Note: I’ve been extra quiet over the past two weeks, focusing on The Big Move, which I detailed at the tail end of this Wrap. I’ll be back up to nearly full steam next week, with a few other disruptions in coming weeks during various phases of the actual move. Thanks for your patience. You might say: This is how we spent this year’s summer vacation! But then I saw this news, and I had to take a break from the break to say a word or two…

▶This one is SO predictable…

I arguably have spent way too much digital ink writing about the drama and dysfunction surrounding GFL Environmental , North America’s fourth-largest waste and environmental company. For a good summary, check out my latest from a few months ago, headlined, “The Games GFL Plays”…

I wrote that one after the stock had just-about round-tripped from my first salvo nearly two years earlier.

So, here we are on a market holiday in the U.S. – the Friday before July 4. That’s a day historically companies have tried to sneak out bad news.

One of my faves was an 8-K from Computer Associates on July 2, 1999, where it disclosed it was changing its auditors. It was a meaningful disclosure; the company had been under scrutiny for accounting chicanery – back when such things mattered. The filing hit on a Friday, when the markets were closed – and when everybody was on vacation.

Enter GFL…

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Note: As I mentioned at the tail-end of Last Week’s wrap, I’m in the middle of The Big Move, so there will be no Wrap this week. If all goes as planned, stay tuned for a new Red Flag Alert… hopefully next week. The following, which is as timely now as it was when I first wrote it, is being republished without a paywall.

▶I originally wrote what I hope you’re about to read in February…

Given the collapse of Strategy’s supposedly safe Stretch preferred stock, I figured this was as good a time as any for a re-run.

The focus was CEO Michael Saylor’s unabashedly P.T. Barnum-like claim that a highly risky bitcoin-centric vehicle is as “risk-free” as Treasuries, with triple the yield. The stock has since plunged by roughly 25%.

The Wall Street Journal’s Spencer Jakab summed up the situation best the other day, when he wrote…

Visionaries gamble when they have little to lose and lots to gain, not the inverse. Saylor doesn’t seem to have grasped that: Strategy already crashed 99% once under his leadership.

What’s alarming is how many people went along for the ride this time. It says something about this frothy moment in markets.

Or so you would think!

What we do know: We’re at a point in time when, in an effort to push the concept of free markets to the absolute extreme, anybody selling investments of any type can say or promise anything with little to no legal repercussion… to the point of not just getting a “get out of jail” card for free, but getting out of jail! It’s the wildest of Wild West moments on Wall Street I can remember.

It remains to be seen how Strategy’s strategy plays out, and whether Saylor will have the last laugh.

If he doesn’t, don’t say you weren’t warned.

Now, for my original …

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Michael Saylor, tl;dr: ‘Just Trust Me.’

One take-it-to-the-bank rule-of-thumb of investing and Wall Street is that the higher the yield, the higher the risk.

Another is that if it’s too good to be true, it usually is.

Worse, if it’s being pitched as if it’s the next-best thing to risk-free, it usually isn’t.

The wild card is when the pitchman is Michael Saylor of Strategy (née MicroStrategy) , when he’s talking anything bitcoin-related, but especially what he calls “digital credit.”

Never mind that there’s no such thing as digital credit as a security. But that hasn’t stopped Saylor from talking about it nonstop, starting mid-last year, as if digital credit were common knowledge rather than a made-up marketing wrapper used to sell his latest financially engineered concoctions… created for the sole purpose of financing Strategy’s purchase of more bitcoin. “Big innovation,” is the way he has described it. It’s so big that “digital credit” was mentioned a record 48 times during scripted comments by management on the company’s latest earnings call, with 37 mentions – the most ever – in the earnings presentation, including this one…

Like most of Strategy’s earnings and investor calls, this one was part revival meeting, part traveling medicine show, and part Advertising/Marketing 101 – pulled directly from the “tell them what you want them to hear and think” school of salesmanship. (Think Mad Men’s Don Draper turning Kodak’s drab-sounding slide projector “wheel” into a “Carousel” of memories.)

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Saylor’s approach is either brilliant or brilliantly devious or deviously deceptive, depending on which side of the bitcoin and more specifically – Strategy – divide you’re on. Or as the New York Times recently wondered, in an article in which I’m quoted…

I’ll let you debate that question, bitcoin, and all other Strategy matters among yourselves.

What I do know is that if you eliminate the name of the company or the person saying it and just go merely on what has and is being said – especially on this last earnings call – you might consider holding on to your wallet.

Here’s why…

Not only was that call, at two hours, roughly twice as long as the company’s other earnings calls. But after stripping away everything else, it turns out my pal Fil Zucchi – who writes Fil’s Randoms on the Markets, and knows a thing or two about credit – was right when he told me: “This is nothing more than an infomercial for STRC.”

, or Stretch, as the company calls it, is the latest in a series of preferred stock – oh, sorry, digital credit – Strategy has issued to fund its ongoing bitcoin purchases.

What makes this one different? For one thing, it boasts a monthly 11.25% cash dividend.

