When U.S. government officials decide to take on a view for a particular stock, Main Street investors could benefit by trying to figure out where and why these people decide to invest. Today, there is a clear technology sector preference on the part of California representative Nancy Pelosi.
Pelosi is now part of the ‘insider trading’ scandal after making a hefty profit on her Nvidia Co. (NASDAQ: NVDA) trades earlier this year. According to records, the government official made around $500,000 on her Nvidia trade, doubling her annual salary. While some may critique her potential access to privileged information, most miss out on the big picture.
Her other – most recent – interests in stocks like Alphabet Inc. (NASDAQ: GOOGL), the Walt Disney Co. (NYSE: DIS), and even Palo Alto Networks Inc. (NASDAQ: PANW) all have a similar trend behind them. Knowing where today’s value remains in the global economy, Pelosi has chosen these stocks.
The Beat of The Economic Drum
Will Pelosi be right again in her latest bets? Only time will tell; one thing investors can probably guess, though, is that she’s not far off the right track.
As the U.S. economy faces a steep divide this year, with the technology and manufacturing sectors diverging from their typical relationship, her stock picks could see a fundamental backing this cycle.
After contracting for more than 15 consecutive months, the ISM manufacturing PMI index left the spotlight for the ISM services PMI index instead. Services have expanded steadily since 2020, with only one contracting month in April 2024.
Because artificial intelligence, and the chips and semiconductors behind it, will be a focal point for governments and consumers this year, the Federal Reserve (the Fed) may help the cycle along.
The Fed could spark a new bull cycle in services stocks like Pelosi’s picks by proposing interest rate cuts later this year. One thing is certain, however, that her reasoning goes beyond this simple economic fact.
Google’s A.I. Race, At Great Prices
Sure, shares of Alphabet have risen to all-time highs recently, but the stock’s forward P/E suggests that new ceilings could be coming in soon.
Trading at a forward P/E valuation of 21.8x places Google at a 27% discount to its recent 30.0x forward P/E multiple in 2021. Analysts think the stock could see earnings per share (EPS) growth of 14% this year, pushing the envelope to expand this forward P/E to where it once was.
More than that, according to price targets, analysts at J.P. Morgan Chase & Co. think Google stock could rally up to $200 a share. The stock must jump by 18.3% from where it trades today to prove these projections right.
After creating the Gemini ecosystem, it is easy for investors to see how Google’s access to almost all of the world’s consumer data can be used through its artificial intelligence arm. Pelosi is onto something here but added one last piece to this A.I. puzzle.
Palo Alto Networks: The New Economy’s Police Force
Right after buying between $500,000 and $1 million worth of Alphabet stock, Pelosi added a range of $100,000 to $250,000 to her Palo Alto Networks shopping list.
Knowing that, as the global economy becomes more digitized by the day, cybersecurity stocks will play a more critical role in keeping business – and personal consumer – data secured, Pelosi saw just the right fit in Palo Alto.
Palo Alto stock became a potential buy target after retracing to 80% of its 52-week high. Understanding how vital cybersecurity will become shortly, analysts at KeyCorp boosted Palo Alto’s price targets to $355 a share, or 19.4% above today’s trading price.
Expecting 17% EPS growth this year and backed by a famous congresswoman investor, Palo Alto’s bears started to retreat in the past month. The stock’s short interest declined by 6.6% during April, 8.0% during March, and 4.8% during February.
Disney Stock is Arguably the Easiest Pick
Maybe not the easiest trade to copy, but potentially the easiest pick. As Disney's financials show net income margins contracting to near all-time lows, investors can bet on the business' margins returning to normal once their heavy investments into streaming start to pay off.
With rising market share over competitors like Netflix Inc. (NASDAQ: NFLX) and analysts expecting 18.5% EPS growth from this $194 billion behemoth, it’s easier to see where Pelosi spotted a double-digit upside.
Analysts at J.P. Morgan Chase & Co. see a price target of up to $140 a share for Disney stock, calling for a 32.4% upside from today’s prices.
Having another $500,000 to $1 million position in the stock gives investors the confidence to consider Disney. One thing to remember is that the stock has yet to reinstate its former dividend yield, which stands at only 0.8% today.
As the company’s free cash flow (operating cash flow minus capital expenditures) recovers, bigger dividend payouts may follow, helping the stock return to its former $203 a share high of 2021.
