Did you know that Vertiv’s cooling systems for data centers are essential for AI, as artificial intelligence models require massive computing power and energy?

Investing in companies that enable technological revolutions can be as profitable as those at the forefront of innovation.

Here’s what you can look forward to:

• Schlumberger Stock Was Once As Hot As Nvidia—Why Some Say It’s A Buy: First, we’ll discover why some analysts believe that SLB may be ready for a comeback 💰

• Vertiv Holdings – The AI Trade’s Under-The-Radar Winner: Next, we’ll learn how Vertiv stands to benefit from the AI revolution 🏆

• Why Stockpickers Struggle In Narrow Markets: Finally, we’ll understand the challenges stockpickers face in markets dominated by a handful of outperforming stocks 😨

Stay informed, and make smarter choices in today’s market. Are you ready?

Schlumberger Stock Was Once As Hot As Nvidia—Why Some Say It’s A Buy 💰

Schlumberger was the Nvidia of the 1980s—and the beaten-down stock could still produce some Nvidia-like gains.

It’s hard to remember now, but Schlumberger, now called SLB, was one of the market’s hottest stocks as the leading servicer to the then-dominant energy industry, and at one point had the world’s fifth-largest market cap.

SLB is still the world’s leading oil-services company, with operations in 100 countries, but energy matters little in the S&P 500 today.

The out-of-favor stock isn’t trading much higher than it did 40 years ago 🤷

With a market value of under $60 billion, it doesn’t crack the top 100 stocks in the index.

Some analysts believe SLB is worth a fresh look.

Despite fears of obsolescence, the oil-and-gas business will probably be around for the rest of this century—demand continues to rise globally and stands at more than 100 million barrels a day—and the industry needs the varied expertise in assessing and developing energy deposits that SLB provides.

Shares don’t reflect that possibility ❌

SLB stock, at about $40, trade near a recent 52-week low after dropping 23% this year.

It fetches a reasonable 11 times projected 2024 earnings of $3.50 a share and under 10 times estimated 2025 profits of $4.13 a share, while yielding 2.8%.

It’s an attractive entry point for the oil-services company.

Vertiv Holdings – The AI Trade’s Under-The-Radar Winner 🏆

The AI trade has given—and it has taken away.

That has created a buying opportunity in the stock of Vertiv Holdings.

Vertiv isn’t an obvious AI play.

It makes critical infrastructure products that cool and power data centers, and these days that’s a big business.

When the company reported second-quarter earnings on July 24, investors got a sense of just how big.

Sales grew by 13% and earnings jumped nearly 50%.

Both numbers easily topped analyst forecasts.

But instead of rising, Vertiv stock dropped 14%.

It was a victim of timing ⌛

Other tech stocks were dropping and Vertiv got swept away in the selling.

But there’s one problem: Vertiv’s business is too strong to get undermined by what looks to be a short-term concern.

Vertiv will benefit from the industry growth.

It is one of three players in the space that can provide customers with a full set of products and services.

This allows Vertiv to lift prices a little bit each year, which helped sales of its data-center cooling products hit just over $5 billion of sales last year, or three-quarters of Vertiv’s total revenue of $6.9 billion.

The rest came from industrial and communications customers.

The recent selloff also has made Vertiv look more reasonably priced 💵

It currently trades at about 25.8 times 12-month forward earnings, down from 32.8 times on July 24.

That also means that the stock is now trading at a valuation closer to that of Eaton, which trades at almost an identical multiple, despite having double the expected growth and similar execution in the past chunk of quarters.

Its valuation has fallen even as the price/earnings ratio for industrial stocks has risen to 21.4 times, near its highest level of the year.

Let cooler heads prevail on this stock.

It’ll get higher soon 🚀

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Why Stockpickers Struggle In Narrow Markets 😨

This time was supposed to be different.

This was going to be a stockpickers’ market in which astute active investors would no longer trail the index and could show their mettle.

Instead, active management has continued to underperform.

The efficient-market crowd says—of course—that most managers can’t beat the market.

But there’s also an unappreciated structural problem dooming active managers these days: We have been in a period of “narrow markets” in which a few stocks—the Magnificent Seven, account for the lion’s share of market gains.

So, any manager who develops a well-diversified portfolio of stocks—and that, after all, is what most managers are hired to do—is inevitably doomed to underperform because many of the holdings beyond the Magnificent Seven can only drag down performance 📉

The prospects for active managers were particularly handicapped in the first half of this year because the Magnificent Seven accounted for nearly 60% of the total return on the S&P 500.

Those seven stocks also accounted for more than half of the S&P 500 performance in 2023.

Their outperformance means they have grown to represent some 30% of the total S&P 500 market capitalization.

New York Magazine called this “the greatest concentration of capital in the smallest number of companies in the history of the U.S. stock market.” OK, you say, but all that’s a first-half-of-2024 story; the Magnificent Seven have cooled off a bit since then, and in normal markets managers have a better chance of getting it right.

But it turns out that normal markets are very frequently narrow markets.

It turns out that narrow markets aren’t new or temporary or unusual.

Professor Hendrik Bessembinder of Arizona State University has evaluated lifetime returns for every U.S. common stock traded on the New York and American Stock Exchanges and Nasdaq for the 90 years since 1926.

He found that just 86 stocks accounted for half of the total stock market wealth creation over this 90-year period 📈

Meanwhile, less than half of the stocks in the universe generated any returns for investors, and only 42% earned more than risk-free Treasuries over the entire period.

Put another way, less than 4% of the thousands of stocks in this universe accounted for virtually all of the market gains.

In short, as long as markets are narrow, stockpickers have a daunting task.

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