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The NVIDIA and GameStop have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – April 14, 2022 – Zacks Equity Research shares NVIDIA (NVDA - Free Report) as the Bull of the Day and GameStop (GME - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Mosaic Company (MOS - Free Report) , and The Andersons, Inc. (ANDE - Free Report) .
Market sentiment has never been more dissonant than it is today, as investors contemplate the implications of the structural upheaval the pandemic and resulting digital renaissance have had on our global economy.
The pandemic rapidly accelerated a number of previously nascent economic shifts and seemed to mark a changing of the guard as Millennials claim their title as the largest consuming generation as well as the most future-focused.
NVIDIA's revolutionary CEO, Jensen Huang, and his constant disdain for the status quo have driven his company to greatness, with every new market-disrupting innovation that this leading chipmaker releases (each sequential product/service release generating faster & greater improvements than the last) captivating the spirit of the next generation.
NVDA is a must-have for every portfolio's innovation allocation and the -35% markdown from the all-time high it hit 6 months ago presents an excellent buying opportunity. Analysts' estimates have gone nowhere but up propelling NVDA into a Zacks Rank #1 (Strong Buy), and is now trading its lowest forward P/E since the pandemic capitulation (below 40x).
The Business
NVIDIA, the largest and fast-growing semiconductor innovator in the US, has been a stock market star in recent years, skyrocketing over 500% in the past 3 years alone (despite its recent decline) as this GPU pioneer and its visionary leader, Jensen Huang, take the prolifically advancing chip sector by storm.
NVIDIA's hyperfast GPUs became a data center necessity during the pandemic. Now the company is making moves to swiftly build out its cloud-software capabilities and take market share in the still-nascent metaverse space.
NVDA has exhibited this infectious volatility that so many other richly valued innovators experienced in the first few months of 2022, sliding into bear market territory (20% or more decline from recent highs) in mid-December and has yet to recover. However, NVDA continues to be bought up on every single dip due to its ostensibly boundless growth outlook (driven by its capabilities in the development of AI) providing endless support.
NVIDIA is the most exciting chipmaker on the public exchanges today, producing chips with unmatchable speed and capabilities that place it at the forefront of next-generation technologies like AI development, data analytics, and the metaverse.
NVIDIA's recent growth is nothing short of incredible as the enterprise sets the bar for prolific innovation in the chip space, and no other business has been even close to keeping up. NVIDIA's intelligence driving chips have solidified their sole GPU market control as we enter a digital renaissance.
The pandemic drove the global economy to digitize by 10 years in just 10 months, pulling forward unprecedented demand for NVIDIA's hyper-fast GPUs. Society is now conditioned for swift and continuous adaptation to advancing tech, supporting NVIDIA's boundless profitable growth with endless innovation at the core.
Analysts are relentlessly bullish on NVDA as the company consistently blows out estimates each quarter. Sell-side analysts have been pushing up their EPS projections over every time horizon, propelling NVDA into a Zacks Rank #2 (Buy).
NVDA exposure is a must for every portfolio's next-generation allocation as the 4th Industrial Revolution kicks off.
Fundamental Breakdown
This GPU powerhouse has been able to more than justify its seemingly rich 35x forward P/E multiple (though lowest in 2 years) with consistently outsized profitable growth that has driven between 40-70% year-over-year revenue appreciation in the past 9 consecutive quarters (flowing down to high-double to triple-digit annual earnings expansions), along with record top and bottom-line results in 7 back-to-back earnings reports.
NVIDIA has proven its ability to generate boundless secular growth that has blown past analysts' increasingly aggressive top and bottom-line estimates for years. EPS estimates have been raised across the board after an incredible October quarter, and I still view projection as conservative. NVIDIA's most significant profit drivers in gaming and data centers are still just in their nascent phases of development as we enter this digital renaissance.
I expect demand for NVIDIA's GPU technology to only accelerate over the next decade as this company paves the way for innovation across sectors.
NVDA is a stock that you can't afford to leave out of your portfolio, and after its recent pullback NVDA is once again in breakout mode. It'd be prudent to seize on this excellent entry point below $300 a share.