On its own, that’s a red flag. But then Saylor said this…

Our view with Stretch is we're going to market it to the general public. We're going to market it to credit investors. We're going to market it to enterprises. We're going to market it to corporate treasurers and corporate CFOs, right? We're going to offer you 2 to 4 times more than your existing treasury strategy.

With that, I thought: Wait, I’ve heard this before…

Oh, yeah, it was those supposedly “safe,” highly rated money-market alternatives, known as Auction Rate Securities, which offered a slight premium above money market rates and famously blew up in 2008. Sold by brokers, they sucked in everybody from retail investors to corporate treasures, all in the name of a slightly higher yield.

Corporate treasurers often reach for yield, but there’s reaching, and there’s reaching. Strategy isn’t just offering slightly higher rates with STRC, but extraordinarily higher rates with the claims of providing income with the bonuses of liquidity and stability…

Don’t understand bitcoin? Not sure about Strategy? Not to worry, Saylor says. As he explained a quarter ago, when the rate was lower…

The simplest idea is 10.5% dividends paid monthly for those who like money. It’s just that simple. You like money, you trust the company, but you don’t understand anything else. You collect 10.5% dividends. They’re tax-deferred. They’re paid monthly. You tell your friends.

Now that it’s 11.25%, he takes it a step further, calling STRC a “10-second idea” while reinforcing the “digital credit” part of the story…

Clearly, we believe the killer app of digital capital is digital credit. And oftentimes people joke, it takes 100 hours to understand Bitcoin, maybe it takes 1,000 hours to become a Bitcoin maximalist. It only takes 10 seconds to understand Stretch. Stretch is 11.25% dividend yield paid monthly. That’s it, right? It’s a 10-second idea.

Easy, peasy.

But as Michael Lewitt, who writes The Credit Strategist and focuses on almost nothing but credit, told me…

Go for the dumb money. High dividends are a red flag here. Of course, investors will like an 11% yield, but that’s a CCC-coupon. A company that has to pay this high a coupon knows it can’t raise capital at a lower yield because it is extremely risky.

That’s where the infomercial nature of the call comes in. Here are a few choice comments from Strategy management, with a bit of narration by me…

CEO Phong Le…

Stretch is one of the most attractive instruments and securities in the market today.

If he doesn’t say so himself, but if that wasn’t convincing enough…

It pays an 11% effective yield, 18% on a tax equivalent basis. We paid monthly dividends on time, on schedule. And we have said that we expect the return of capital treatment for the next 10 years. We’ll run our business to be able to give everybody tax-deferred earnings for the next 10 years.

Does it matter that STRC currently trades a tad below $100, or par? Not to worry, Le says…

We’re targeting a $100 price. The volatility is 7%, it’s actually decreased recently to 6%, and we have mechanisms above and below that price to keep the price stable. It’s quite a bit of a feat of financial engineering. And it’s extremely over-collateralized. After you take out all instruments that are senior to Stretch, we still have 5.6x collateral over Stretch. And so it’s an over-collateralized instrument. And then after that, we’ve added $2.25 billion of U.S. dollar reserves. So we have 2 to 3 years of dividend coverage. And I mentioned the liquidity of Stretch is trading extremely well.

Sounds almost too good to be true. Relax! According to Le..

It’s Nasdaq-listed, and it has a 4-letter ticker, is easily accessible to folks. It’s now accessible on Robinhood and Square Cash App and pretty much anywhere else that you can buy a security.

Nasdaq-listed? Beautiful. That means it’s easily traded. On the Nasdaq, no less. And at Robinhood… and Square! (Hopefully you can hear my sarcasm.) Still leery? Let’s bring in Saylor for the close…

We don't just benchmark ourselves against other credit instruments. We also benchmark ourselves against all the other non-U.S. dollar currencies. And what you can see here is the U.S. dollar has got a 370 basis point risk-free rate, but the Korean won, the Canadian currency, the euro, Singapore dollars, Japanese yen, Swiss francs… they're much weaker. And so fundamentally, you can think of the Stretch rate as the risk-free rate in the Bitcoin ecosystem. It's like the Bitcoin rate, short end of the yield curve.

Wait, did he say “risk-free”? This is getting confusing. It shouldn’t be, Saylor says…

Here's an actual 4-month snapshot. And this is an interesting comparison, Stretch versus Bitcoin…

He went on to say…

What's the difference between credit and capital? Well, in the last 4 months, Bitcoin has traded down 30% through the first of February, Stretch is up 1%. And so it doesn't take a rocket scientist to look at this chart. If you're a retiree, if you're a corporate treasurer, if you're a fixed income investor, if you're any kind of investor and you look at these two charts – if your crypto curious or you think you might like Bitcoin, you look at this and you think, "Well, I like it, I just can't stand the vol,” and you can see why.

Do you want 30% drawdown and no dividends, or do you want a 1% price appreciation and 5.3% paid dividends with an ongoing 11.25% dividend rate? And with a company that's making a commitment to stabilize that price… to target $100 and do whatever it takes, including raising the dividend.

