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This is the Value Investor podcast with Tracy Reinek. All things value all the time.
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Welcome back value investors. So I had a whole show planned for today where I was running a bunch of screens, you know, obviously value screens, trying to find value stocks that are in the red hot AI area. Because even as value investors we still want to be in this trade and I do encourage all value investors to be in it. But is there value or do we just have to say, oh, we're going to be growth investors right now in this, in this area, which I have talked about in the past, that sometimes value investors don't have to be 100% and you know, the classic value type stocks with the PE under 15 and all of that, but that you can find value components and in some stocks. But we don't want to overpay for our companies either, even in a red hot type of environment like we're having with AI. So what's a value investor to do? I took it upon myself. I threw out the other show I was going to do looking around in these various screens for AI stocks. Those were as I said, all value screens and use things like price to sales ratio to find the value. It did have a growth component. I looked at PEG screens to try to see if I could find some AI stocks using the peg, but really I, I could not some that I thought maybe this might be one. And I looked at a lot of companies that I haven't looked at before, thinking they might be hidden AI stocks because we're finding a lot of those now, the old economy stocks that are now involved in building out the data centers in some way, you know, especially on the power generation side. But this just wasn't happening. So I decided to, you know, rewrite what I was covering today and to just look at the well known AI stocks to see if there's any value there and to come up with the cheapest AI stocks on a fundamental basis that us value investors could still realistically get in. And we're not like oh this is okay, it's not that expensive, but it still is hard. So things have been stretched even though earnings are on the rise. And with value investing it does depend on what kind of fundamentals you're looking at. If we're using pe, it's a little bit easier to find cheaper AI stacks. Again, none of these are dirt cheap or you know, screaming values, but some have some interesting P E ratios on the price to sales. That's going to be a lot more difficult because those sales are more expensive now. So we are going to pay up for the sales peg. Like I said, I've run some of those screens and I wasn't finding what I wanted to find in the peg either because remember the peg has to be one or less. And even with the earnings on the rise, the prices on these stocks have risen too. So we're not really getting that dirt cheap peg, although there are a few exceptions. So we are going to talk about at least one that does have the value peg. But otherwise it is is more difficult now and we are kind of waiting for a pullback. And what I tell the investors all the time in the Zach's Value Investor portfolio, which has several AI stocks, the AI infrastructure type stocks and they've had huge runs, the earnings are on the rise, but they're no longer even just semi expensive. They are very expensive here. But, but what I always tell them is that there's always been pullbacks. Since 2023 when the AI revolution took off, all of these stocks, including Nvidia. Nvidia just went sideways for the last six to seven months. There's always chances to get a stock a little bit cheaper again. You're probably not going to get it dirt cheap, but you will get pullbacks. Pullbacks are healthy. I get nervous when we don't see the 5 to 10% pullback in these red hot stocks. So we will get one again. Even though I know many of you have fear of missing out, it pays to be patient. And you could have been buying in video the last numerous months as I said. And you know the E was still rising so you were actually getting it cheaper even though it didn't have quite as big of like a sell off as you might have hoped. But by sitting there and treading water it did get more attractive. So we are going to talk about Nvidia today. Not surprising, but it is one of the cheapest of the AI stocks. Now it's kind of being dissed. I don't know about you, but a lot of people kind of looking down on it now because of it treading water in the recent months. And so for those who are momentum investors, it wasn't like the place to be for them. And so people are kind of like me. Nvidia's over now, we don't really care. But it is about to report earnings again. And as I've said since 2023, you can't really keep Nvidia down for long. Jensen has a well run machine there right now and we're still seeing just tremendous growth levels. Especially given the last couple of years. And as I keep saying, Nvidia is doing things that we will not see another company do again probably in our lifetimes. Although you may live long enough to see somebody do it in a couple decades again from now. But this has just been a tremendous ride. I don't think it's over yet. And it is fairly attractive here as I said on a valuation basis and certainly among its peers on the semiconductor side it has gotten more attractive. So what is going on with Nvidia? Why do I include it here? It actually has a fairly low PE ratio and Nvidia has traded around 40 times on its forward P E for years. Even before the AI happened when they were just known for gaming chips and things like that. They were always trading with a premium up there, around 40 to even 50 times. And then when I hit it was still trading at the premium around that level. But it has gone into the 20s now and I do consider that to be very attractive for, for a company with this kind of growth profile. So we're not overpaying for Nvidia here as long as they're doing what they are showing that they're able to