One yr in the past, the coronavirus disrupted fairness markets to a level by no means earlier than seen. The benchmark S&P 500 in the end misplaced 34% of its worth in lower than 5 weeks earlier than commencing what’s been an 11-month mega-rally.
In 2021, it has been retail buyers who’ve disrupted the inventory market. Brief-term-focused and emotion-based merchants on Reddit’s WallStreetBets chat room, together with a military of Robinhood retail buyers, have descended on dozens of closely short-sold corporations or penny shares in an effort to ship their share costs skyrocketing. In some situations, it is labored.
However the Reddit and Robinhood retail frenzy has created a rising record of publicly traded corporations which might be wildly detached from their underlying fundamentals. Regardless of being ultra-popular, you could not give me free cash to purchase the next seven shares.
No marijuana stock is flashing extra warning indicators in the mean time than Canadian licensed producer Sundial Growers (NASDAQ:SNDL). Although Sundial has drastically improved its steadiness sheet following various share choices and debt-to-equity swaps (the corporate holds roughly $610 million in money in the mean time), it is accomplished so by drowning its buyers in share issuances. The corporate’s excellent share depend has increased by more than 1 billion since Sept. 30, and its board simply OK’d a mixed-shelf providing that might permit it to promote as much as $1 billion value of further shares. The dilution right here is off-the-scales dangerous.
Moreover, Sundial is transitioning from lower-margin wholesale hashish operations to higher-margin retail gross sales. Although it is a sensible transfer for the long term, it is nonetheless nicely behind different Canadian licensed producers. Following a number of writedowns in 2020, Sundial’s working outcomes verify this can be a inventory value avoiding.
Online game and equipment retailer GameStop (NYSE:GME) is the poster little one of the Reddit frenzy. At one level, retail buyers had been in a position to ship shares to inside a whisker of $500 in pre-market buying and selling in late January. Right now, GameStop sits at near $41, down greater than 90% from its intraday excessive. However, it nonetheless has plenty of room to fall further.
The difficulty with GameStop is that it waited far too lengthy to deal with digital downloads. Positive, the corporate’s e-commerce gross sales are rising by triple digits, however they make up a small share of whole gross sales. GameStop has at all times been brick-and-mortar based mostly, and it has been busy closing a few of its shops to scale back prices and backpedal its manner again into the revenue column. In different phrases, GameStop isn’t working able of power, like its latest share-price appreciation would point out. That makes it wholly avoidable.
It is no secret: I am not a fan of Bitcoin (CRYPTO:BTC). However I am even much less of a fan of Bitcoin mining operations like Riot Blockchain (NASDAQ:RIOT). Cryptocurrency miners are individuals or companies that use high-powered computer systems to unravel complicated mathematical equations to validate teams of transactions referred to as blocks. For validating a block, the miner is rewarded in crypto tokens. The present block reward for Bitcoin is 6.25 tokens, which is value virtually $320,000.
This may sound like a terrific enterprise mannequin, however the start-up prices are excessive, and the electrical energy/upkeep prices of working a mining farm are sizable. Quite than counting on innovation, Riot Blockchain’s shareholders are at the whim of Bitcoin’s price movements. If buyers are so desirous to guess on Bitcoin heading greater, purchase Bitcoin. An organization like Riot deleverages your potential good points as a result of its excessive working prices and unproven working mannequin.
To double down, shopping for cryptocurrency mining shares is a extremely dangerous concept. Although Bit Digital (NASDAQ:BTBT) is likely one of the top-performing shares over the trailing yr, it suffers from most of the identical shortfalls at Riot Blockchain. Particularly, shareholders are crossing their fingers and hoping for Bitcoin to go greater, fairly than counting on their firm to innovate and develop its high and backside traces.
However there’s an added degree of danger that makes Bit Digital doubtlessly extra harmful than Riot Blockchain. In responding to fraud allegations that had been levied towards the corporate in January, a press launch from Bit Digital contained the next assertion: “[T]he Firm as a overseas issuer isn’t required underneath house nation follow to publicly announce its quarterly outcomes.” This primarily reads that Bit Digital is not assured to publicly and transparently permit buyers to see what is going on on underneath the hood. That is a giant crimson flag.
Osprey Bitcoin Belief
One other well-liked safety I would not purchase with free cash (and also you should not, both) is the Osprey Bitcoin Belief (OTC:OBTC). Because the identify implies, this can be a belief that holds Bitcoin, which presumably offers a neater manner for buyers to purchase into the crypto frenzy with out having to buy something on a cryptocurrency alternate or retailer it in a digital pockets. The Osprey Bitcoin Belief additionally undercuts its chief rival, the Grayscale Bitcoin Belief, on administration charges, 0.49% versus 2%.
However get this: The Osprey Bitcoin Belief ended Feb. 18 with a web asset worth (NAV) of $17.75. This NAV accounts for the worth of all of the Bitcoin Osprey owns, relative to its excellent shares. Nevertheless, the Osprey Bitcoin Belief closed at $41.45 on Feb. 18. That is a premium to the precise worth of the Bitcoin held by the Belief of 134%! For those who’re set on shopping for Bitcoin, that is a completely terrible strategy to do it.
Electrical autos (EVs) could also be the way forward for the automotive business, however EV charging and community providers supplier Blink Charging (NASDAQ:BLNK) seems to have warped many years into the long run with its present market cap of almost $2 billion.
On the brilliant facet, the corporate accomplished a public share providing in mid-January that raised $221.6 million in web proceeds. That needs to be greater than sufficient capital for the corporate to reinvest in EV charging expertise and increase its deployment of EV charging stations.
However, we’re speaking about an organization that might only have produced $5 million in sales in 2020 and is on monitor for maybe double that quantity in 2021. EV charging stations are prone to be a extremely aggressive area, and Blink Charging should make investments aggressively to face out. That is a components for big losses in the years to come.
Lastly, you could not give me free cash to purchase into the hype surrounding movie show chain AMC Leisure (NYSE:AMC). It is a part of the closely short-sold group of shares that skyrocketed weeks in the past as a part of the retail-investor-based Reddit rally.
The problems with AMC are twofold. First, the corporate isn’t guaranteed to survive beyond 2021. It was fortunate to have the ability to elevate $917 million by a mix of share and debt issuances, however does not seem to have sufficient capital to make it by the yr if the coronavirus pandemic continues to harm visitors or shut venues.
Second, AMC Leisure’s working mannequin is being disrupted by streaming providers. As an illustration, AT&T subsidiary WarnerMedia plans to launch its films on HBO Max the identical time they’re slated to hit theaters in 2021. Even when AMC does survive, it’s going to be a shell of its former self.