2 AI Data Center Stocks Just Woke Up (Here's What Changed)

Two stocks just [music] woke up. So, what's suddenly driving these stocks higher? And is this telling us something bigger about where the next wave [music] of AI money is going? We're going to break it down today. Welcome back to Navellier Market Smart. Let's start out with our first stock that's waking up, Ciena. What is happening with Ciena and why is Ciena suddenly getting investors' attention? >> Well, everybody's going bargain hunting. We're going to benefit from this thing called quarter and window dressing at the end of September, that last week of September, professional managers have to make their portfolios pretty. And I have pretty stocks with very strong sales and earnings. So, we tend to benefit from quarter and window dressing. It's kind of unique to our stocks, to be honest with you. But, I'll give you another example. When I took the train from New York to Baltimore the other day, I was on the train with some T. Rowe Price guys and, you know, I'm trying to pitch my stocks to them so they buy them and drive my stocks higher. But, the main thing is that institutional window dressing is done by the big institutions and they do want their portfolios to look pretty when they do their client reviews. Now, Ciena is an optical company. They posted a 22.1% earning surprise. Everything looked good. But, then they had a conference call and there was some confusion on their order backlog. Their order backlog is huge. It extends well into next year. So, the stock went down after the conference call and now it's getting its mojo back and it should get its mojo back because Ciena uh sales are forecasted to go up 30.1%. Their earnings are forecasted to go up 128.4. This stock has a wonderful earning surprise history. The argument against Ciena is that the companies that make the lasers are going to replace the fiber optic companies and Ciena's sells fiber optic connections and components. And I think that is bizarre. Both travel at the speed of light. Both transmit data and the lasers will not replace all the fiber optic hookups, in my opinion. So, I think Ciena is a screaming buy right now, and I'm happy to see it break out, and I think it'll continue to be strong in the last week of September, and of course it'll surprise again and continue to go higher. >> When you put Ciena through Stock Grader, what stands out to you? >> Well, first of all, Ciena does get a total grade of A, and that's excellent. You're showing that chart of our latest quarterly backtest, and the A-rated stocks are clearly the best. Those are the first four bar graphs. Fundamentally, it gets a B, which is excellent. And if you look at the fundamental chart, stocks that get a fundamental A, B, and C all have very good performance. So, yeah, Ciena is checking all the boxes, and I'm very comfortable and confident with this stock. >> I'd love to quickly jump to one of our subscriber question while we're talking about Stock Grader. Of the eight metrics within Stock Grader, which ones do you usually key off the most when you're deciding whether a stock is good enough for Growth Investor or one of your other services? >> Well, first of all, for my newsletters, I do handpick every stock. And profit margin expansions are a real big thing for me. I want my earnings growing faster than sales, and so when that's happening, the operating margins are expanding. Second, I do want persistent positive analyst earnings revisions underneath the stock because the analysts are a little slow, and you want this little army of analysts to continue to to revise their estimates higher, which creates this perpetual buying pressure to drive the stock higher. Uh finally, I definitely need a good earnings surprise history. You know, there are stocks out there with very strong sales and earnings, but they don't seem to communicate well with the analyst community. I don't want those stocks. I want stocks that beat every quarter and guide higher and have strong order backlogs. And Ciena is checking all those boxes. >> Now, let's talk about our second stock that's waking up, Coherent. What is driving Coherent right now, and does the story differ from Ciena? >> Coherent is a laser company, and they use lasers to transmit data. And they are obviously in data centers, but the perception out there is that if and when data centers go to space, Coherent's going to be very important because the data is going to be transmitted back to Earth via lasers. This actually hurts some of the optical stocks like Ciena who we just talked about, even Corning which obviously dominates fiber optics. And I think that's a bizarre conclusion that some people came to. The bottom line is the data is going to be transmitted at the speed of light, and whether it goes through a laser like Coherent or fiber optics like Ciena or even Corning, I don't own Corning for disclosure, but it's a good company. But it doesn't matter. I mean to my knowledge, we cannot transmit data faster than the speed of light at this moment. So, both companies provide that solution. But yeah, Coherent's a laser company, and they they're excellent at transmitting data, and obviously, you know, if you don't have a fiber optic line, you use a laser. And but there's other applications they have as well. >> And what does Stock Grader tell you about Coherent right now? >> Well, first of all, before I get to Stock Grader, I do want you to know Coherent sales are supposed to be up 45.3% next quarter. Their earnings are supposed to be up 68.9%. They have a very good surprise history and positive analyst revisions. So, when I look at Stock Grader, Coherent comes in at a B overall rating, and fundamentally it's a C, but quantitatively it's an A. So, I have different grades out there. So, to get a quantitative A grade means there's institutional buying pressure. And then it gets a fundamental C, and it averages out to get an overall B. But I'm very happy with the stock. It's not quite as strong