On Thursday, the U.S. stock market remains modestly overvalued based on Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s favorite market indicator, fueled by strong gains from several technology stocks: Nvidia Corp. (NVDA, Financial), Broadcom Inc. (AVGO, Financial), Advanced Micro Devices Inc. (AMD, Financial), ServiceNow Inc. (NOW, Financial) and Synopsys Inc. (SNPS, Financial). According to the All-in-One Screener, a Premium feature of GuruFocus, the above stocks each gained more than 20% over the past month.
The Oracle of Omaha opined that the ratio between total market cap and gross domestic product is “probably the best single measure of where valuations stand at any given moment.” As of Thursday, the Wilshire 5000 Full Cap Price Index stood at $42.05 trillion, approximately 1.20 times greater than the sum of gross domestic product of $26.49 trillion and total Federal Reserve Bank assets of $8.43 trillion.
Based on the current market valuation level, the implied return of the U.S. market is approximately 2.9% per year, assuming the valuation reverses to the 20-year median ratio of 95.04%.
The predicted and actual returns chart also considers two alternative cases: an optimistic case in which valuations reverse to 130% of the 20-year median ratio and a pessimistic case in which valuations reverse to just 70% of the 20-year median ratio. Based on this chart, the implied return of the U.S. market ranges between -1.3% per year and 4.90% per year.
Tech stocks drove Nasdaq’s gains during May
The Nasdaq Composite Index closed at 13,100.98, near a 10-month high and up approximately 1.28% from the previous close of 12,935.28. The index gained 8.45% during May, fueled by strong gains in the technology sector.
The U.S. technology sector gained 4.71% during the past month, compared to the Standard & Poor’s 500 Index return of 1.32%.
According to the Aggregated Statistics Chart, a Premium feature of GuruFocus, the mean one-month return of the Nasdaq 100 Index stocks is 4.56% with a median of 0.38%.
Among Nasdaq 100 Index tech stocks, 23 stocks had a positive one-month return while 13 stocks had a negative return over the same period.
Nvidia
Shares of Nvidia (NVDA, Financial) traded around $399.08 on Thursday, showing the stock is significantly overvalued based on its price-to-GF Value ratio of 1.57. The stock gained approximately 37.18% over the past month.
The Santa Clara, California-based semiconductor company has a GF Score of 86 out of 100 based on a rank of 10 out of 10 for profitability and growth, a financial strength rank of 7 out of 10, a momentum rank of 6 out of 10 and a GF Value rank of 1 out of 10.
Nvidia’s high profitability rank is driven by several positive investing signs, which include a four-star business predictability rank and a gross profit margin that outperforms more than 88% of global competitors despite declining by approximately 0.2% per year on average over the past five years.
Nvidia is a member of the GF Score Less Than 100 Top 25 Companies model portfolio. The portfolio has gained approximately 17.72% year to date, outperforming the S&P 500 Index's return of 8.86% over the same period.
Gurus with holdings in Nvidia include Baillie Gifford (Trades, Portfolio), Ken Fisher (Trades, Portfolio)’s Fisher Investments and the Harbor Capital Appreciation Fund (Trades, Portfolio).
Broadcom
Shares of Broadcom (AVGO, Financial) traded around $799.98 on Thursday, showing the stock is modestly overvalued based on its price-to-GF Value ratio of 1.26. The stock has gained approximately 24.91% over the past month.
The San Jose, California-based semiconductor company has a GF Score of 83 out of 100 based on a financial strength rank of 6 out of 10, a GF Value rank of 1 out of 10 and a rank of 9 out of 10 for momentum, profitability and growth.
Broadcom’s high profitability rank is driven by several positive investing signs, which include a three-star business predictability rank, a high Piotroski F-score of 8 out of 9 and an operating margin that has increased by approximately 18.1% per year on average over the past five years and outperforms more than 97% of global competitors.
Advanced Micro Devices
Shares of Advanced Micro Devices (AMD, Financial) traded around $120.60 on Thursday, showing the stock is fairly valued based on its price-to-GF Value ratio of 0.94. The stock has gained approximately 33.89% over the past month.
The Santa Clara, California-based microprocessor company has a GF Score of 89 out of 100 based on a growth rank of 9 out of 10, a rank of 8 out of 10 for momentum and financial strength, a profitability rank of 7 out of 10 and a GF Value rank of 5 out of 10.
The company’s high financial strength rank is driven by several positive investing signs, which include a high Altman Z-score of 9.34 and a debt-to-equity ratio that outperforms approximately 78% of global competitors.
ServiceNow
Shares of ServiceNow (NOW, Financial) traded around $542.96 on Thursday, showing the stock is significantly undervalued based on its price-to-GF Value ratio of 0.67. The stock has gained approximately 21.29% over the past month.
The Santa Clara, California-based software as a service company has a GF Score of 89 out of 100 based on a financial strength rank of 7 out of 10, a profitability rank of 5 out of 10 and a rank of 10 out of 10 for GF Value, growth and momentum.
ServiceNow’s positive investing signs include a high Piotroski F-score of 7 out of 9 and a strong Altman Z-score of 9.13.
Synopsys
Shares of Synopsys (SNPS, Financial) traded around $454.55 on Thursday, showing the stock is modestly overvalued based on its price-to-GF Value ratio of 1.22.
The Mountain View, California-based automation software company has a GF Score of 87 out of 100 based on a rank of 10 out of 10 for momentum and growth and a rank of 9 out of 10 for profitability and financial strength. Despite this, the company’s GF Value ranks just 1 out of 10.
Synopsys’ positive investing signs include a four-star business predictability rank, a strong Altman Z-score of 12.41 and an interest coverage ratio that outperforms over 80% of global competitors.
