5 stocks to watch for November

NVIDIA:

The world’s biggest chip company has seen its stock price rally in the aftermath of the midterm elections even though chip stocks including Nvidia and Micron have been under downward pressure as markets priced in possible limits on data-centre construction. Its Q3 earnings report is scheduled for release on November 17, which will show whether that backlash is touching demand. AMD, which rose 6% premarket trading after beating its Q3 earnings estimates, is a useful comparison. For now, the market is dismissing political concerns that could limit the AI buildout, and is focussing on the financial health of the major chip makers. Chip stocks are the backbone of the AI trade, and valuations look strong, for example, Nvidia’s price to earnings ratio is back at 2019 levels after the stock price fell 12% last month. Now that election uncertainty is behind us, investors are stepping back into the AI chip trade even though there are political risks. For now, nothing has changed and the Democrats may struggle to pass their agenda into law in the coming months since President Trump, a friend of the tech sector, still has the power of veto.

Chart 1: Nvidia tests its 200-day sma

UnitedHealth:

Analysts had flagged it, along with HCA Healthcare, as a potential beneficiary of a Democratic majority if policy shifts back toward healthcare access. Healthcare stocks rallied into the election and rose by 10% on the month. We expect gains could slow if we see a rotation back into the AI trade, but overall, we think that the focus on the Democratic legislative agenda, which may include universal health insurance and greater government subsidies for insurance, could make this an interesting time to own the healthcare sector in the US. Although some worry that the government may squeeze the insurers, greater government control of healthcare usually means more money flowing in rather than less, just look at the NHS in the UK.

Chart 2: Universal Health

SpaceX:

This is the ultimate pick to trade the failure of the Republicans in the Midterm elections. SpaceX’s stock price slumped by more than 2% after the results came through, bucking the trend for a rally across other markets. SpaceX and Tesla and impacted by the election results in two ways. Firstly, any slowdown in the AI infrastructure race could hit their bottom lines as they have been building out their AI capabilities in recent months and years. This is a major contributor to their bottom lines, so we could see investors revalue their stock based on Democratic hostility to data centres and the AI revolution. Secondly, Congress could scrutinise the planned merger between SpaceX and Tesla, that was expected to extract value a cost savings for a combined company. Any delays could weigh on the share price of both companies, which have rallied strongly in recent weeks. The Democrats are also likely to scrutinise Musk and his links to government. If he incurs any fines, he may have to sell stock to cover these, which is another risk factor for the SpaceX share price this month.

Chart 3: SpaceX  struggling with Midterm hangover

Walmart:

The world’s biggest supermarket chain will report results on November 19. These earnings will give an important read on the health of the US economy, especially the consumer. We have seen some suprisingly good news on the consumer in recent weeks, and consumer confidence surged in October, defying rising energy and food prices. The stock price is moving in line with the overall market and is up 13% YTD. Interestingly, Walmart’s share price also rose in the aftermath of the Midterm results, as investors take the view that a Democratic Congress could take the heat off good prices, which is good news for grocers.

Chart 4: Walmart, up, up and away

Fresnillo:

The FTSE 100-listed gold miner is in focus this month as a gold-exposure play. Precious metals rose strongly after the Midterm elections and the dollar slid. This, along with falling Treasury yields is helping the gold price to make a comeback and it is trading back above $4,000 after a rough start to November. However, a weaker dollar and lower bond yields could boost the attractiveness of the yellow metal, which could sustain a recovery rally in the medium term.

Chart 5: Fresnillo

History says not to over-read the election itself. The S&P 500 was higher a year after every midterm going back to the early 1980s. Now that election uncertainty is out of the way, investors can return to fundamentals, which remain strong.