The Future
NVIDIA has become the most cutting-edge chipmaker on earth. The company invented the graphics processing unit (GPU), initially purposed for rendering images, but now possesses capabilities beyond graphics cards. NVIDIA's hyper-fast GPUs are becoming a necessity in data centers across the globe, most notably in the development of deep learning and artificial intelligence (as I mentioned above).
Data centers will be a primary end-market for this market disruptor in this world headed towards cloud computing, and NVIDIA's hyper-fast GPUs are becoming a necessity. CEO and founder Jensen Huang said in a recent press release that "NVIDIA AI is enabling breakthroughs in language understanding, conversational AI and recommendation engines -- the core algorithms that power the internet today. And new NVIDIA computing applications in 5G, genomics, robotics, and autonomous vehicles enable us to continue important work that has great impact."
NVIDIA completely controls the data center GPU market with no close competitors (despite AMD's attempts). This company is crucial to the discovery of true AI, which will be an inflection point in human understanding. NVDA chips can already be found in 9 of the top 10 supercomputers and 2/3rd of the top 500 (including Meta Platform's new leading AI supercomputer (aka RSC) for its metaverse buildout).
NVIDIA just launched its Omniverse platform for digital game developers to exceed gamers' growing expectations. Nvidia is also leveraging data center capabilities with its latest cloud platform. Just as cloud computing is the future of business data and analytics, cloud gaming is the future of gaming in the metaverse.
These platforms allow anyone to utilize NVIDIA GPUs' high-speed, low-latency technology without needing NVIDIA's hardware locally, using any digital device from a smartphone to a VR headset.
NVIDIA is also working on a number of enterprise-focused metaverse cloud software and hardware (GPUs). NVIDIA's ability to remain far ahead of the innovation curve in virtually all of its operations I have no doubt that this chipmaker (with a recent proclivity for software innovation) will be a crucial pioneer in this burgeoning sector of virtual worlds as the metaverse grows into its estimated $10+ trillion market opportunity.
Final Thoughts
NVIDIA is a stock that every investor should have some exposure to. Despite its recent drawdown, NVDA remains at a very frothy yet justified market valuation, after more than doubling in the past year, but leaving the stock more vulnerable to short-term volatility as monetary tightening initiates.
Still, NVDA is trading materially below its consensus 12-month price target and roughly 50% below its most optimistic target. 19 of 22 analysts are calling NVDA a buy today (with no sell ratings), and I couldn't agree more. Whether for the trade or a long-term hold, $225 is a perfect place to enter/add to an NVDA position.
GameStop, the "meme stock" that shook the financial markets to its core at the beginning of 2021, with a short-squeeze for the history books, has once again made its way to the top of the new cycle. GME's unprecedented trading activity showed Wall Street that this next generation of investors/traders possesses a market-moving power that they need to embrace, not fight.
GME has since evolved from a fundamentally-backed stock into a media-fueled gambling tool, with any hint of optimistic news (or any rumor at all really) driving heavy volume momentum back into this egregiously overvalued public equity.
This has provided GameStop with seemingly endless funding, through secondary equity offerings of unquestionably overvalued stock. Still, the new management team is yet to provide any actionable plan for bringing this dying brick-and-mortar retailer back to life.
The latest earnings highlighted "expanded brand relationships" with PC gaming partners (ambiguous to say the least) and the imminent launch of GameStop's NFT marketplace by the end of April, which is a long way from being a quantifiable segment (and likely even further from profitability).
As much as I want to believe in the GameStop comeback, its $11.5 billion market valuation is not even close to justified, with the management team offering investors no clear path to profitability. The company's latest earnings report depicted the largest quarterly revenues for GameStop in 3 years. However, this topline expansion came at a substantial cost, revealing GME's worst quarterly loss as a public company.
Analysts are increasingly bearish on this position following a lackluster January quarter report, driving down EPS estimates across the board, dragging down GameStop to a Zacks Rank #5.