I’m certainly not a rocket scientist, but I get it! Stretch is a no-brainer, right? Again, Saylor…

If you believe in the future of digital credit and you want to invest in the company that is making it possible, you would buy our equity. And if you do that, you should probably have a 7-year time horizon because we’re long-term thinkers. Every day is not going to be a great day, every week, every month. If our thesis is wrong for 100 years, the equity won’t work, and we’ll run out of money to pay the dividends at some point in 100 years. If our thesis doesn’t work for 10 years straight, if that doesn’t work, then the credit will get paid, the dividends will get paid, the equity won’t be a great investment for you.

He continued…

But if we actually execute and if over the next 7 to 10 years, things work out fine, the company is well managed, well collateralized, and responsibly structured so that we can stand difficult months, difficult quarters, even difficult years or 2 or 3-year cycles at a time. We’ve done it before. And we’re prepared to do it going forward.

And, there it is: Either you trust Saylor at his word or you don’t. Or, if you’re still not sure, you head over to the company’s SEC filings, where, in the fine print, you get the equivalent of the old “past performance doesn’t guarantee future results” warning(s).

What you’ll find, summarized, is…

• The company has no obligation to maintain $100.

• The company can abandon the dividend framework at will.

• Assumptions will be inaccurate.

That last one is important, especially if read in context…

Like any other security, the trading price or value of STRC Stock will depend on a wide range of factors, including those described elsewhere in this "Risk Factor Updates" section, many of which are beyond our control. While we expect that the dividend rate on STRC Stock will directly impact its trading price or value, there are many other factors that could have equal or more significant impacts. Any adjustment we make to the monthly regular dividend rate per annum of STRC Stock that is designed to achieve a specified trading price or value will, necessarily, be based on assumptions regarding those other factors. These assumptions will always be inaccurate or incomplete to some degree, and potentially to a material extent.

Did they say they will always be “inaccurate” or “incomplete” and to some degree “to a material extent”? They sure did, and while all of those risks are boilerplate, don’t ever forget they’re there for a reason… mostly to give the company wiggle room to say, if all things don’t go as planned: “Don’t say you weren’t warned.”

Still eager to take the bait? Go for it, but remember what Warren Buffett said in his 1987 letter to shareholders: “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Interpret at will.

DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I have no position in any stock mentioned here.

I can be reached at herb@herbgreenberg.com.

CoreWeave, after all, is so last year’s narrative and news. I’ve written about it numerous times, including here, here, and here…

So for those of you who haven’t been keeping up, here’s what you may have missed – and it has nothing to do with yesterday’s headlines about the company’s executives dumping $2.3 billion in stock since the company’s IPO last year.

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▶“It’s wild, who wins and loses each day.”

That was a friend commenting on something I texted him regarding drone maker AeroVironment , one of my long-ago red-flagged names that can’t get out of its own way. Not that it’s the only drone-maker that can’t, but in the early days of Ukraine, it was the only drone-maker that could, as the pure-play on military drones... with an amazingly hot stock to match. Now, even with Iran, AeroVironment’s stock couldn’t be weaker, while the drone narrative couldn’t be stronger. Or as CEO Wahid Nawabi puts it, “This is like our moment, if you ask me.”

But as I pointed out in my mini-case study on AeroVironment, after its most recent clash with gravity, with the stock half its highs, sometimes it’s about more than being in the right place at the right time. And after years of being run by promotional management, the market doesn’t really care what Nawabi & Co. say or promise. The proof, as my technical analyst friends would likely say, is that AeroVironment is a weak stock in an otherwise hot group.

But back to my friend… In all likelihood, when he saw my text, I’m assuming he was glancing over at a screen full of the dozens of stocks he’s long and short… while at the same time trying not to overthink the day’s action, which stopped making sense long ago.

Still, in what we’re told is an exceedingly efficient market, there are pockets of inefficiencies – long and short… prediction markets, pod shops, and passive investing, notwithstanding.

From a red flags perspective, these are the stocks everybody isn’t talking about, that aren’t in the headlines… and are generally viewed as set-it-and-forget-it by investors because, beyond being viewed as too boring in an exciting market like this, they’ve always worked.

Like SiteOne , which I red-flagged last June. It went on to rise 35%, which was nonsensical. It’s now down 1%. Or Ingersoll-Rand , which at one point was up 29% since after my red-flagging in December, it’s now down around 9%. Or Clorox , initially up 16% after my red flag; now down 23%.

Of course, there are others, which I like to call the “we’ll show him” stocks – notably AXT , which is roughly double where it was when I red-flagged it a mere five weeks ago… and is up nearly 600% since January. And 7,500% over the past year. Then again, half the gain since my first salvo coincided with the launch of the leveraged Tradr 2X Long AXTI Daily ETF Investment Managers Series Trust II , which is a shadow stock only gamblers could love. Or as I explained when I first mentioned it, “It confirms just how detached AXT’s stock is from reality – making it perfect for the casino.”

