Advanced Micro Devices (AMD) was the best performing stock in the S&P 500 for 2018 with an almost 69% gain. Tony Mitchell first bought AMD in October 2014 at $3.45. At today’s price of $20.77, Tony has made a lot of money for our clients with AMD but he’s not selling because he sees a lot more upside in 2019.
Ken Kam: Last year you said you were confident that we will see AMD breakout to new highs. You were spot on as AMD more than doubled after that, hitting a high of $34.14 less than three months later. However, I am a little surprised that AMD is your top pick for 2019 since it has fallen back to $20.77.
Tony Mitchell: AMD was up almost 69% last year. While you don’t often see a great performance like AMD had in 2018 followed by another great performance in the following year, there are a lot of reasons to keep believing in AMD and some positive technical indicators as well.
While I value fundamentals first, I like to validate the timing of purchases with technical indicators and in this case, there is also the fact that AMD actually fell 45.9% off its high to close the year at $18.46.
Irrational exuberance on the way up turned into panic selling on the way down which I believe left AMD more oversold than many other tech stocks.
Kam: What are some of those fundamental reasons that have you feeling so good about AMD in 2019?
Mitchell: The biggest reason is their new products. AMD has three new chips that will start shipping in 2019, all based on the new 7nm technology that packs more transistors on smaller chips. Each of these has the ability to take significant market share from competitors in the server, pc and graphics areas.
AMD recently previewed its 3rd generation Ryzen CPU chips at the Consumer Electronics Show (CES) which are smaller and more power efficient, taking aim at Intel’s share of this business. These chips will be launched in the middle of this year, as well as the EPYC server chips. AMD also unveiled its latest graphics chips, the Radeon VII targeting Nvidia’s share of this business, and these will start shipping in early February.
Kam: Intel was relatively flat in 2018 losing about 2.5% and Nvidia lost 40% of its value in 2018. Given their losses and AMD’s gains, don’t you think there is a chance that they rebound more in 2019 than AMD?
Mitchell: Intel has had production delays with its 10nm based chips, and they are currently in search of a CEO. While the choice of the CEO could move Intel in either direction, the possibility of the new CEO “kitchen sinking” a quarter or two and blaming it on falling behind in 7nm technology could be in play. Intel may be lucky to not fall further in 2019 between the lag in technology and the change of a CEO.
Nvidia also has a few problems to overcome as many users reported problems with some of their GPUs, including graphics artifacts, frequent crashes and the hardware not working at all. These issues with Intel and Nvidia are all the more reason that AMD may explode to the upside again this year.
Kam: Are there any other reasons that you like AMD so much?
Mitchell: The CEO, Dr. Lisa Su is evolving as a great leader and is building great partnerships that will grow their business and brand equity.
AMD has gained major contracts such as the recent announcement that Google would be partnering with AMD to use its Radeon Graphics chips on its new video game streaming service. It has also been reported that AMD is a partner in the cloud with Microsoft and Amazon.
More importantly however is the statement that Lisa Su made after her keynote speech at CES, in which she said that there is an incredible need in the next 3-5 years for more semi-conductor content for both data and device usage. She also acknowledged the slowdown in China, which I believe is factored into the price. Additionally, AMD is expected to grow earnings by 50% in 2019.
Kam: You mentioned technical indicators – what do you see there?
Mitchell: There are a number of technical indicators that are bullish for AMD including:
- AMD outperformed the market over the last 50 days
- There has been more volume for AMD on up days than on down days
- AMD has been trading above its 50-day moving average
- Money flows are very positive for momentum traders and extremely positive for a short squeeze
Kam: Your fund had a nice margin of returns above the S&P throughout most of 2018, yet that margin narrowed substantially in the 4th Quarter. What was your thought process as the market was falling?
Mitchell: 2018 was brutal. Even though I finished ahead of the S&P, it felt like I was coaching a team in the Super Bowl with a 28-10 lead at halftime and barely came away with the win.
Sometimes there isn’t much one can do when the market craters like it did in the 4th quarter of 2018. Most of us expected continued rate increases, but almost nobody expected Jay Powell to come out with statements so adamantly hawkish. As if that wasn’t enough, we had the added fears of the trade war with China, and the elections.
The only good time to sell is when markets are still rising and although I did some selling as the market keep rallying, in hindsight I certainly wish that I had sold more. But, all the great investors will tell you that you nobody can time the market, and over the last 18 plus years, picking the right stocks and riding out the downturns has proven to be a winning formula for my portfolio.
My Take: Although 2018 wasn’t one of his best years, Tony Mitchell’s Internet fund lost just 0.61% outperforming the S&P 500’s loss of 4.38% even though many tech stocks like Apple lost 30% or more in the 4th quarter. Many aggressive investors can outperform in a bull market. However, few aggressive investors have been able to beat the S&P 500 when the market heads down.
Tony Mitchell’s Internet Fund has an 18+ year track record that extends through 2 market crashes, numerous corrections, and sector rotations. Over that period, Tony averaged 16.81% a year which compares well to the S&P 500’s 5.55% return for the same period. Over the last 10 years, Tony’s fund did better than the top U.S. equity mutual fund manager in Morningstar’s database.
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