Let me be clear about my recommendation: I am not suggesting that you short GME or take any position at all in the stock, but rather advocating for some profit-pulling with the stock breaking below its 200-day moving average (which it only managed to hold above for 6 trading days).
The weekly option plays had been driving a large portion of the recent upside and as more and more of these out-of-the-money calls expire worthless, GME will continue to lose steam after its short-lived catalyst.
Latest Catalyst
GME has caught a recent bid after the man the myth the legend, Ryan Cohen (Chairman of GameStop), who initially launched this moon-bound stock into the stratosphere when he revealed an over $76 million position in GME in January 2021 (more than 9 million shares), announced the purchase of an additional 100,000 shares on March 22nd, which seemed to reignited this "meme stock" mania.
GME was up as much as 150% in the wake of its NFT-focused earnings report in mid-March, which demonstrated a top-line beat, and margin oppressing cost spikes that would have had any other group of shareholders shaking in their boots was a bullish signal for this new market cohort of (self-proclaimed) "diamond-handed apes."
Nevertheless, GME has predictably lost much of its momentum in recent sessions as daily volumes continue to get dragged lower, as the short attention span of its biggest advocates moves towards greener pastures.
The Big Short-Squeeze
A little more than a year ago, a fragmented group of freshman day traders on a Reddit message board called r/WallStreetBets (WSB) were unified by a single stock, GameStop, a dying brick-and-mortar retailer that ostensibly held market-moving nostalgic value.
The GME fuse was lit way before its parabolic moonshot in early 2021, as this new class of market participants began looking for value in the things they knew. GameStop quickly made its way to the top of that list in late 2020. GME could have actually been categorized as a value play in late-2020, trading under a $1 billion market cap into 2021, a valuation that suggested imminent bankruptcy. GME is now at an over $13 billion public company.
Once Ryan Cohen announced RC Ventures' activist position in GameStop, a cascade of retail investing capital flooded into this overly shorted public equity (short-interest above 100%), driving what appeared to be an endless self-fulling prophecy of upside success with near term call options adding fuel to its euphoric short-throttling price action (rally as much as 2,000% in a mere two weeks).
The Ryan Cohen Effect
Ryan Cohen, the co-founder of Chewy and current Chairman of GameStop's board, announced another more than $10 million "investment" for 100,000 GME shares, which he executed through his investment fund, RC Ventures, catalyzing the latest flood of euphoric meme trading activity.
Ryan Cohen now owns roughly 12% of this $11.5 billion pipe dream.
Ryan Cohen's $10 million GME purchase in late March reinvigorated GME's "meme stock" momentum as young day traders and hedge funds (momentum chasing) begin buying up absurd volumes of immediate-term call options (100,000s of calls expiring on Friday traded hands today), catalyzing some gamma-squeeze Déjà vu in GME – significant open interest (OI) in soon-to-expire contracts causes leveraged price action due to extreme moves in these Friday contracts' delta, aka gamma (forcing market makers to quickly buy or sell shares to maintain a price agnostic position).
GME ticker mentions on the younger market participants' favorite trading forum, r/WallStreetBets (WSB), have been through the rough, inspiring another big WSB winner, AMC, to shoot higher as well for no other reason than its "meme stock" categorization (which has also proceeded to rapidly decline since its very abbreviated jump).
Final Thoughts
Unless you understand how the GME trade works (there is always a technical driver no matter the fundamentals, which appears to be a combination of Fibonacci-retracements and MAs) I would stay away from GME. GME is a trading mechanism at best (losing lottery-ticket at worst), not a buy & hold investment.
Additional content:
2 Strong-Buy Stocks Growing Despite the Odds
I was taking a look at how the S&P 500 has done in recent history and I found that in the last six months, it has moved just 0.9% lower. But this doesn't tell the whole story because it has dropped 7.2% year to date, -5.1% in the last three months and appreciated 6.0% in the past month. This seems to indicate that the negative sentiment at the start of the year may be dissipating somewhat. But does this make sense? Let's see.
