Skip Nvidia? Value investor David Katz is betting on 4 'lower risk' stocks instead

Published Thu, Jun 27 20247:14 PM EDT

Amala Balakrishner @in/amala-balakrishner @_amalabk

As investors debate whether to buy, hold or sell U.S. chipmaker Nvidia , one value investor is steering clear. "Nvidia is a great company with really good short- and intermediate-term prospects," David Katz of the U.S.-based investment advisory firm Matrix Asset Advisors told CNBC's "Street Signs Asia" on Thursday. "The issue that we have with Nvidia is that we think the stock is fully priced." Katz, who manages the Matrix Asset Advisors Value Fund and is also CIO and president at the firm, expects the chipmaker to face competitive threats over the next one or two years. "We think it's a great company, but we are not owning the stock now. We would not be moving into the stock. We think that probably a year or two years from now, the stock could be lower than it is today," he said. "There are better places to make money with a lot lower risk," he added, naming several stocks he likes right now. Cisco Systems Technology giant Cisco Systems — which offers networking and security services as well as data centers — is among the names on Katz's list. He said the company has performed well recently, but has had a "miserable" couple of years. Cisco's revenue fell by 13% in its fiscal third quarter, but its earnings still surpassed expectations. Shares in the tech giant are down around 7% year-to-date and 7.8% in the last 12 months. Katz sees Cisco as a "second or third derivative play from artificial intelligence," with heightened demand for its networks as internet traffic grows. He also expects the company to see an acceleration in business from its $28 billion acquisition of security software maker Splunk . "We're expecting the business to start to accelerate for the first time in a long, long time, and at 12.5 times [price-to-earnings], you have a lot of upside," Katz said. "Right now, technology stocks are selling at 30 and 40 times earnings. The markets are at 22 times earnings. So you're getting Cisco at a much, much better price." According to FactSet data, of 28 analysts covering the stock, 7 give it a buy or overweight rating while 21 have a hold call. Their average price target is $53.51, which implies a potential upside of around 14%. Starbucks Coffee chain Starbucks is another favorite for Katz, who says it offers an "addictive product [with] global power." Trading at 22 times forward earnings, he said the stock offers "a great business at a very good price." Starbucks reported weaker-than-expected quarterly earnings and revenue at the end of April , fueled by falling same-store sales and traffic. The company's executives had previously attributed sluggish sales to boycotts targeting the company's stance on Israel. "The problems last quarter was self inflicted by management mistakes. We think they're going to fix it," Katz said, adding that he expects a management refresh — potentially a new CEO. Shares in Starbucks are up down 17.6% year-to-date and nearly 20% in the last 12 months. Of 35 analysts covering the stock, 14 give it a buy or overweight rating, according to FactSet data. Its average price target of $88.50 gives it upside potential of around 11.5%. 'Cheap' financial stocks Also on Katz's radar are large regional financial sector plays like Bank of New York Mellon and PNC Financial Services which offer "more upside." Large banks, he explained, "have a very understandable commercial real estate portfolio," unlike smaller or mid-sized regional banks. "Large banks had a very good first quarter and very good outlooks," he said. "So these stocks are at 11 times price-to-earnings. The market is 21 times earnings. So, we think they're cheap." — CNBC's Amelia Lucas contributed to this report.