Last I looked, the betting window was still open, which brings us to the moral of today’s story, courtesy of my pal: the notable and always quotable Bob Howard of the Positive Patterns newsletter from “down in the Ozarks.” After decades of stock picking, if he’s learned nothing else – year in, year out, cycle in, cycle out – it’s this…

The market doesn’t care what you believed last month.

New data comes in. Most people ignore it – because changing your mind feels like losing. So they hold. They cope. They call it conviction.

It’s not. It’s ego.

The best investors I’ve studied weren’t always right. They were just fast to admit when they were wrong.

That’s the edge. Not intelligence. Flexibility.

Common sense in an uncommon time.

P.S.: It’s more nuanced than that, of course. And truth be told, when it comes to mixing ego and investing: Guilty as charged!

▶Unrelated: A personal trainer I know says this is the slowest he has seen it this time of year in 30 years.

▶Meanwhile, from the “Golden Age of Grift” dept., via my friend Ed Borgato: Who needs the predictions markets when you have ETFs that benefit from predicting the outcome of elections? Some brokers are saying… enough!…

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▶From the most recent crop of earnings, quick updates on Shake Shack , Super Group , and G-III Apparel . Plus, three companies whose evasion on their latest earnings calls was so off-the-baseline that they warranted warnings from my pals at Paragon Intel’s ManagementTrack, which has proven to be a not-to-be-ignored predictor of underperformance.

▶Shaken to the core: Since red-flagging Shake Shack in January, its stock has tumbled by roughly 35%….

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I don’t take this one lightly, because its stock has been a rocket, rising 1,000% over three years.

On the other hand… that’s what snared me into taking a look at 110-year-old Modine Manufacturing, which got its start making radiators for tractors. And not just any radiator, but the Spirex radiator, which helped solve the problem of engines overheating under heavy workloads.

While the Spirex radiator is long gone, Modine went on to become a major factor in thermal management systems in vehicles, which then, in a small way, morphed into data centers pre-pandemic… but more conventional IT infrastructure-related data centers rather than anything having to do with AI.

Which gets us to where we are now and why Modine is ripe for a red flag.

The Bullish Spin

Before I explain why, let’s go to the AI-generated bull case courtesy of my pals at Tenzing MEMO, which was used in researching – not writing! – this report…

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In my original May 2024 report, the hook was how the company, a rollup, was simply too complicated for comfort…

It became a story with such a bad stench – including gunshots fired at the houses of CEO Patrick Dovigi and another executive – that it became the personification of dysfunction junction, as I wrote below…

But none of that mattered, with the stock leaping by roughy 55%, at its peak, nearly a year to the day after I first red-flagged it…

Well, here we are two years and two days from my opening salvo and… I cannot NOT touch this wet paint.

Seems I missed something significant, and I’m not talking about the recent rounds of gunfire and arson at a few of the company’s Canadian facilities… not to be confused with the gunshots at Dovigi’s house. (Nothing to see here, folks, move along…)

Or even GFL’s recent $4.8 billion bid to acquire Canadian rival Secure Waste Infrastructure, which has not gone over well with Wall Street. (I’ll have a comment about that in a moment)

It’s All About the Stock

What really grabbed my attention was something considerably more subtle, but nonetheless exceedingly significant, which speaks to just how insanely blatantly (or desperately) GFL is pandering to Wall Street and, more broadly, just how gamed this market has become.

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If you missed it, the company announced that it has officially launched Amazon Supply Chain Services, which opens its logistics network to all businesses. This includes ground shipping and freight services. While nobody was looking, Amazon built a fleet of more than 100 aircraft, 80,000 trailers, and 24,000 intermodal containers.

In other words, it’s big… big enough to be more than just a bit player.

Here’s what I wrote last August in my red flag report on UPS…

“At the same time, Amazon continues to build its own freight fleet as it now ships more than two-thirds of its own packages as well as packages for its third-party sellers, with the constant risk that Amazon will open up its freight business to a bigger base of potential customers.”

You can read the full report here…

Just think about all of those Amazon trucks ALREADY on your street… and how the company disrupted retail... and more to the point: How it used its excess server capacity to become a major supplier of cloud services to corporations.

The crazy part, especially with the stock’s tumbling today – down more than 8% as I write this: It’s almost as if investors chose to ignore what was happening in broad daylight – and as if Amazon wasn’t sending a BIG signal when it pulled most of its business away from UPS over the past year. Instead, as the chart below shows, with the stock’s earlier surge, they chose to go with UPS’s spin of a “glide down” in terms of the impact of UPS’s exit.

But as I’ve quoted UPS critic Donald Broughton of transportation-focused Broughton Capital numerous times, saying that UPS’s structure is fundamentally flawed.

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That’s when co-host Brad Gerstner asked Sam Altman…

How can a company with $13 billion in revenues make $1.4 trillion of spend commitments? You’ve heard the criticism, Sam.

Altman tensed up and shot back tersely and tensely…

If you want to sell your shares, I’ll find you a buyer. Enough.

You almost had to see it and hear it to fully appreciate the tension of the moment.