The first major cause for concern is inflation. As far as that is concerned, the Fed is taking cautious steps. This is exactly what it should be doing in a situation where rate hikes intended to raise prices and discourage consumer spending could be overdone. In which case, there would be a negative spiral down into a recession, which is absolutely what we don't want.
The second reason that is also contributing to the inflation and is not that easily taken care of is the increase in cost of production for many companies. In some cases, this relates to supply chain issues; in others, it's also or only other factors like the availability of labor.
The US is currently in a condition of full employment (sub-4% unemployment) while the number of available jobs remains at record highs. New jobs are becoming available in arts, entertainment and recreation; educational services; and federal government; while finance and insurance and nondurable goods manufacturing are rapidly filling positions and recording declines.
The third reason for concern is the Russia-Ukraine war, which is squeezing availability of raw materials and commodities that were shipped from the region. Russia in particular is a leading supplier of not just oil and gas but many other key commodities like wheat, semi-finished iron, nitrogen-based fertilizers, cobalt (used in batteries including of EVs), vanadium (used in steel making), as well as gold, nickel, platinum, copper and a host of other commodities.
A trade embargo of Russia is unlikely to be easy on the rest of the world. And Russia has itself cut back on things like timber to those opposing its actions.
So currently, we are in a situation when prices of everything look like they can only move higher. We may blame the Fed for having fallen behind in its monetary policy, but nobody could have foreseen all the problems in the world today. So it makes sense to take a cautious path because there's nothing else to be done.
To answer the question on whether it is rational to breathe a little easier now, the answer is both yes and no. Yes, because both the problems and the action to be taken are better defined today. Also, with employment remaining high, buying power remains, which is exactly the situation needed to hike rates and ease into a situation of relatively lower demand without triggering a recession.
And no, because while we're aware of the problems and the U.S. has taken the step of releasing oil reserves, the situation is unlikely to get sorted out any time soon. Moreover, there are still indications that this could grow into a bigger war with more countries participating. And the possibility of China annexing Taiwan (and therefore gaining control over the ton of chips that America needs) also can't be ruled out.
There are two ways to play the risk that obviously exists in the market right now. One is putting your money into safe assets like blue chips and bullion (or its derivatives). The other is to invest in stocks that are somehow gaining from the situation. By that I mean anything that Russia usually supplies to the world (for example), because prices of these things are definitely going to move higher. And companies that deal in them will be able to hike prices and make more profit.
Here are a couple of stocks that can help you stay ahead of the situation as it is developing right now.
The Mosaic Company
Mosaic is a supplier of concentrated phosphate and potash for the global agriculture industry, catering to customers across roughly 40 countries. Its products are processed into crop nutrients, and then shipped thorough rail, barge and ocean-going vessels to customers in major agricultural centers globally.
The Zacks Rank #1 (Strong Buy) stock, which belongs to the Fertilizers industry (top 1% of Zacks-classified industries) has seen its price appreciating 10.3% over the past week. Fertilizers are a commodity that Russia is a leading supplier of, so Mosaic is positioned to benefit from price increases as Russian supply is cut off.
This phenomenon is at least partially responsible for the steady increases in Mosaic's 2022 estimates from $8.78 to $11.87 over the last 60 days, which has in turn contributed to rising prices. The 2023 estimate is likely to come down from 2022 because of more difficult comps but will still represent notably higher earnings than in 2021.
The Andersons, Inc.
Andersons is a regional grain merchandiser with diversified businesses in agriculture, plant nutrient formulation and distribution, turf product production, railcar marketing and general merchandise retailing. Andersons maintains grain and production facilities throughout the Midwest and six retail locations in northern and central Ohio.
The reason I like this stock at the moment is that it is a supplier of wheat. With supply of Russian wheat cut off, wheat prices are on the rise, which is a positive for profitability at Andersons.
And that's the main reason that this Zacks Rank #1 stock, which belongs to the Agriculture – Products industry (top 9% of Zacks-classified industries) has seen its 2022 earnings estimate increase 15.3% in the last 60 days. This in turn has led to buoyant share prices that appreciated around 10.0% in the past week.
