Last Friday, an SMC subscriber asked us to share our take on Nvidia Corp. (Ticker: NVDA).

NVDA has made a parabolic run over the last week, surging from $15/share to now $20.28/share.  Many Stock Market Companion subscribers will remember that we made our purchase of NVDA at approx. $10.18/share in early September and exited in the $11 area, securing our +10% profit as the stock came pulling back sharply.  The stock was down from its $18.70 level last January, due to concerns that Intel Corporation was eating its lunch.

The advance this fall has been on the anticipation of NVDA’s success with their processor chips for smart phones – which we anticipated – but did not get back in on after the stock’s sudden move from $12 back back down close to our original entry. Yesterday was a crowning moment for NVDA when Intel Corp. announced that they had reached a $1.5 billion licensing agreement with NVDA! It appears that NVDA is gaining strong ground in the smart phone and tablet PC markets.

Here are our summary thoughts on NVDA –

1. PHOOEY! We wish that we had gotten back on the horse when the stock recovered from its decent into the mid $10’s and stabilized at the end of October.  When we are profitable on a stock, we do not like to give back all our profits, so our original exit was ok.  The stock retraced almost entirely back to our buy point.  We simply needed to be more open to the idea of getting back on board – much like we did recently with Ford.

Unlike Ford, with chip companies you never know for sure if their product is still relevant or being designed around and eliminated.  That is why NVDA went from $18.77/share in January 2010 to $8.30/share in August.

We will never forget how AMD Corp. was the stock to own from mid-2005 into early 2006, moving from $13/share to $42/share.  It then sank like a rock until it hit $2.41/share in early 2009.  It made a round trip back down to $13/share by early 2007 – so it wasn’t just the financial meltdown that caused the casualties.  AMD is a leading micro-processor manufacturer – second only to Intel.  So if AMD can disintegrate from $42 to $13 in a year – during which the overall stock market was favorable – you can understand why we are cautious with chip stocks.  This doesn’t mean however that we aren’t interested in owning them and running them hard.  It just means that we are careful.

2. Right now NVDA is basically back where it started +10% last year in terms of stock price.  We need now to keep an eye on it and see if it builds a lateral consolidation from here.  As prudent and successful stock investors, we cannot simply buy a stock that has gone vertical over the past months and hope that it goes higher from here.  That would be foolishness.

Speaking about chip stocks, we do like how RF MicroDevices (Ticker: RFMD) moved up higher above $8/share on nice volume and consummated its extension above multi-year resistance in the $7.50/share range.

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Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the counsel of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

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