As time has gone on, it has become increasingly apparent why he was more intense than usual, with this story in the Wall Street Journal saying the quiet part out loud…

More specifically….

OpenAI recently missed its own targets for new users and revenue, stumbles that have raised concern among some company leaders about whether it will be able to support its massive spending on data centers.

Chief Financial Officer Sarah Friar has told other company leaders that she is worried the company might not be able to pay for future computing contracts if revenue doesn’t grow fast enough, according to people familiar with the matter.

Not surprisingly, OpenAI this morning told CNBC the report “is ridiculous,” adding…

We are totally aligned on buying as much compute as we can and working hard on it together every day.

But the real story isn’t what the Journal wrote or what OpenAI is saying, but what OpenAI’s customers are not just saying, but doing.

And based on the surveys from my friends at the market research firm ETR, which specializes in surveying corporate IT spenders, OpenAI is rapidly losing the momentum that comes with first-mover advantage.

Most telling, in going through the actual survey results, is the number of users that have decreased spend who say they are shifting to Anthropic.

You can see the trend clearly in this slide…

And this one….

But this one is most telling, because it shows just how much Anthropic is overtaking OpenAI not just in mind share, but spending…

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▶In keeping with a theme I’ve been hooked on lately… false narratives: Some companies really are compounders. It’s the ones that claim they are, but aren’t, that you should be concerned about.

And not just any old compounder, but a “premier…compounder.”

Welcome to the over-the-top promotional world of ESAB Corp. , a rollup of welding equipment that was spun off a few years ago from Colfax Corp., which at the time of the ESAB spin rebranded itself as Enovis .

Special thanks to Tenzing MEMO, Fiscal.ai, and Behind the Numbers, which were used as part of this research.

What makes ESAB seemingly so special is its DNA, in that Colfax was founded by the legendary Rales Brothers, Mitchell and Steven. They also founded Danaher … viewed by many as the gold standard for modern industrial compounders.

More than that, unlike Enovis, Mitchell stayed on as chairman of ESAB. He also owns a stake of more than 5% of its shares. Adding to their enthusiasm, both brothers helped fund the company’s recently announced $1.45 billion acquisition of Eddyfi Technologies, a leader in non-destructive testing, with the purchase of $125 million in convertible preferred shares.

With That As the Backdrop…

It’s no wonder investors have bought into ESAB’s “compounder” story…

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AXT is one of those companies that has attracted whatever is left of the YOLO crowd, even if the substance doesn’t match the story. It reminds me in every way of so many other companies that had their moment in the stock market sun, swept up by real or perceived potential new business from the narrative du jour.

That narrative today is that, as the construction of AI‑centric data centers has boomed, so has the demand for advanced fiber optic connectors, which rely on indium phosphide lasers to deliver the required speed.

Guess who makes critical indium phosphide substrate wafers used to make the lasers?

You got it – AXT.

It’s quite a story… and I stress… story. Perhaps no company exemplifies the silly late-stage nature of this phase of the AI gold rush more than AXT, which appears to be little more than a microcap MOMO trade gone wild… more of a throwback to the latest round of AI FOMO.

This is, after all, a stock that as recently as last spring traded just above $1, with a market value of $60 million before taking off. It’s now $60 with a market cap of $3.3 billion.

But beyond its market value and stock price, AXT still has all the hallmarks of the microcap it really is… and not just because its board of directors is comprised of three outsiders and the CEO.

And it has the financial performance to match, with muddling revenue growth and margins…

And even after being in business for 40 years, its ability to make money has at best been spotty…

To the bulls, of course, that’s looking backwards.

Bull Case

For them, it’s what’s coming next for a company they believe is in the right place with the right product at the right time. Here’s an AI-generated summary of what has been driving the stock… courtesy of my friends at Tenzing MEMO…

AXTI is a levered way to invest in one of the least-appreciated choke points in AI infrastructure: indium phosphide (InP) substrate wafers, a critical input for the lasers and detectors used in high-speed optical links inside and between AI data centers. As compute scales, optical connectivity becomes more important, and AXTI sits upstream in a technically difficult market with only a few qualified suppliers.

The near-term numbers look messy, but the bull case is that 2025 was distorted by export permit delays and temporary manufacturing issues, not by weak demand. Management has described backlog above $60 million, expects sequential growth in Q1 2026, and is seeing especially strong InP demand tied to AI buildouts. If permits continue to improve, delayed orders can quickly convert into revenue.

There is also significant operating leverage here. AXTI’s margin collapse came from low utilization and bad product mix; if InP shipments normalize and capacity fills, gross margin can recover sharply. Meanwhile, the December 2025 equity raise added about $100 million gross, leaving the company with roughly $120 million of cash at year-end and a net cash position, which gives it time to expand capacity.

In short: scarce product, real AI demand, limited competition, improving liquidity, and potentially explosive earnings recovery if regulatory friction eases.

Based on my research, that’s the story, at least, and that’s why there is no shortage of social media chatter on AXT, as seen here via Stocktwits…

But as is often the case with stocks like these, there’s the story, and there’s reality… and reality is that while AXT is a potential winner in the booming demand for indium phosphide substrates, the story ain’t all the stock suggests it’s cracked up to be.

