Barron's Live

Costco Valuation Concerns Amid Strong Fundamentals

+2.05%current return

"Costco – I wrote about Costco negatively for Barr\'s late in 2024. And the argument there was that it\'s a great company, very well run, but you\'re paying over 50 times earnings. The stock has pulled back somewhat. It\'s still probably trading for 45 or 50 times earnings. It\'s very well run... the stock is actually getting closer to a 52-week low, so getting more interesting."

Although Costco is a well-run business with an unbeatable value proposition for its customers, the high valuation (around 45-50x earnings) raises concerns. A further pullback toward its 52-week low could provide a better buying opportunity.

Berkshire Hathaway Valuation Attractiveness Post Buffett Transition

-2.02%current return

"I think Berkshire\'s book value could end the third quarter at somewhere close to $490,000 per Class A share, which means the stock is trading around one and a half times book value, which is not a high price to pay for Berkshire. It\'s down from about 1.8 times book back in early May."

Berkshire Hathaway appears to be trading at a more attractive valuation at around 1.5x book value compared to its earlier multiple of 1.8x. This re-rating post-Buffett announcement offers a more compelling entry point despite the stock lagging the broader market.

Accenture Faces AI-Driven Business Challenges

+0.73%current return

"So what is ailing Accenture? Is it the threat of AI? Yeah, I think that's a big part of what's going on is that for consultant businesses like Accenture, there's a big fear that they're basically not going to be needed as much as they have been. And, you know, the problem for Accenture is that already the growth is not what it has been. But, you know, they are expected to report a profit of $2.97. That is up from $279 on sales of $17.4 billion, that would be up from $16.4."

Accenture\'s commentary reflects concerns that advances in AI might erode its traditional consulting business, amidst data showing downbeat stock performance (down 32% year-to-date) and slowing growth. The narrative underscores a need for the company to convincingly demonstrate that AI integration will enhance its margins rather than cannibalize its business, conveying a cautious to bearish tone.

Costco Valuation and Growth Concerns

-0.79%current return

"Costco, which reports on Thursday, you look at the stock price, there\'s almost no optimism built in. It\'s up only 3% over the past three months and 4% over the past year. The optimism is in the valuation for Costco. That\'s trading at around, I guess it\'s 41.5 times earnings. And this is for a company that isn\'t a super fast grower, but it\'s a very consistent grower with a moat that is kind of unpenetrable. The risk here is that it does get hard for the company to keep beating the numbers the way that people want it to."

The discussion on Costco centers on its high valuation and modest stock performance relative to consumer participation. While the company exhibits stable and consistent growth supported by its membership model, concerns exist regarding its capacity to sustain accelerating growth and justify the premium earnings multiple, suggesting cautious sentiment.

Micron Earnings and AI Demand Outlook

+23.13%current return

"I mean, Micron\'s been incredible. It actually pre-announced earnings. So there\'s not much of a surprise that\'s going to be expected. The company is supposed to report a profit of $2.50. That\'s more than doubling. The prior year is $1 per share. And sales are supposed to increase to $11.2 billion from $7.8 billion. There\'s just been massive demand for what\'s called high bandwidth memory. Again, for AI and everything else that\'s going on with the chip market."

The panel highlights Micron\'s impressive pre-announced earnings with double the profit year-over-year and significant sales growth driven by high bandwidth memory demand, notably fueled by AI-related trends. The commentary suggests a bullish view contingent on management confirming that this surge is part of a sustained cycle rather than a one-off catch-up event.

Watch Google (GOOGL) for AI-Driven Growth

+8.17%current return

"One other company that gets mentioned in this is Google, that they're actually trying to do their own kind of chip stuff, wean themselves a little bit off of NVIDIA. And they're actually aiming to serve other tech companies. And so they'd be another one that's worth watching... the stock was trading at your new 52-week or new all-time high."

Google (GOOGL) is emerging as an attractive play in the AI space thanks to its custom chip initiatives and record-high price levels, making it a potential growth catalyst for investors.

Invest in GLD for Gold Exposure

+16.03%current return

"I think, as an investor, the easiest thing to do is just buy one of the ETFs like GLD. And it's simple. You don't have to worry about your house being robbed and someone stealing all your gold."

For those seeking a safe haven amid economic uncertainty and de-dollarization, a straightforward approach is to gain exposure to gold through the GLD ETF.

Favor Broadcom (AVGO) Amid AI Trade Shift

+0.83%current return

"But one of the things that their earnings showed was that companies are kind of changing a little bit around how they are, the kind of chips they want for AI. NVIDIA is big in the GPUs... But there is now a switch to something called XPUs... And Broadcom signal that there's been kind of a pivot to those. And that's really been good for Broadcom. You know, Broadcom has gained 42% over the past three months and 146% over the past 12."

Investors should consider positioning in Broadcom (AVGO) as the company appears to be benefiting from a shift in AI chip demand, outperforming NVIDIA in recent performance figures.

Chinese Stocks: Attractive Valuation via iShares MSCI China ETF (MCHI)

+3.20%current return

"The iShares MSCI China ETF (MCHI) hit a record high and is trading at about 12 to 12.5 times earnings, roughly half the cost of the U.S. market. With Chinese economic recovery signs and potential stimulus on the horizon, there appears to be substantial room to run in Chinese stocks."

Greg Torto highlights the attractive valuation of Chinese stocks through the iShares MSCI China ETF (MCHI), noting that it is trading at a significantly lower forward PE compared to U.S. equities. With record highs recently and economic catalysts in China, investors have a clear market context trade signal to take a bullish position on exposure to Chinese equities.

Contour Brands (K-T-B): Transformational Acquisition Pushing Denim Growth

"Contour Brands purchased Helly Hanson for about $900 million, which is expected to be a significant transformational deal for their P&L. We anticipate this deal could drive mid to high teens growth, perhaps as close to 20% next year, adding a new dimension to their core denim business."

Contour Brands (K-T-B) is positioned to benefit from its recent acquisition of Helly Hanson, a well-known durable brand, for approximately $900 million. This strategic move is expected to transform the company’s earnings profile with projected growth in the mid to high teens, possibly nearing 20% next year, making it an actionable buy trade.

Buy Call on iRhythm Technologies (IRTC) Based on Innovative Cardiac Monitoring

+6.40%current return

"iRhythm is a 5 billion market cap company that does cardiac monitoring. The combination of product innovation, clinical outcomes and FDA compliance has positioned them for growth in the high teens, low 20s over the next couple of years. We are pretty excited about this company and it could be a buyout candidate."

iRhythm Technologies (IRTC) is presented as an attractive small cap play due to its innovative cardiac monitoring products, strong clinical endorsements, and potential for a buyout. The team expects growth in the high teens to low 20 percent range over the next couple of years, making it a clear buy signal for investors looking for exposure in medical technology.