as Ciena is fundamentally, but it's still outstanding. And if you look at the back test, the fundamental C's are are performing just as strong as the fundamental A's and B's. So, the key is to make sure you're in the strongest fundamental stocks. So, that's that. And if Elon gets his way and we do put data centers in space, it will help Coherent quite a bit. But, that's a ways off cuz, you know, he's still working on perfecting his big rocket. >> That brings us to the other side of Stock Grader. Finding stocks like Coherent and Ciena is one thing, but how do you know when the story is changing? Specifically, I want to bring up a subscriber question. If you own a highly rated stock and its grade starts dropping, is that an indication that it's time to sell? >> Yeah, what I want people to do in Stock Grader is I want you to save your stocks. So, when you sign up for Stock Grader, you can literally key in your stocks and just check your portfolio. That way, you don't have to key them in every week. And then, you can rank them from best to worst. So, right now, obviously, I want you to buy predominantly A-rated stocks, but your A-rated stocks will eventually slip to a B and C grade. That's okay as long as they have good fundamentals, okay? So, that's why I show that eight-factor fundamental chart that the top 60% are solid and are beating the market. And that's why I test my models to know how deep can I data dive cuz it changes. Sometimes we're in a more narrow market, sometimes we're in a broader-based market. So, you need to have the good fundamentals and you need to buy A's, but if your A-rated stock slips to a B or C and still has good fundamentals, you can hold it with confidence. See, I live quarter to quarter for earnings and I go in earning season locked and loaded. And I count on those earnings to to literally dropkick and drive the stocks higher. But, once you start using Stock Grader, you will start running your portfolio like a sports team. And eventually, you will start selling good stocks to buy better stocks. And a good example is we sold a stock called EME Corp. It's a data center-related stock. Nothing wrong with the stock. It had good sales, good earnings, positive analyst revisions, margin expansion, good surprise history. So, why did I sell it? Because it slowed down. Its sales and earnings weren't as strong as my other stocks. And so, you know, we booked a very large gain in it and that's that. So, that's how I want you to use Stock Doctor. I want you to use it to to basically force you to look at your portfolio and as some of your stocks slip in rank, then you might want to start selling them to buy something better. That's all. But even the stuff we sell has been going up. So, we do recommend good stuff. >> That actually brings me to another subscriber question. In test you had liked back in May, but now it's 40% lower. So, is this a bargain or has something fundamentally changed? >> So, first of all, In Test still gets a B in Stock Doctor, which is a buy. It has a fundamental grade of B, which is excellent, okay? And then as I do a deeper dive here into its sales estimates for next quarter, In Test sales are supposed to be up 30.4%. Their earnings are supposed to be up 616.6%. So, obviously that's excellent. And they have an incredible earnings surprise history. Last quarter they had a 92.6% surprise. Before that it was an 84.6% surprise. And then two quarters before that it was 45.5. So, that's phenomenal. This is an explosive stock. Now, In Test obviously is a test all the semiconductor equipment. What happened is as our system started to pick up more AI related stocks as the market was broadening out, In Test was one of the stocks we picked up. So, I would hold this stock to its next quarterly earnings announcement season. I did note that some analysts have trimmed their estimates on it though, but it again, their earnings are supposed to be up 616.7% and has this great surprise history. I'm fine with holding In Test, but let's let their earnings do its thing. And this stock, just so everybody knows, is a bunny stock. It will sit, it will hop, it will sit, it will hop. So, you know, we get a lot of questions like, "Why isn't my stock not moving?" Well, it's because as you go down in in market cap, your stocks will sit and hop, sit and hop. And this is definitely a bunny. And hopefully we get a nice hop when its earnings come out. >> I want to ask you another specific stock question from one of our subscribers about Applied Materials. Where do you see AMAT right now? >> For full disclosure, I don't own Applied Materials. I don't recommend them in my newsletters. However, it's not a bad stock. Sales are supposed to be up 51.6%, so that's excellent. The earnings is supposed to be up 87.1%. That's excellent. Analysts are revising their estimates higher. The only comment I have about Applied Materials is that its earnings surprises are not that big. Okay, last quarter was 3.1%, but it does surprise and it does have positive analyst revisions. So, when we put Applied Materials in the stock grader, uh what we find is Applied Materials is an A-rated stock, which is excellent, but fundamentally it's a C-rated stock. So, I would tell you to hold this stock if you own it and have low basis, but it just quite hasn't hit my uh newsletters or portfolios yet because I have slightly better stocks, but, you know, I'm splitting hairs. And so, just so everybody understands, there's 1,200 A-rated stocks. I buy 80. So, I do this deep fundamental dive and the only thing that is holding me back on Applied Materials is their earnings surprises are good, they're just not as great as some of my other stocks. >> And let's just clear up another question. In the enhanced AI stock grader, are the stocks listed in order of strength? >> When you do a search or you click on any of the buttons that are predefined buttons to do a search, yeah, it will list them in order of strength and there's little arrows you can click on to to