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The NVIDIA and GameStop have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – April 14, 2022 – Zacks Equity Research shares NVIDIA (NVDA - Free Report) as the Bull of the Day and GameStop (GME - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Mosaic Company (MOS - Free Report) , and The Andersons, Inc. (ANDE - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
Market sentiment has never been more dissonant than it is today, as investors contemplate the implications of the structural upheaval the pandemic and resulting digital renaissance have had on our global economy.
The pandemic rapidly accelerated a number of previously nascent economic shifts and seemed to mark a changing of the guard as Millennials claim their title as the largest consuming generation as well as the most future-focused.
NVIDIA's revolutionary CEO, Jensen Huang, and his constant disdain for the status quo have driven his company to greatness, with every new market-disrupting innovation that this leading chipmaker releases (each sequential product/service release generating faster & greater improvements than the last) captivating the spirit of the next generation.
NVDA is a must-have for every portfolio's innovation allocation and the -35% markdown from the all-time high it hit 6 months ago presents an excellent buying opportunity. Analysts' estimates have gone nowhere but up propelling NVDA into a Zacks Rank #1 (Strong Buy), and is now trading its lowest forward P/E since the pandemic capitulation (below 40x).
The Business
NVIDIA, the largest and fast-growing semiconductor innovator in the US, has been a stock market star in recent years, skyrocketing over 500% in the past 3 years alone (despite its recent decline) as this GPU pioneer and its visionary leader, Jensen Huang, take the prolifically advancing chip sector by storm.
NVIDIA's hyperfast GPUs became a data center necessity during the pandemic. Now the company is making moves to swiftly build out its cloud-software capabilities and take market share in the still-nascent metaverse space.
NVDA has exhibited this infectious volatility that so many other richly valued innovators experienced in the first few months of 2022, sliding into bear market territory (20% or more decline from recent highs) in mid-December and has yet to recover. However, NVDA continues to be bought up on every single dip due to its ostensibly boundless growth outlook (driven by its capabilities in the development of AI) providing endless support.
NVIDIA is the most exciting chipmaker on the public exchanges today, producing chips with unmatchable speed and capabilities that place it at the forefront of next-generation technologies like AI development, data analytics, and the metaverse.
NVIDIA's recent growth is nothing short of incredible as the enterprise sets the bar for prolific innovation in the chip space, and no other business has been even close to keeping up. NVIDIA's intelligence driving chips have solidified their sole GPU market control as we enter a digital renaissance.
The pandemic drove the global economy to digitize by 10 years in just 10 months, pulling forward unprecedented demand for NVIDIA's hyper-fast GPUs. Society is now conditioned for swift and continuous adaptation to advancing tech, supporting NVIDIA's boundless profitable growth with endless innovation at the core.
Analysts are relentlessly bullish on NVDA as the company consistently blows out estimates each quarter. Sell-side analysts have been pushing up their EPS projections over every time horizon, propelling NVDA into a Zacks Rank #2 (Buy).
NVDA exposure is a must for every portfolio's next-generation allocation as the 4th Industrial Revolution kicks off.
Fundamental Breakdown
This GPU powerhouse has been able to more than justify its seemingly rich 35x forward P/E multiple (though lowest in 2 years) with consistently outsized profitable growth that has driven between 40-70% year-over-year revenue appreciation in the past 9 consecutive quarters (flowing down to high-double to triple-digit annual earnings expansions), along with record top and bottom-line results in 7 back-to-back earnings reports.
NVIDIA has proven its ability to generate boundless secular growth that has blown past analysts' increasingly aggressive top and bottom-line estimates for years. EPS estimates have been raised across the board after an incredible October quarter, and I still view projection as conservative. NVIDIA's most significant profit drivers in gaming and data centers are still just in their nascent phases of development as we enter this digital renaissance.
I expect demand for NVIDIA's GPU technology to only accelerate over the next decade as this company paves the way for innovation across sectors.
NVDA is a stock that you can't afford to leave out of your portfolio, and after its recent pullback NVDA is once again in breakout mode. It'd be prudent to seize on this excellent entry point below $300 a share.