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▶If you missed my quick ResMed update yesterday on my chat…

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This is not the time to ignore red flags. Join the large and growing list – portfolio managers, analysts, private investors – who already have signed on as premium subscribers to my Red Flag Alerts for one reason: To understand what could go wrong before – not after – the news hits. Learn more here. Subscribe here.

Sometimes in this market, you can’t move fast enough…

That’s why I increasingly try to keep premium subscribers in the loop on ideas on my list, which was the case on February 28, when I mentioned I was working on CPAP-maker ResMed . Since then, the stock has slid 8% – double the market – in the process shaving off what, at the time, appeared to be a stock with at least 30% risk.

In other words, perfect for Red Flag Alerts.

And even with the stock’s decline, the risk remains… and as I explain in this report, it’s likely underappreciated and underestimated.

Special thanks to FinTool, Tenzing MEMO, and Fiscal.ai, whose tools were used as part of this research.

Quick Background…

I’ve been doing this long enough to have seen more than enough short-sellers get steamrolled by seemingly obvious ideas…

Among them is ResMed, which is just down the road from me here in San Diego. Over all of these years, for some unknown reason, there was never enough there to excite me enough to dig deeper when I would hear the bearish bent. As a result, it never made the grade for a bona fide red flag or for a full-fledged report.

Or, you might say, I dodged a bullet, with the stock rising more than 700% over the past 10 years.

So, why now?

Because even with its stock roughly 20% off last year’s record high, including the more recent step-down, shares are priced as if there is no risk and current growth, as sleepy as it is, will continue.

Let Me Explain…

But before I do, here’s the bull case via my friends at Tenzing MEMO…

ResMed dominates the massive, underdiagnosed sleep apnea market with best-in-class CPAP devices and masks, serving over 30 million cloud-connected patients globally. The company's moat stems from superior product innovation, regulatory expertise, and sticky customer relationships in a market where less than 20% of sufferers are diagnosed. With aging demographics driving structural growth, expanding breathing health adjacencies like COPD treatment, and a profitable software platform supporting residential care providers, ResMed offers compelling long-term growth. The business generates exceptional cash flows—$1.75 billion in fiscal 2025—while maintaining strong margins and returning capital through dividends and buybacks. Recent FDA approval of GLP-1 drugs for sleep apnea validates the market's importance rather than threatening it.

Sounds good on paper, except it’s not that simple.

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Typically, I’d prefer not to red-flag a company just before it reports results – by one day, no less – but since this one was in the works, I figured… better now than never.

In this case, as I mentioned in last week’s Wrap, among the companies I’ve been doing some work on is Nordson , which I described as an Ingersoll Rand wannabe.

That’s why, if the above “false narrative” headline looks familiar, it’s the same one I used with Ingersoll Rand. Not only are both rollups, but while Ingersoll Rand’s revenues are nearly triple Nordson’s, their narratives are from the same playbook – both calling themselves “growth compounders.”

Unlike Ingersoll Rand, however, which calls itself “a premier growth compounder,” the tagline “growth compounder” has only been a prominent part of Nordson’s investor pitch for a little over a year. It’s now mentioned on most earnings calls and shows up one way or another in every earnings presentation…

But… is it really?

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One take-it-to-the-bank rule-of-thumb of investing and Wall Street is that the higher the yield, the higher the risk.

Another is that if it’s too good to be true, it usually is.

Worse, if it’s being pitched as if it’s the next-best thing to risk-free, it usually isn’t.

The wild card is when the pitchman is Michael Saylor of Strategy (née MicroStrategy) , when he’s talking anything bitcoin-related, but especially what he calls “digital credit.”

Never mind that there’s no such thing as digital credit as a security. But that hasn’t stopped Saylor from talking about it nonstop, starting mid-last year, as if digital credit were common knowledge rather than a made-up marketing wrapper used to sell his latest financially engineered concoctions… created for the sole purpose of financing Strategy’s purchase of more bitcoin. “Big innovation,” is the way he has described it. It’s so big that “digital credit” was mentioned a record 48 times during scripted comments by management on the company’s latest earnings call, with 37 mentions – the most ever – in the earnings presentation, including this one…

Like most of Strategy’s earnings and investor calls, this one was part revival meeting, part traveling medicine show, and part Advertising/Marketing 101 – pulled directly from the “tell them what you want them to hear and think” school of salesmanship. (Think Mad Men’s Don Draper turning Kodak’s drab-sounding slide projector “wheel” into a “Carousel” of memories.)

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Saylor’s approach is either brilliant or brilliantly devious or deviously deceptive, depending on which side of the bitcoin and more specifically – Strategy – divide you’re on. Or as the New York Times recently wondered, in an article in which I’m quoted…

I’ll let you debate that question, bitcoin, and all other Strategy matters among yourselves.

What I do know is that if you eliminate the name of the company or the person saying it and just go merely on what has and is being said – especially on this last earnings call – you might consider holding on to your wallet.

