.6 million.
It’s not much of a brain twister to work out why Asness is leaning so heavily into shares of the chip giant, even if they are up by a mighty 235% year-to-date. There’s good reason for those gains as the company has been a prime beneficiary from the rise of AI. While Nvidia has its fingers in many pies – gaming, crypto, automotive, to name just a few – it has been the growing need for Nvidia’s Data Center offerings – or specifically its best-in-class AI chips – that has fueled some incredible growth this year.
All the calendar 2023 earnings reports have been beat-and-raise affairs with massive growth on tap. In the recently reported fiscal third quarter, driven by record Data Center revenue of $14.51 billion, total revenue climbed to $18.12 billion, amounting to a year-over-year increase of 205.6%. The figure also came in ahead of Street expectations by $2.01 billion. Likewise on the bottom line, adj. EPS of $4.02 beat the analysts’ call by $0.63. And moving forward, for the fiscal fourth quarter, Nvidia sees revenues hitting $20 billion, plus or minus 2%, some distance above consensus at $17.82 billion.
For TD Cowen’s 5-star analyst, Matthew Ramsay, it’s hard not to be impressed by all on offer at the semi firm.
“NVIDIA’s results and guide leave us more confident that NVIDIA remains the leader in accelerated computing,” said Ramsay. “NVIDIA commands diverse underlying growth vectors, underpinning its transformation from a GPU hardware company to the accelerated computing HW/SW platform provider. We believe the CPU/GPU/DPU combination of Grace/Hopper systems positions the company to sustain strong Datacenter growth in the coming years. While valuation is above core semis, the suite of superior technology, long pedigree of innovation, and extensive growth-oriented investments should allow for strong, sustained, above-peer growth across a widening set of verticals.”
These comments underpin Ramsay’s Outperform (i.e., Buy) rating on NVDA, while his $700 price target implies further share appreciation of ~46% in the months ahead. (To watch Ramsay’s track record, click here)
The rest of the Street is hardly less bullish. Bases on 29 Buys vs. 3 Holds, the stock claims a Strong Buy consensus rating. Going by the $660.90 average target, a year from now, shares will be changing hands for ~38% premium. (See Nvidia stock forecast)
Archer Daniels Midland (ADM)
Our next Asness pick could hardly be more different. Archer Daniels Midland Company is a global leader in the agricultural processing industry, playing a pivotal role in transforming crops into essential products for food, animal feed, industrial, and energy uses. With a presence in over 170 countries, the company engages in the procurement, transportation, storage, and processing of a wide range of agricultural commodities, including soybeans, corn, wheat, and cocoa.
Founded in 1902, ADM has evolved from a small linseed crushing business to one of the largest agricultural processors and food ingredient providers in the world and is known for its innovation in creating value-added products and sustainable solutions in response to the dynamic demands of the global market.
That said, it hasn’t all been plain sailing in recent times. The company’s recent Q3 report was a mixed affair. Revenue fell by 12.1% year-over-year to $21.7 billion, while also falling shy of Street expectations by $1.94 billion. However, there was better luck at the other end of the spectrum as adjusted EPS of $1.63 outpaced consensus by $0.09.
All told, the shares are down by 15% this year but Asness has evidently saw an opportunity here. During Q3, he bought 683,984 shares, upping his stake by 32%. Asness now holds 2,864,305 ADM shares, which are currently worth more than $211.53 million.
For Stifel analyst Vincent Anderson, the bull thesis is boosted by ADM’s recently announced partnership with Solugen, whereby the industrial biotech company will build a full-scale production unit at ADM’s Marshall, Minnesota corn processing complex.
“ADM’s strategy of continuing to diversify its business model by leveraging its significant processing and logistics assets warrants a reminder amid the current volatility in its traditional businesses,” Anderson explained. “In our opinion, the partnership with Solugen, if successful, should serve as a poster child for similar arrangements that, unlike the significant lift of building a Nutrition portfolio from the ground up, are immediately synergistic and provide long runways for outsized growth in the future.”
“Further,” Anderson went on to add, “we particularly favor Solugen, which, from among the public and private industrial biotech companies we have studied, has had one of the most mature strategies with regard to market selection and commercial strategy since its early days.”
Quantifying his stance, Anderson rates ADM shares as Buy, backed by a $116 price target. The implication for investors? Upside of 56% from current levels. (To watch Anderson’s track record, click here)
Looking at the consensus breakdown, 6 Buys and 2 Holds have been issued in the last three months. Therefore, ADM gets a Strong Buy consensus rating. Based on the $93.38 average price target, shares could surge ~26% in the next year. (See ADM stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
