Welcome back to the MSI weekly newsletter!
In the past month, the Nasdaq went up by 9% which is a significant difference from the S&P 500 increasing by 3%. In my previous newsletter, I explained how raising interest rates had a direct impact on the collapse of Silicon Valley Bank. After Silicon Valley Bank shut down, two more banks also shut down. Before that, it was expected that the Fed would raise interest rates by half a point. However, due to this event, the Fed only raised interest rates by a quarter point.
The market is optimistic that the end of the Fed raising interest rates is in sight. When interest rates were rising at a rapid rate, the Nasdaq stocks already got punished a lot. Now that the rise of interest rates is slowing down, tech stocks are starting to bottom and even go up.
My strategy for investing is to invest in high quality GARP(Growth At a Reasonable Price) stocks with high dividend growth. My strategy has been paying off as some of those companies such as ACN, GOOGL, INTU, ADBE, AMD, and ASML. Recently, ACN had great results and is a very high quality tech company overall as they are well managed and increase dividends by an average of 15%. Other early investments in industrials such as APD and ROK have paid off along with investments in select financials such as ICE.
Along with investing in high quality GARP stocks, it is also important to have a diverse selection of stocks cutting across different sectors. Stocks that may be currently paying a low dividend but have high dividend growth are better investments than stocks that pay high dividend but have low dividend growth. For example, SBUX currently pays a dividend of 2% but it grows by 10%. Similarly ACN pays a dividend of 1.6% and grows by 15%. They are better investments than AT&T, for example, which pays a dividend of 5% but grows by only 1%.
High dividend growers have high and consistent profits so they are able to grow their dividends faster. Companies that have low growing dividends have less profits, so they don't have enough money to grow their dividends by much.
Thanks for reading my newsletter!