do. They also have a PEG ratio of just 0.69 right now and it's been under 1 for a while. But this has gone down again as the stock has treaded water here. So the, the price has not been rising but the earnings have. So it's brought that PEG ratio down. Now I'm not going to sit here and say it's cheap on any other fundamental price to book is at 34. Price to sales set 24. We know that that's crazy and super high and will not stay for forever. But these other components are still attractive. So as a value investor I am willing to buy these earnings at 27 times. And what's going on with those earnings? Well, we're in the middle of fiscal 2027 with Nvidia. So they're on the the fiscal year and earnings are expected to be up 70.4% now this year after rising 59.5 last year and then 130% the year before that and then 293% the year before that, which was 2023, the breakout year. But you would think it would slow after doing these tremendous numbers with a market cap of 5.5 trillion now. But no, it's not really slowing. So we're in this fiscal 2027 next year which will be starting in the second half of this year. We're looking at further earnings growth of 33.3%. So you might say, oh, it's finally starting to come down. But everybody has been cautious on the analyst side waiting to kind of see where things shake out because as I've always said about Nvidia, the last few years event it will slow, but it hasn't. So I was a little early and I'm predicting it would slow from these growth rates, but it really isn't. We still see some earnings estimates being increased for this fiscal year. One is higher just in the last week right now ahead of their upcoming earnings report. So we're now looking for 8 13. Just three months ago they were looking for 736. So even within just the last quarter it's on the rise again. Most accurate estimates are more bullish now than the Zack's consensus. So they're getting a little bullish as I mentioned ahead of this earnings report which is coming on May 19th I believe. No, May 20th, sorry, May 20th. So can they do it again? It's looking very bullish in the earnings estimates. The again the valuations are not super extreme. The stock has busted out again to new all time highs. So we're finally out of that range, the six month range. But over the last six months, thanks to the recent breakout, it's now up 20%, 20.4% in the last six months. But it was tracking the S&P 500 until just basically the last week or so and that is up 9.2%. So still a decent return in six months to get nearly 10%. But over the last month Nvidia up 19%. S&P has been on this great run since the March 30 lows during the Iran war and it's up 8.55 day return, 8.3% now with Nvidia and the S P is up just half a percentage and I'm recording this on May 13th so it's starting to break out again and I do consider this to be a good time to get in Nvidia and we'll see what happens with the earnings. But nobody is gonna, you know, think that Nvidia is not going to continue to execute and bring it when it reports earnings. So we've got the breakout again. PE and PEG are cheap. That's enough for me. If I'm a value investor looking around for the cheapest of the AI stocks, Nvidia is still at the top of the list. So that's Nvidia nvda. Now I looked at A lot of the infrastructure stocks and these are some that I've covered here on the podcast in prior years when we were also looking for the cheapest of the AI stocks. And those stocks are just too expensive right now as I mentioned earlier, so we couldn't really fit them into the show. Although let me see. And these would be on the construction side like a mass tech. They're just have really run after this recent earnings report and while earnings and sales are on the rise, it's just not enough. No, I was just looking at, you know, some of the cooling stocks and they're all still pretty stretched here. Like I said, we're waiting for pullback. We aren't really getting it yet. So we'll see what happens to some of these valuations when we get that 5 to 10% pullback. But the other cheap stocks, the cheapest might be the ones that surprise you the most on this episode more than Nvidia is that the two of the hottest stocks out there are actually two that are the most attractive for value investors and that includes Micron Ticker mu. We've talked about it as when to sell a stock should we be selling Micron. But I talked about how it is attractive here with a forward P e of just 13. So even though it has had this crazy run and it continues to have this run Micron because it is a cyclical and those earnings are still rising just faster than the price is going up, then we're still getting a attractive PE ratio at least. See, it's got this X number one rank. It's on a completely different fiscal year. So it's not going to report earnings again until June 24th. So we have to wait until June to find out anything further. But earnings estimates are on the rise again in the last week with Micron we're seeing one higher for this fiscal year and for next year we're looking for 5846. Now for this fiscal year that's up from 3386 in just 90 days. So incredible growth also with Micron on the memory side. And then next year one is higher. As I mentioned, we're looking for 9805. That's up from 4623 in just 90 days. So this year we're looking for 605% earnings growth. As I laugh again. 