The Future
NVIDIA has become the most cutting-edge chipmaker on earth. The company invented the graphics processing unit (GPU), initially purposed for rendering images, but now possesses capabilities beyond graphics cards. NVIDIA's hyper-fast GPUs are becoming a necessity in data centers across the globe, most notably in the development of deep learning and artificial intelligence (as I mentioned above).
Data centers will be a primary end-market for this market disruptor in this world headed towards cloud computing, and NVIDIA's hyper-fast GPUs are becoming a necessity. CEO and founder Jensen Huang said in a recent press release that "NVIDIA AI is enabling breakthroughs in language understanding, conversational AI and recommendation engines -- the core algorithms that power the internet today. And new NVIDIA computing applications in 5G, genomics, robotics, and autonomous vehicles enable us to continue important work that has great impact."
NVIDIA completely controls the data center GPU market with no close competitors (despite AMD's attempts). This company is crucial to the discovery of true AI, which will be an inflection point in human understanding. NVDA chips can already be found in 9 of the top 10 supercomputers and 2/3rd of the top 500 (including Meta Platform's new leading AI supercomputer (aka RSC) for its metaverse buildout).
NVIDIA just launched its Omniverse platform for digital game developers to exceed gamers' growing expectations. Nvidia is also leveraging data center capabilities with its latest cloud platform. Just as cloud computing is the future of business data and analytics, cloud gaming is the future of gaming in the metaverse.
These platforms allow anyone to utilize NVIDIA GPUs' high-speed, low-latency technology without needing NVIDIA's hardware locally, using any digital device from a smartphone to a VR headset.
NVIDIA is also working on a number of enterprise-focused metaverse cloud software and hardware (GPUs). NVIDIA's ability to remain far ahead of the innovation curve in virtually all of its operations I have no doubt that this chipmaker (with a recent proclivity for software innovation) will be a crucial pioneer in this burgeoning sector of virtual worlds as the metaverse grows into its estimated $10+ trillion market opportunity.
Final Thoughts
NVIDIA is a stock that every investor should have some exposure to. Despite its recent drawdown, NVDA remains at a very frothy yet justified market valuation, after more than doubling in the past year, but leaving the stock more vulnerable to short-term volatility as monetary tightening initiates.
Still, NVDA is trading materially below its consensus 12-month price target and roughly 50% below its most optimistic target. 19 of 22 analysts are calling NVDA a buy today (with no sell ratings), and I couldn't agree more. Whether for the trade or a long-term hold, $225 is a perfect place to enter/add to an NVDA position.
Bear of the Day:
GameStop, the "meme stock" that shook the financial markets to its core at the beginning of 2021, with a short-squeeze for the history books, has once again made its way to the top of the new cycle. GME's unprecedented trading activity showed Wall Street that this next generation of investors/traders possesses a market-moving power that they need to embrace, not fight.
GME has since evolved from a fundamentally-backed stock into a media-fueled gambling tool, with any hint of optimistic news (or any rumor at all really) driving heavy volume momentum back into this egregiously overvalued public equity.
This has provided GameStop with seemingly endless funding, through secondary equity offerings of unquestionably overvalued stock. Still, the new management team is yet to provide any actionable plan for bringing this dying brick-and-mortar retailer back to life.
The latest earnings highlighted "expanded brand relationships" with PC gaming partners (ambiguous to say the least) and the imminent launch of GameStop's NFT marketplace by the end of April, which is a long way from being a quantifiable segment (and likely even further from profitability).
As much as I want to believe in the GameStop comeback, its $11.5 billion market valuation is not even close to justified, with the management team offering investors no clear path to profitability. The company's latest earnings report depicted the largest quarterly revenues for GameStop in 3 years. However, this topline expansion came at a substantial cost, revealing GME's worst quarterly loss as a public company.
Analysts are increasingly bearish on this position following a lackluster January quarter report, driving down EPS estimates across the board, dragging down GameStop to a Zacks Rank #5.