Here’s why…

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What a great story it was.

And from the “history rhymes” department: It may very well be evolving into one again…

I’m going to keep my focus here very narrow, with a spotlight on Covista Inc. (name changed from Adtalem Global Education), which announces FQ2 earnings tomorrow… zeroing in on a single overlooked risk. (For a deeper dive on the space, check out Brad Safalow at PAA Research, who at that time was an exceptional resource for me – he nailed it. He also was a rarity among analysts, with a willingness to red flag the space... on TV with me, no less. I haven’t talked to him in years, but I see he's still bearish, with Covista in his line of fire. I digress…)

Ghost of DeVry

For those of you who were around for the original for-profit follies, if the name Covista doesn’t ring a bell – let alone roll off the tongue – DeVry surely will. Covista is in large part the remnants of the old DeVry, which had a strong focus on vocational and technical training. It went on to pay $100 million to settle an FTC lawsuit over deceptive advertising.

It’s now a pure-play on healthcare, with schools that offer medical and veterinarian degrees, nursing degrees and mental health-related degrees.

Front-and-center among today’s risks for for-profit colleges are funding cuts tied to the One Big Beautiful Bill Act… which in turn impacts the all-important Title IV funding for higher ed. This has been well-covered in the media and investment world.

My interest in Covista was sparked by discussions with my friend and sometimes collaborator, Katherine Spurlock – a former short analyst and shortseller – who has been focused on education stocks for quite a while. She’s the “friend” I cited in my warning last August of issues at Stride LRN 0.00%↑, which went on to rise for a month or two before imploding. It’s now down around 44% since that first mention – and Katherine still thinks that even here the risk is high.

As it turns out, Katherine is as passionate about Covistaas she is/was about Stride. But not just for the most obvious reasons.

Discounts … and More Discounts

Her concerns can be summed up in the chart below…

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(An audio version of this report, narrated by yours truly, is linked lower in this report for premium subscribers.)

Now that I’ve got your attention, some housekeeping and other tidbits…

▶First, one idea that evolved from last week’s Office Hours was building on something I’ve already been pondering: To host an ideas call that would be limited to, say, a maximum of 10 bona-fide premium subscribers. You bring the ideas. The rules: They need to be stocks to avoid or possible shorts – however you want to define that, with at least $1 billion in market cap and $15 million in average daily volume. You discuss them quickly with a group of nine others on Zoom – opening yourself up to questions. I’ll then do a recap here for premium subscribers, along with an audio version of the meeting. Interested? Let me know. And if you’re wondering, for you introverts or professional investors, who need or prefer to keep a lower profile: while you need to let me know who you are, you can participate without being on camera and without using your name.

▶Second, I have a new Red Flag Alert dropping, hopefully by Monday… since the company reports a few days later. Also, in today’s report I’m adding Shake Shack to the Red Flag Radar. It was a name offered up by a participant during Office Hours. I’m also working on a bunch more. I’ll clue you in next week, assuming I get to them. You never know which will become full-scale alerts!

▶Third, if you missed my report last week on why it appears that Vital Farms has cracked, thanks to a new health-related revelation, you can read it here…

Of course, given the volatility of this market, within days the stock was back up to where it started…

Is that proof they really CAN put Humpty Dumpty together again? Nah, it was just a short squeeze, which by Friday showed the cracks were very much still there.

▶Finally, with AI continuing to be front and center, this Steve Eisman interview of AI gadfly Gary Marcus is worth the listen.

My favorite part…

Everybody’s leaving to start their own startup. Now, think about it: If you were at OpenAI, and they really were going to release AGI next week, would you want to leave just before this cataclysmic event that was going to revolutionize the world and go start a little company that’s going to take, you know, four years with the developer or whatever? Of course, you wouldn’t. You’d want to be there for the magical coronation. So the fact that everybody is leaving tells you that they don’t really have what they think. And then: what else is going on?

What else… indeed!

Moving on… Is Short Selling Dead?

▶Ok, I admit – that was a cheap clickbait headline….

But as a guy who flies red flags, and has been plugged into a good network of short-sellers for decades – some of which is still in-tact – I have a front-row seat to what’s happening. The reality is: Stocks still blow up and there are still plenty of people shorting stocks, with a twist: Just as market structure has changed, so has the nature of short-selling. Michelle Celerier, who is now on Substack writing about billionaires, went through some of this a few months ago in a piece for Institutional Investor.

Enter Adam Taggart’s interview this past week with activist shortseller Carson Block of Muddy Waters Research.

I’ve known Carson for years, and very briefly tied up with him a few years ago to do my poorly-timed, failed foray into activist short-selling – the one where I pulled the plug before even really getting started. A good thing, too!

Carson’s view is that the world of short-selling as we knew it has pretty much disappeared… as have many short-sellers. But as the hundreds (and growing) number of premium subscribers to my Red Flag Alerts can attest, many of whom I’m sure are looking for shorts, it’s hardly dead. Or as he explains…

You know, like it’s not a pre GFC [Great Financial Crash] market anymore. You just don’t have the frequency of corrections and the duration of corrections that you used to have.