58.46. They made 829 last year. This is a cycle, we're obviously in it and the stock will look cheaper even with this pe rising when we're in this kind of cycle. But I still consider it to be attractive here. PE is at 13, like I said, and so that's obviously a value PE, but what about the rest? What else is going on? Price, price to book 11.11.9. That's cheaper than Nvidia, but that's not saying much. Price to sales 14.8 again, also cheaper than Nvidia by a lot, but still above that key 10 level. So all of that is stretched, but we don't care because the P E is pretty cheap. So we're keeping our eye on that metric. But I'm still waiting for some kind of pullback. We're not really getting it with Micron on the actual shares and so it's a little too hot for me to even handle, but it is still on a P E basis, among the cheapest. So what are we looking at in the last month? Micron up 93% again, Nvidia up about 20 in the last month, last five days, Micron up 22.9, Nvidia up just 8. And the S P 500 a half a percent. So we did have a little bit of a pullback yesterday, May 12, but it even rallied off of that pullback. So it's just everyone wants to be in Micron. So in that way it's not very much like a value stock. It's on everybody's radar and nobody is hating on it. Not yet. But it is among the cheapest on a PE basis. And then what about its partner in crime right now? Sandisk? Sandisk is the other red hot for this year and I took a look to see what's happening with its valuations because that stock is even hotter, I want to say, although it's. It's calmed down a little bit in the last week. It's up only 3.6% in the last five trading days. Over the last month it's up 60. It has had a little mini pullback here. And then year to date up 422%. Micron's up 154. Nvidia seemingly normal here at 18.9. That's normal, right? And then S P is up 8 now, year to date, even with the Iran war sell off, we're still. We're back. We're back to pretty good growth on the s P. So SanDisk went public again in 2025. It was spun off of Western Digital and so we don't have data going back as much, but 2026 estimates are looking for a gain of 2077 percent on the earnings. But even with this tremendous gain where the shares are up, you know, over 3,000% or let's see over in the last year. Yeah, 3,300 DOL, 118% now versus Micron, up 729% in the last year. Nvidia, interestingly, even though it's been treading water and kind of trading sideways, is now up 73% in the last year. So not too shabby if you've been kind of hanging on and sitting there in it. The S and P is up 25 in that period. So SanDisk, we know it's been this tremendous winner, but the PE is not that stretched, even with the stock soaring up at 22 times because we do have the strong growth with the E side. So we're looking at 6,512 for this fiscal year. It's also on the fiscal year and that's up from 3,767 just 90 days ago. So it's mirroring Micron and what's going on there next year. Next fiscal year we're looking for 177 71. That's up from 89, 75. In any situation, these numbers would be crazy and they certainly are here, but in a good way. If you're looking for that earnings growth, obviously it's a growth stock. Not going to deny that, but we do have a decent P E with it because it does have this tremendous growth going on. So it made only $2.99 last year and it's supposed to make 65 12, what can we say? But it does have these interesting valuations going on. Right? Obviously an A for growth, an A for momentum. It's got an F for value, but it is among the cheapest. So price to book is at 15 that stretch, as we can see. Price to sales 16.3. That's more expensive than even Micron, but it's under Nvidia. So am I saying this is cheap? No, but on a P E basis it's pretty attractive here. Western Digital itself is trading with a price P ratio of 48 right now. And that used to be dirt cheap stock where you could get it for like eight times. It was showing up always on our screens here. We've covered it many times and it was always just kind of boring and out there and nobody cared until now when it's at all time highs and soaring. But you can see the difference between like a SanDisk, which is at 22 times, and Western Digital at 48 times times. It's also expected to grow earnings 103% this year. Estimates are on the rise sharply there too. But price of sales at 14, that's very stretched. Price to book at 17. So if I'm choosing between SanDisk and Western Digital, SanDisk on a PE basis is half the price basically much more attractive than Western Digital is at this level. So as value investor, I'm not that interested in Western Digital here. Growth you can have at it. You don't care about the PE price to sales, all of that. You are buying that earnings growth and the sales growth, which is, you know, double digits, 35% expected this year, 34 next year for Western Digital. So all of this, we know how good the story is. That's why we're interested in it even as value investors. But try to get it as cheap as you can. And some of these that get kind of out of favor, like an Nvidia, you know, that's not the shiny new one anymore. It is Micron and sandisk. As the shiny new AI plays. Look at a stock, let me just see what's going on with like some of Nvidia's partners because they, they usually do move in tandem. Okay, just looking at like a Vertiv, which I also own in the value investor. So we have a PE of 57 with furtive. Now nothing says cheap about that. We need a bigger pullback to get it just a little more, you know, attractive here. Price to sales is at 13 times now. Price to book is at 33. It has the tremendous growth as well. It's not doing 100% anymore, but it is mirroring closer to Nvidia and earnings expected to be up 52% again this year after 47% last year. So it is actually executing and doing what it should be doing. But there's just no doubt as this stock continues to hit new highs as well that this is a much pricier stock here than a couple of years ago. So we're in the growth phase of the AI, but there's still pockets of interesting stocks that are out there. And so we're looking for them. Try to find those that maybe aren't hitting new all time highs at the moment. I can't think of any area that really isn't maybe on the cooling side, but even like Comfort Systems has been hitting new highs. I'm thinking of like an Eaton that has more than just data center cooling and so it's a little bit slower growth. So Eaton ticker ETN is trading at 30 times but you don't have the growth component to say oh that's pretty cheap because it's earnings are