Let me be clear about my recommendation: I am not suggesting that you short GME or take any position at all in the stock, but rather advocating for some profit-pulling with the stock breaking below its 200-day moving average (which it only managed to hold above for 6 trading days).
The weekly option plays had been driving a large portion of the recent upside and as more and more of these out-of-the-money calls expire worthless, GME will continue to lose steam after its short-lived catalyst.
Latest Catalyst
GME has caught a recent bid after the man the myth the legend, Ryan Cohen (Chairman of GameStop), who initially launched this moon-bound stock into the stratosphere when he revealed an over $76 million position in GME in January 2021 (more than 9 million shares), announced the purchase of an additional 100,000 shares on March 22nd, which seemed to reignited this "meme stock" mania.
GME was up as much as 150% in the wake of its NFT-focused earnings report in mid-March, which demonstrated a top-line beat, and margin oppressing cost spikes that would have had any other group of shareholders shaking in their boots was a bullish signal for this new market cohort of (self-proclaimed) "diamond-handed apes."
Nevertheless, GME has predictably lost much of its momentum in recent sessions as daily volumes continue to get dragged lower, as the short attention span of its biggest advocates moves towards greener pastures.
The Big Short-Squeeze
A little more than a year ago, a fragmented group of freshman day traders on a Reddit message board called r/WallStreetBets (WSB) were unified by a single stock, GameStop, a dying brick-and-mortar retailer that ostensibly held market-moving nostalgic value.
The GME fuse was lit way before its parabolic moonshot in early 2021, as this new class of market participants began looking for value in the things they knew. GameStop quickly made its way to the top of that list in late 2020. GME could have actually been categorized as a value play in late-2020, trading under a $1 billion market cap into 2021, a valuation that suggested imminent bankruptcy. GME is now at an over $13 billion public company.
Once Ryan Cohen announced RC Ventures' activist position in GameStop, a cascade of retail investing capital flooded into this overly shorted public equity (short-interest above 100%), driving what appeared to be an endless self-fulling prophecy of upside success with near term call options adding fuel to its euphoric short-throttling price action (rally as much as 2,000% in a mere two weeks).
The Ryan Cohen Effect
Ryan Cohen, the co-founder of Chewy and current Chairman of GameStop's board, announced another more than $10 million "investment" for 100,000 GME shares, which he executed through his investment fund, RC Ventures, catalyzing the latest flood of euphoric meme trading activity.
Ryan Cohen now owns roughly 12% of this $11.5 billion pipe dream.
Ryan Cohen's $10 million GME purchase in late March reinvigorated GME's "meme stock" momentum as young day traders and hedge funds (momentum chasing) begin buying up absurd volumes of immediate-term call options (100,000s of calls expiring on Friday traded hands today), catalyzing some gamma-squeeze Déjà vu in GME – significant open interest (OI) in soon-to-expire contracts causes leveraged price action due to extreme moves in these Friday contracts' delta, aka gamma (forcing market makers to quickly buy or sell shares to maintain a price agnostic position).
GME ticker mentions on the younger market participants' favorite trading forum, r/WallStreetBets (WSB), have been through the rough, inspiring another big WSB winner, AMC, to shoot higher as well for no other reason than its "meme stock" categorization (which has also proceeded to rapidly decline since its very abbreviated jump).
Final Thoughts
Unless you understand how the GME trade works (there is always a technical driver no matter the fundamentals, which appears to be a combination of Fibonacci-retracements and MAs) I would stay away from GME. GME is a trading mechanism at best (losing lottery-ticket at worst), not a buy & hold investment.
Additional content:
2 Strong-Buy Stocks Growing Despite the Odds
I was taking a look at how the S&P 500 has done in recent history and I found that in the last six months, it has moved just 0.9% lower. But this doesn't tell the whole story because it has dropped 7.2% year to date, -5.1% in the last three months and appreciated 6.0% in the past month. This seems to indicate that the negative sentiment at the start of the year may be dissipating somewhat. But does this make sense? Let's see.
