What Happened in the Market (and the World) This Week?
S&P 500 return this week: 1.94%
S&P 500 return YTD: 2.36%
Market had a solid week. The inauguration went off without a hitch and enthusiasm for the Biden COVID stimulus plan resulted in some solid gains. Most companies so far have beat earnings estimates which should help improve the market’s overall P/E ratio since a lot of old school valuation guys keep complaining about how high it is. I personally think the market is currently in new territory and traditional valuation techniques aren’t the best way to measure the stock market. This is largely because we have historically low interest rates and the FED is printing money like crazy plus inflation is fairly minimal.
Netflix ($NFLX) had a great earnings report Tuesday afternoon, beating subscriber estimates handily and announcing that they likely will no longer need external financing given their free cash flow. Netflix shot up nearly 17% Wednesday and provided a nice tailwind for FANG stocks and other growth oriented tech companies.
My portfolio is now up +25.3% YTD which is pure insanity since we’re just 3-weeks into the year. At this rate, maybe 200%+ is doable again. I doubt it. Last year, pre-COVID, my portfolio finished the month up +12.3% and that was after the market tanked a little due to early indications of COVID. I suppose anything is possible given the current market environment.
I still have a small but reasonably sized position in $NFLX, so the run up was nice after their Q4 earnings. The big note for the week is that I’m still in awe of what’s going on with these “turnaround” stocks. I.e. GameStop ($GME), Bed Bath & Beyond ($BBBY), Blackberry ($BB), etc. I decided to initiate small positions in each of them given the mass euphoria and also after having taken a look at their financials. I personally think Bed Bath & Beyond might in fact have some staying power if Mark Tritton (CEO of Bed Bath & Beyond) can really execute on his vision for the company. For a company that does $11 B in revenue annually to just have a market cap of $3.6 B seems like a prime candidate to go up 3x if they can really execute.
The GameStop short squeeze on Friday was incredibly entertaining especially reading Wall Street Bets’ redditors reactions. It’s amazing how one guy on that forum turned $50-60k into $11 million or something. I personally could never put that type of money into a turnaround play just given my risk tolerance since I think “hope” for turnaround is not exactly an investment thesis.
My Trades and Investments for the Week
As noted above, I initiated a few small speculative positions in Bed Bath and Beyond, Blackberry and AMC. I also sold GameStop near the peak of the squeeze $74.
I also wrote covered calls on DataDog and Cloudflare simply due to their rich valuations. I’m probably totally wrong but there has to be a peak EV/S somewhere.
Next Week’s Plan
While I do think that the short squeeze blitz is going to end sooner or later, it’s hard to say when. I’ll probably jump on the bandwagon of $BBBY since I’m a believer in their turnaround story and they still seem undervalued at a 0.54 EV/S. $GME at $65/share is nearly fully valued imo and I’ll probably be on the sidelines unless they tank again to the $30-40 range. I do think $GME could short squeeze to $85, but at an EV/S of 1.x with negative growth for at least another quarter or two, I just don’t see $GME going much higher since much stronger companies are trading at those multiples.