expected to be up 10.4% this year and 17% next year. Both of those are super solid. Love to see it double digits. This company's been around for decades but when I get the PE of a 30 on just 10% earnings growth, I'm not that interested. I need to have the, the more bigger growth for me to pay up for those earnings and it's just not there. If I could get this at 20 times I'd be more interested in Eaton. That would be more attractive to me as a value investor. But it's just not. It's a little overextended here for me with that kind of growth rate. But I continue to have some of these on my watch list. It is a little bit off of its highs. That's why I said look at some that aren't at their highs. So it's trading at 406 right now. Its 52 week high ahead of its earnings report was 435. But the earnings while they beat it just isn't giving us the growth of some of these other names. So people who are bidded up on that prospect are now, you know, disappointed and out of the stock. One other company that I do own in the value investor that had a big sell off on its earnings but it's A Zach's number five five right now is Primaris Services ticker PR. I am and it fell 50% on its earnings because the AI play was factored in. And so everybody had these very high expectations and it's a specialty contractor infrastructure company but they do a lot on utility side. It's not all data centers which is the faster growing segment in in that infrastructure side with higher margins. So if you're not getting those higher margins you're just not going to get the growth rate. So even for this year, 2026 expected to grow earnings only 2% now and 2027 we're going to see rebound up 16.4. But the street just really isn't liking that it's at that 2% level here and forward. P of 22 now has come way down as the stock has, has fallen. But is that even cheap enough to pay up for this kind of earnings growth with this kind of company that is just not seeing the high margin business like some of the others. On the infrastructure side I would say that there's a reason it's a Zacks number five now all the analysts cutting their estimates there. Price to sales is very interesting. With Primaris here, it's at 0.8, which is an actual value price to sales ratio. Price to book is at 3.65. Remember, we look for three and under, so it's starting to get that value proposition here. But I would watch those earnings estimates, wait for a turnaround. I don't recommend anyone buys the number fives, especially in this kind of scenario where they reported it was a disappointment. Now the analysts are cutting their estimates. So for this year we're now down to 503 from 30 days ago. We were at 602 and you don't want to see it going the other way. A rebound is expected next year, but you're going to have to wait till then. So these shares are probably going to pull back even further as everybody realizes, hey, the AI trade just isn't as strong in this, this company as some of the others. So a little bit of a value trappiness there going on with Primaris, but that's why I'm not including it as the cheapest AI stocks right now. Because with this kind of growth, we still want to see these, you know, this growth scenario and not the earnings going the other way. So let's recap the cheapest of the AI stocks right now. We had Nvidia. Yes, it is in this group and it does look attractive here. Ticker N, NVDA. Then we had micron with that 13. PE. Everything else is not cheap, but everybody's keying in on that 13. So we're including it because of that PE ratio. But remember, it is cyclical. So PE will be lower here as the stock surges and those earnings are just crushing it, crushing it higher Ticker M as in Mary. U sandisk is S N D K. I mentioned Eaton. That's E, T, N. I'm on the sidelines watching that one, waiting for it to get cheaper. Primaris, I'm in it, I own it and the value investor owns it. But it's not long for the portfolio. Most likely it's got this x number 5 strong sell rank now and it's ticker P as in Paul R. I am as in Mary. If you want to keep it on a watch list and see if it can get even more attractive here. So we're keeping an eye on everything AI And I ran those other screens, as I said earlier, to try to find, you know, any other AI type stocks that are classic value. It's just not there anymore. So we are getting longer in the AI cycle. It's harder for value investors to be in it. But look strategic. Pick the companies that are dominating in AI like an Nvidia. And as John Plank always says, you don't have to be a genius. We know where the earnings and sales growth is right now on the AI trade and it is in the semis and so and in storage now memory. So keep Nvidia on your watch watch list if you're not in it. But otherwise it remains a cheaper AI stock. And as always I aim to bring you as many cheap stocks as I can. The values, the traps, all of that every week here on the Value Investor Podcast. Be sure to subscribe, get us on YouTube on our own YouTube channel we have Zach's podcast channel and also get us on Apple, get us on Spotify, get us on Amazon Music, anywhere you can get podcasts you can find us. And I'll be back next week with some more cheap stocks or value stocks
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this material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice or a recommendation to buy, sell, or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the service of competent and professional legal, tax or accounting counsel. Publication and distribution of this podcast is not intended to create, and the information contained herein does not constitute an attorney client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, company sectors or markets identified and described were or will be profitable. All information is current as of the date herein and is subject to change without notice. Any views or opinions expressed may not reflect those of Zach's investment research as a whole.