Why we’re downgrading our solar stock Nextracker, plus the chipmakers bounce back
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Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Chips bounce back: The S & P 500 is on pace to make yet another new record high Thursday. Semiconductor stocks are rebounding in reaction to a beat-and-raise earnings report from Taiwan Semiconductor . As the largest chipmaker in the world and a key manufacturer of Nvidia and Apple chips, the company offers an important readthrough into the industry. Taiwan Semi confirmed that demand from one of its key customers (Nvidia) is “insane.” The market came right back to the AI semis stocks that they were so quick to sell after ASML Holdings gave weak guidance on Tuesday (even though it also pointed out that AI spending was strong.) Meanwhile, stocks levered to lower interest rates like utilities, real estate, and housing-related companies are taking a breather. Treasury yields popped in reaction to a bunch of positive economic data points. September retail sales came in slightly better than expected and weekly jobless claims were lower than expected. The good data is causing some traders to rethink the likely amount of Fed easing before the year end. The probability of 50 basis points more of rate cuts before year end fell to about 74% from about 85% on Wednesday, according to the CME FedWatch. Also, the Atlanta Fed’s GDPNow measure, which is a running estimate of real GDP growth, increased to 3.4% from its prior reading of 3.2% on Oct. 9. NEXTracke r: Shares of solar stock Nextracker are having another rough day, dropping roughly 3%. The only news we see related to the stock is that JPMorgan lowered its price target to $58 from $62 and maintained its overweight position. Although JPMorgan’s $58 price target implies there is significant upside from the stock’s current level, the analyst believes investors are sitting on the sidelines around these clean energy names and reducing their headline risk ahead of the election. Indeed, solar stocks have been the wrong area to be in since the first presidential debate between former President Donald Trump and President Joe Biden on June 27, which one could argue was an event that made investors consider the likelihood of another Trump presidency. Since the first debate, the Invesco Solar ETF is down about 11% while the S & P 500 has gained roughly 6%. We called out policy risk when we first bought Nextracker on June 27, but we thought the beginning of the Fed easing cycle would matter more since the group was sensitive to interest rates, too. Plus, the growing power needs around the world is secular and the megacap tech companies building all these new data centers are committed to 100% renewable energy. Unfortunately for solar, the megacaps like Microsoft , Amazon , and Alphabet are leaning into nuclear for their clean energy source. And even though the Fed cut rates by 50 basis points last month, the yield on the 10-Year Treasury has soared back above 4%. But all might not be lost for Nextracker. JPMorgan said in its note that any scenario other than a Republican sweep could lead to a “broad based relief rally” in this beaten-down group. We agree with this assessment, but there’s still a degree of hope embedded into view, and we do not like to invest on hope. We always considered Nextracker more of a “spec” position, which is why we’ve kept a “spec” position just north of 1% of the portfolio. But our concern is that the stock will continue to bleed lower into the election. For this reason, we are downgrading our rating to a 2. Up next: Netflix and Intuitive Surgical report after the closing bell Thursday. Before the bell Friday, Procter & Gamble , American Express , SLB , and a bunch of regional banks report earnings. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A logo of Taiwan Semiconductor Manufacturing Company (TSMC) is seen during the TSMC global RnD Center opening ceremony in Hsinchu on July 28, 2023. (Photo by Amber Wang / AFP)
Amber Wang | Afp | Getty Images
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
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