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Apple Inc. (AAPL)
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Amazon.com Inc. (AMZN)
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Vertiv Holdings LLC Class A (VRT)
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Propel Holdings Inc. (PRL)
‘In the case of volatility, if a name is jumping by 5% or more any given day, it is tough to call it an ‘investment’ anymore as it becomes more of a bet on a given day’s move. Again, some investors will make money here, but we would far prefer to look elsewhere at this stage.’
Vertiv (VRT) is one of the stocks you often mention as one that is taking full advantage of AI because of its ‘privileged’ involvement in data centre cooling technology and is in a ‘growth spurt’ that affects the stock price and is worth considering at this stage of AI growth investing. ( you do add it won't last forever, though…) Nonetheless, it is trading lately with large daily swings (of 5% and, even, sometimes 10%). In which way would it be different then and tough to call it an investment vs a speculation? I feel the same goes for Propel Holdings (PRL) which is another small but rapidly growing company because of an interesting business model. (it too, lately, also appears to be on an up and down elevator ride.) Would you care to explain the difference in reasoning please?
Thanks, Adel
It can be hard, but we try the best we can to focus on the fundamentals and not the stock price. A volatile stock in itself does not make an investment speculative. In both cases, there are reasons for volatility. VRT has massive gains, and any time there is any hint of bad news profit-takers come out in droves. Rumours abound and investors are nervous about losing their gains. The same is true on PRL, but it has the added fun of being a very small cap company, so swings are even wilder, as is common with the sector. But it is important to note that their growth potential, contracts, cash flow etc. are not impacted in any way by the stock price. IF a company needs to raise money, then of course a volatile stock is less attractive (we thought VRT might sell some shares but so far, no. The last deal was August 2023). Many of the absolute best long term stocks have seen big drawdowns in their history. AMZN and AAPL in their history have seen big declines of 80% at more, even more than once. This did not make them 'bad' investments, but investors need to manage exposure. The key is not to sell when it is down, of course, so position size helps reduce this risk (i.e not having so much that this causes panic). Valuations will change always, but fundamentals change much more slowly. This is not to say a company cannot get itself in trouble, but this usually happens over a series of quarters or years, and not (usually) all at once. For both VRT and PRL, the earnings/revenue outlook still looks very good. PRL at 10X earnings is a very cheap stock, despite its performance. VRT is more expensive but not so much if one considers its growth rate.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in AAPL, AMZN, VRT.