Why I'm Adding to Nvidia as I Eye Rocket Lab's Takeoff
This small play in the space industry is looking like it could launch higher.
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September is already living up to its reputation as the worst month of the year as stocks struggle on Tuesday morning. Breadth is running more than two-to-one negative, and there is an increase in the number of new 12-month lows. Nvidia NVDA is the biggest loser in the Nasdaq 100, with a drop of around 5.5%.
No obvious news is causing the selling pressure, but concerns are growing that there is too much optimism about a Goldilocks economic scenario. The market is content that inflation is under control, but there are worries that there may be more economic slowing than anticipated. We will have to wait until Friday for the jobs data, but in the meantime, there aren’t many reasons to put cash to work.
Is see quite a few stocks I’d like to buy for the long term, but I have little reason to buy them right now. I’m hoping I will have opportunities later this month as negative seasonality takes hold and volatility picks up on Fed interest rate cuts.
One name I will be adding is Nvidia. It is out of favor, but it has a tendency to recover as its next earnings report approaches. That is three months away, so I’ll be patient, but I plan to make numerous small purchases in the month ahead.
One sector that is looking OK today is biotechnology. A few names I’m holding that look good are Lantheus LNTH, BridgeBio BBIO, TG Therapeutics TGTX, and Mereo BioPharm MREO. I’m looking to add points in all four.
A new idea on my radar is Rocket Lab USA, Inc. RKLB. While relatively small, the space industry is one of the fastest-growing niche markets in the world. Elon Musk’s SpaceX has gained tremendous attention as it plans a mars mission and continues to innovate after years of little action by NASA. Also, demand for satellites is booming due to internet applications.
RKLB provides launch services, spacecraft design services, spacecraft components, and spacecraft manufacturing. It designs and manufactures small and medium-class rockets, including the Electron, a reusable orbital-class small rocket, the Photon satellite platform, and the Neutron 8-ton payload class launch vehicle.
Recently, the company successfully tested its Archimedes engine, which will power the Neutron rocket. This rocket has a significant increase in payload and will provide a major boost to RKLB’s revenue per launch.
There is a lot going on here, but the easiest way to see it is that revenues grew 71% last quarter, and the company has a backlog approaching $1 billion and also has over $500 million in cash to fund its programs.
The stock is expensive, with a market cap of over $3 billion and about 8-times revenues, but all stocks with tremendous potential tend to look expensive at early stages of growth.
Technically, the stock has a very favorable pattern as it forms a cup-with-handle pattern and pulls back to key support at around $6.
I anticipate that September may be a rough month for the market, but RKLB is a name that I’d like to buy on weakness. We should see substantial news flow for RKLB and space stocks in general, which will provide a supply of buyers. The rescue of stranded astronauts by SpaceX early next year is one illustration of how the Space industry is ready to rocket.
At the time of publication, DePorre was long NVDA, BBIO, LNTH, TGTX, MREO, RKLB
