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Monday, December 12, 2022
Today's newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with Yahoo Finance App.
By any traditional analytical measures, meme stock names such as GameStop, Bed Bath & Beyond, and Blackberry are still wildly overvalued at current levels despite a rough 2022.
GameStop's third quarter yet again fundamentally stunk. The company's management team and alleged savior Ryan Cohen are running a clinic on everything not to do to turn around a challenged entity. Seven minute earnings calls? Who does that?
But head over to GameStop's ticker page on Yahoo Finance, click the "statistics" tab, and you will find that the stock trades at about six times book value per share. Objectively, what has GameStop done the past five years to warrant that relative premium to its hard assets?
Bed Bath & Beyond is on its last legs, as I continue to report. At least the market appears to have a realistic view on this home goods business, judging by the company's well below market valuation metrics.
Then there is Blackberry, which had lost $37 million on an adjusted operating basis through the second quarter. The company's pivot to software and cybersecurity also looks to not be enough to drive consistent (or any...) profits and cash flow.
Navigate to Blackberry's metrics page, and you will find the shares trade on an exorbitant trailing-twelve month price-to-sales ratio of four times.
What's going on here?
Despite the glaring red flags in all of these businesses, there remain hardcore believers in these meme names. The believers are unwavering in their view that executives will cook up some grand master plan that creates epic bottom line outcomes that unleash monster stock price moves.
Many of these folks seem to be sitting on large losses in these meme stocks and are frozen on what to do next. They have likely let their emotions get in the way of reality and are paying a dear financial price.
All of this brings me to 2023: Next year could very well be the year that these meme stocks finally see their ultimate reckoning as they lose the support of even the true retail investor believers. While shares of GameStop, Bed Bath & Beyond, and Blackberry have been rightfully pummeled this year, another drastic leg down could be in the cards.
Some simple data from a Finimize poll of 2,400 individual investors seems to support this view:
85% of those polled have never bought a meme stock. It's hard to see this dynamic shifting — i.e., no new supporters for these meme stocks — if the economy slows further and hammers these risky names even more, causing the believers to finally toss in the towel.
64.3% of those polled say they will take any surplus income next year and buy shares of mega-cap tech like Apple, Microsoft, Google, Meta, and Netflix. In other words, the individual investor is hunting for true value — predictable businesses now trading at steep discounts to their historical valuations. Big Tech fits this bill. The rest of the respondents mostly plan to dabble in software and renewable energy names.
Only 23.5% of those polled trust social media sites such as Reddit to make financial decisions. Recall it was the power of Reddit that drove the meme trade.
I will end on these words of wisdom: Roll around in trash, and you will smell like trash. Spend the day getting pampered at a day spa, and you will leave smelling like roses.
Keep that in mind when it comes to picking stocks.
Happy Trading!
What to Watch Today
Economy
2:00 p.m. ET: Monthly Budget Statement, November (-$248.0 billion expected, $191.3 billion)
Earnings
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