The first major cause for concern is inflation. As far as that is concerned, the Fed is taking cautious steps. This is exactly what it should be doing in a situation where rate hikes intended to raise prices and discourage consumer spending could be overdone. In which case, there would be a negative spiral down into a recession, which is absolutely what we don't want.
The second reason that is also contributing to the inflation and is not that easily taken care of is the increase in cost of production for many companies. In some cases, this relates to supply chain issues; in others, it's also or only other factors like the availability of labor.
The US is currently in a condition of full employment (sub-4% unemployment) while the number of available jobs remains at record highs. New jobs are becoming available in arts, entertainment and recreation; educational services; and federal government; while finance and insurance and nondurable goods manufacturing are rapidly filling positions and recording declines.
The third reason for concern is the Russia-Ukraine war, which is squeezing availability of raw materials and commodities that were shipped from the region. Russia in particular is a leading supplier of not just oil and gas but many other key commodities like wheat, semi-finished iron, nitrogen-based fertilizers, cobalt (used in batteries including of EVs), vanadium (used in steel making), as well as gold, nickel, platinum, copper and a host of other commodities.
A trade embargo of Russia is unlikely to be easy on the rest of the world. And Russia has itself cut back on things like timber to those opposing its actions.
So currently, we are in a situation when prices of everything look like they can only move higher. We may blame the Fed for having fallen behind in its monetary policy, but nobody could have foreseen all the problems in the world today. So it makes sense to take a cautious path because there's nothing else to be done.
To answer the question on whether it is rational to breathe a little easier now, the answer is both yes and no. Yes, because both the problems and the action to be taken are better defined today. Also, with employment remaining high, buying power remains, which is exactly the situation needed to hike rates and ease into a situation of relatively lower demand without triggering a recession.
And no, because while we're aware of the problems and the U.S. has taken the step of releasing oil reserves, the situation is unlikely to get sorted out any time soon. Moreover, there are still indications that this could grow into a bigger war with more countries participating. And the possibility of China annexing Taiwan (and therefore gaining control over the ton of chips that America needs) also can't be ruled out.
There are two ways to play the risk that obviously exists in the market right now. One is putting your money into safe assets like blue chips and bullion (or its derivatives). The other is to invest in stocks that are somehow gaining from the situation. By that I mean anything that Russia usually supplies to the world (for example), because prices of these things are definitely going to move higher. And companies that deal in them will be able to hike prices and make more profit.
Here are a couple of stocks that can help you stay ahead of the situation as it is developing right now.
The Mosaic Company
Mosaic is a supplier of concentrated phosphate and potash for the global agriculture industry, catering to customers across roughly 40 countries. Its products are processed into crop nutrients, and then shipped thorough rail, barge and ocean-going vessels to customers in major agricultural centers globally.
The Zacks Rank #1 (Strong Buy) stock, which belongs to the Fertilizers industry (top 1% of Zacks-classified industries) has seen its price appreciating 10.3% over the past week. Fertilizers are a commodity that Russia is a leading supplier of, so Mosaic is positioned to benefit from price increases as Russian supply is cut off.
This phenomenon is at least partially responsible for the steady increases in Mosaic's 2022 estimates from $8.78 to $11.87 over the last 60 days, which has in turn contributed to rising prices. The 2023 estimate is likely to come down from 2022 because of more difficult comps but will still represent notably higher earnings than in 2021.
The Andersons, Inc.
Andersons is a regional grain merchandiser with diversified businesses in agriculture, plant nutrient formulation and distribution, turf product production, railcar marketing and general merchandise retailing. Andersons maintains grain and production facilities throughout the Midwest and six retail locations in northern and central Ohio.
The reason I like this stock at the moment is that it is a supplier of wheat. With supply of Russian wheat cut off, wheat prices are on the rise, which is a positive for profitability at Andersons.
And that's the main reason that this Zacks Rank #1 stock, which belongs to the Agriculture – Products industry (top 9% of Zacks-classified industries) has seen its 2022 earnings estimate increase 15.3% in the last 60 days. This in turn has led to buoyant share prices that appreciated around 10.0% in the past week.
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