Saturday, January 12, 2002
Personal Finance
Investing: Wait till next year
What do you know about Nvidia Corp.? Probably not much, unless you're into video games. For the rest of us, though, it might have paid handsomely to have known about and invested in this maker of computer-graphics processors 12 months ago.
In a year when the Standard & Poor's 500 Index fell more than 13 percent and most of its members wallowed for the second straight year, Nvidia triumphed in 2001 with a gain of 308.4 percent earning it the title of the S&P 500's top winner for the year.
The Santa Clara, Calif.-company was added to the S&P only in November, after its stock price had doubled twice. The initial burst came in March, when the company was selected to make the graphics processors for Microsoft's popular Xbox video game system.
Announcing strong earnings and solidifying its position as the biggest maker of desktop PC graphics chips propelled it to double again.
That 308.4-percent return put Nvidia in ninth place for the largest one-year gain ever for an S&P company.
First place on the all-time winner's list is the legendary 2,620-percent gain of Qualcomm in 1999. 2000's top winner, Dynegy Corp., placed fifth in the all-time leaders list with a 361-percent return.
But both have significantly declined since their glory something Wall Street analysts don't expect to happen to Nvidia. Thomas Weisel Partners analyst Eric Ross said this week Nvidia's price could rise to as high as $90 in the next 12 months.
Such an upward revision is a good sign, according to Ronald Hill, director of research at Brown Brothers Harriman.
The key thing here is that the earnings estimates continue to be revised continuously upward, Mr. Hill told Bloomberg News. This is the one thing that drives tech stocks best, is analysts getting continuously more optimistic on their earnings outlooks.
Still, that's pretty optimistic considering that market trends right now favor value and Nvidia stock is already trading at 76 times its earnings. Compare that with the S&P's price-to-earnings ratio of 48.7 and chip maker Intel Corp.'s 46.5.
And of course, past glory is no guarantee of future success. The stock that Nvidia replaced in the S&P gained 87.3 percent in 2000, only to lose 99.3 percent in 2001. The stock: Enron.
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E-mail ahiggins@enquirer.com. Past columns at Enquirer.com/columns/higgins
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