resort. So, you can sort alphabetically, you can sort on the ratings, the overall ratings, the fundamental ratings. So, yeah, comes up with the highest ratings first. >> Okay, now let's talk about the big market story. The Fed raised interest rates, yet the stock market rallied. So, how did stocks go up after a rate hike? >> Well, that's very simple explain because the uncertainty ended. See, Wall Street hates uncertainty and there was some uncertainty going in cuz we knew President Trump would not like the Fed increase the rates. But, the Fed had to raise rates cuz market rates went up. Now, the surprise in the Fed rate hike was they have this thing called a dot plot and 16 of the Federal Market Committee members, FOMC members, are expecting another rate hike between now and the end of the year. And the reason they're doing that is the two-year Treasury yield rose quite a bit. Now, I talked about what President Trump said. He talked to Kevin Warsh before the meeting. Warsh obviously made it very clear to him that he wasn't going to be able to swing the FOMC to not raise rates. And Trump said literally, quote unquote, "Go ahead and vote to raise because you have to work with your colleagues." And then he went off on a tangent that a lot of the FOMC people are political appointees and politically motivated, whatever. I'm not so sure that's true. I don't want to go down that rabbit hole, but the bottom line is Kevin Warsh made it very clear that the Fed is going to follow market rates. Market rates went up, so the Fed had to raise rates, period. And obviously, the higher the rates go up, the more it's going to curtail the housing market and believe it or not, auto sales cuz a lot of auto sales are financed. >> One subscriber specifically asked about Micron and Bloom Energy and how this rate hike might affect these two stocks. >> Not at all. There, I mean, Micron is all about its order backlog, its DRAM memory, which is the fastest out there that everybody wants. They're expanding their plants, trades at a very low multiple of on in our midweek update was talking about its trading at seven times forecasted earnings. It's a very good stock. The reason the P/E ratio is so low is historically DRAM prices can be volatile cuz as Korea ramps up production, you can have a surplus eventually. But, it looks like we will not have a surplus for 2 years or more. So, for the next 2 years, the memory related companies are going to have pricing power. So, Micron is fine. The Bloom Energy is natural gas fuel cells to power the data centers. We talked on an earlier issue of a Market Buzz that the Pelosi family bought Bloom Energy, a lot of it, and they look like they bought it at a very good time, specifically after the situation where in this liquidation cuz they had Bloom Energy. And Bloom Energy is being added to the S&P 500 on September 21st, so that will help the stock attract more institutional buying pressure and it will probably reduce the stock's volatility. Because once you get in the S&P 500, you have a persistent institutional buying pressure. But, I'm still of the opinion that the world's greatest investor is Nancy and Paul Pelosi. And if I ever have the chance to meet them, I'm going to try to talk them into doing an investment newsletter. >> Now, before we end, is there any hope for price relief within the energy patch? >> Yeah, because this is the time of year where worldwide demand starts to slow. And even though all these countries have to rebuild and replenish their inventories, we will have some positive seasonal forces. Furthermore, I guess the biggest story is not so much the Strait of Hormuz or the Red Sea, it's the refineries. Obviously, Ukraine was blowing up Russian refineries. President Trump asked them to stop that. The Houthis are trying to hit Saudi refineries, did not hit the Saudi pipeline to the Red Sea, although they shut it down. A lot of these refineries we're talking about, Russia, Saudi Arabia, refine heavier crude grades that make a lot of diesel. So, there's an acute diesel shortage, that's the big news, and the refiners are pretty much a lock because of the price of diesel remain very high. I have hope out there you know they're getting some container ships through the Strait of Hormuz recently. I'm recommending more dry bulk shipping companies as well as all my oil tankers and I have an LNG tanker company as well. We talked about in the last uh midweek uh market buzz. You know Von pointed out that natural gas in Europe is literally 10 times what it is in America. So, I just think as we look back on this energy chaos, we have to realize America is the oasis and the problems that Europe and Asia and other countries may have with energy is not our problem. And I know prices at the pump are up, but we should be getting some price relief as the fall approaches and it won't come in time to help President Trump with the midterm elections, but you will be seeing some progress out there. And the diesel problem is basically we got to fix some of those refineries that were blown up. >> Well, a lot to watch and a lot to look forward to in the next coming weeks. I just want to mention two quick disclosures. We are so close to hitting 30,000 subscribers and thank you all so much for celebrating our 2-year anniversary. So, if you enjoy us and watching these videos, please make sure to like and subscribe if you haven't already and also share it with a friend. We really want to do this book giveaway for you all to say thank you. One more other quick thing, if you see anything in the comments that's saying not with your host or anything that's not specifically from this channel, an email that's not specifically from this channel, that's spam. We're trying to filter out them. As we grow, obviously things like that happen, so please ignore that unless it's directly from our channel. But, thank you all so much for watching again and we will see you this Wednesday for our midweek update. >> [music] [music] [music] [music] >> Mhm.