The next round of stimulus checks is likely to bring a further increase in retail investor participation, and investors who support the right companies may end up turning a $ 1,400 check into a much larger amount. Of course, this will involve taking some risks, and it is fair to say that the stock market looks volatile.
With that in mind, we asked three Motley Fool contributors to profile a bullish and bullish stock that they believe investors should stay away from now. Keep reading to see why they think about supporting GameStop (NYSE: GME), Tesla (NASDAQ: TSLA), and Sundial Growers (NASDAQ: SNDL) with your stimulus money it would be a bad move.
Image source: Getty Images.
Don’t try to recapture the magic
Keith Noonan (GameStop): The comeback comeback for GameStop last year was nothing short of incredible. The struggling retailer’s shares began to rise due to enthusiasm about the new video game consoles from Sony and Microsoft. It received another boost with the news that Ryan Cohen, founder of the e-commerce platform focused on pets Chewy, was buying shares and taking an activist role in driving the business to focus on online retail.
What happened next is a story for the history books. Individual investors coordinating Reddit’s WallStreetBets board and other social centers on the Internet noted that some companies had made big bets against GameStop and that buying the shares could trigger a small squeeze that would result in the company’s stock price skyrocketing.
GameStop went from about $ 4 a share a year ago to $ 483 a share at the height of the recent short-squeeze craze. The stock recently fell substantially and is now trading in the $ 50 range, but investors looking for more explosive gains should not accumulate stocks in the hope that they will enjoy another big rise.
The short squeeze momentum that drove incredible stock gains seems to have dissipated and would be difficult to recapture, even if investors who coordinated online tried to make another boost. GameStop’s incredible recovery has yielded huge victories for those who entered it before, but stocks are still rising by about 1,150% in the last year – and all without much evidence of progress in their big e-commerce turnaround game.
Sometimes it is better to admire a flashy story from a distance, rather than waiting for the chance to try to write about it. There are many other growth opportunities in fast-developing markets, including cloud computing, artificial intelligence and augmented reality, investors are likely to find, and I think most investors will be better served by avoiding GameStop at this point.
Tesla’s non-competitive era is coming to an end
James Brumley (Tesla): Tesla revolutionized the auto industry. CEO Elon Musk’s company was not the first to make a successful electric vehicle, but it was the first to make it interesting.
The rivals are finally responding. General Motors plans to offer 30 different battery-powered cars by 2025, and Ford Motor says it will invest $ 22 billion in its electric vehicle efforts by the end of the same year. A number of other automakers are also making splashes of respectable size in front of the VE. Of course, none of them seem poised to catch up with Tesla after what can only be described as a year of disruption. In 2020, the company’s revenue grew 28%, to $ 31.5 billion, leading to a profit of $ 721 million. Given that the EV powerhouse is now viable, the 400% increase in Tesla’s shares in the past 12 months is perfectly understandable.
The fact is, however, that the bullishness led Tesla’s shares to an assessment, suggesting that competitors will not end up damaging its dominance. Big mistake.
Certainly, we have seen the market underestimate growing competition in the past. Take along Cisco (NASDAQ: CSCO) as an example. It was the fashion in the late 90s, when network solutions were in demand and few other options existed. Like other technology names, Cisco shares suffered in the dot-com crash of 2000 and began to recover in 2002. But the shares have not yet revised their peak price from early 2000. Newcomers as Juniper Networks and Aruba stepped up their game in the meantime, preventing Cisco from re-establishing the kind of dominance it enjoyed a few years earlier. Intel it is another name that has not yet returned to the peak reached in 2000, despite more than a decade of continuous progress. Advanced micro devices and NVIDIA they were both about 20 years ago, but both have become much tougher competitors for Intel now. Never say Never.
And if you need some numbers to make the idea come true, the stock is currently quoted at 31 times sales – not profit, but sales – versus the S&P 500current price / sale ratio of 2.8. Even giving the company an assessment pass based on final profits while it is still growing, the shares are yet trading on an outrageous 67 times 2025 earnings per share consensus of $ 12.03. And that is an estimate by analysts who are also struggling to understand how much demand new electric vehicles from other manufacturers can achieve as soon as they become available.
None of this is to suggest that Tesla is doomed, or that it will not remain an EV market leader for the foreseeable future. It will survive and probably thrive. The appreciation of the stock completely ignores the rising competition, paving the way for a retraction sooner or later. The reality always (eventually) overcomes the hype.
Don’t fall into the marijuana craze
David Butler (Producers of sundials): If you want to put your stimulus check on the market, you need to decide whether you are investing or gambling. If you’re investing, don’t get caught up in the speculation surrounding cannabis stocks.
We have seen most publicly traded cannabis stocks go crazy in recent weeks, while a Democratic-controlled US government has drawn more speculation into a legalized American market. This does not mean that you should play your $ 1,400 stimulus check on it. We saw names like Sundial Growers go up 250% this week. The stock has become part of the Reddit retailer craze and lacks financial foundations to support the race. In the third quarter of 2020, the Canadian cannabis producer lost 71.39 million Canadian dollars.
Overall, Sundial Growers did not have a year of profitability as a public company. He recently saw attention for his offer to raise $ 74.5 million. In the statement, the company said it had $ 610 million in unrestricted cash after the offer. That money gives the company some ammunition, but it still doesn’t seem to be the best name in the industry. The bigger names are taking over most of the market. Furthermore, sentiment in a legalized American market does not mean that Canadian companies will be the only ones to thrive. It just means that marketers can create hype.
If you want to use your stimulus check to get involved in the cannabis industry, here’s something like Canopy growth (NASDAQ: CGC). Like most names in the cannabis industry, she saw her fair share of financial losses, but her connections to Constellation Marks give him a long-term connection to the U.S. market. Constellation has invested billions in the company and could potentially take over in the future. Now she has her ex-CFO running things. If you really want to reduce your risk, invest in Constellation Brands itself.
Don’t play your stimulus check. As evidenced by the 20% drop in Sundial Growers shares on Thursday, these types of trades can easily turn against you.
This article represents the opinion of the writer (s), who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and richer.