And it sounds like that because there’s several things that are going on. I don’t know if we can call them a natural or not, but they are trends that weren’t there, let’s say 20 years ago, that have a strong bias to keeping the market supported here.

Like, I would say, the merger of gaming and investing, with the broad, seemingly sustained push from retail – not to mention that wild South Korean influence, but I digress…

Carson goes on to explain…

Short selling traditionally has been this discipline where you go out there and you say, ‘I want to find the most screwed up companies.’ Now, when you get those massive disconnections, it’s almost always because the company is actively doing something to cause that. They’re hiding the ball, they’re misleading investors, they’re doing things to manipulate the perception of the company.

And, arguably, I would say, in this Golden Age of Grift, they’re getting a free pass… and getting more emboldened, leading to what likely will be more fraud, more manipulation and much of it, hiding in the open for all to see. And pretend not to, while the party rages on…

Which is why “in this environment,” Carson continues, “trying to identify those shorts… is a bad idea.”

What’s more, other than the kinds of names activists chase, Carson believes for those who want to short it’s best to stick with “the mediocre companies that are kind of just sleepwalking through things,” where “you’re not finding anything revelatory, you’re not really finding things that the world doesn’t know, you’re just looking for those who are lagging the average…”

Hard for me to disagree, since finding the laggards is the main concept behind Red Flag Alerts. The more boring, the better! (Not that I can’t help myself from touching the wet paint every now and then – it’s in the DNA.) Oh, and by the way, some of those boring companies can blow up, too. Exhibit No. 1 is Erie Indemnity , which is down 45% since it was first mentioned here.

There’s obviously much more to the interview, including nuance I only touched on. Best line, in my opinion…

You know, one of the best and truest things I’ve heard said about investing and maybe just life in general – but especially the investing industry – is that when you speak with them, pessimists sound smarter than optimists. Optimists live in bigger houses.

Ain’t that the truth.

Special thanks to FinTool ,Tenzing MEMO, Fiscal.ai and ManagementTrack, whose tools played a role in researching this report.

Red-Flagging Shake Shak

▶I hadn’t given much thought to Shake Shack for quite a few years…

Then, during Office Hours last week, one subscriber, a professional investor I happen to know, mentioned why he was short the Shack. (And short, I should add, as a long-term trade that he believes will take time to play out.) This is a guy who also happens to be mostly a growth investor; he also has good instincts on shorting broken growth stories, especially after the stocks have tumbled.

He thinks Shake Shack, one of the former stars of restaurant stocks, is on its way…

And while its shares have been whipsawed since its 2015 IPO, early investors have done well – that is assuming they got out at last July’s all-time highs. And even then, the company has had a good run…

In recent years, the company has had a rough go of it. You can see it in revenue growth, average weekly sales and comp-store sales…

Worse, take a look at total store traffic…

Wall Street, of course, cheered the blips higher as proof that a turnaround under CEO Rob Lynch, who arrived two years ago from Papa John’s , is taking hold. Never mind that any blip higher is against dismal prior results. In other words, they’re little more than easy comps! Ditto for his recent comments at the recent ICR investor conference suggesting that margins will improve and that comp-store sales momentum will continue.

He also said new-store builds will accelerate, which is part of his for there to e 1,500 company-owned stores “over time.” That’s roughly double the number today.

Not Buying It

So, why isn’t my growth stock subscriber buying it?

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Its stock is not being served sunny-side-up this morning, proving, once again – there’s risk in them thar high-flyers – especially if they claim one thing and social media claims something else.

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▶It’s almost always a red flag when a company flips to playing defense…

That’s exactly what’s happening at Veeva Systems , the undisputed king (for now) of customer management software, or CRM, to the parma and life sciences industries.

With revenues surging nearly 1,000% in 10 years to roughly $3 billion, it has built a de facto monopoly with an 80% share of the market. Better yet, its non-GAAP operating margins have lately been steadily hovering in the mid-40s, putting it in the top-tier of software companies…

Trouble is, that’s about to change. If one picture is worth 1,000 words, then this is that picture…

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▶First up, I don’t typically market performance since I don’t offer advice or make recommendations…

As regular readers know, I don’t really care what people do with what I write: Short. Squeeze. Sell. Buy. Hold. Avoid. Your call! The goal of Red Flag Alerts is to find stocks that will lag the market over an extended period. So, for fun (and out of curiosity) I asked my friends at Kailash Concepts, who are quant-based, if they would rev up their computers to calculate short alpha on my formal “alerts”.

While these numbers admittedly can be sliced and diced using various data points and benchmarks, Kailash’s basic analysis of the 46 names since inception in May 2023 versus the S&P 500 over one month, six months and one year show’s a 70% win rate. For more info, please contact me.

The full updated and ongoing list – plus the entire spreadsheet with details of the above – is available to Red Flag Alerts Pro Subscribers. For more info on invitation-only Red Flag Alerts Pro, which includes direct access, please contact me.

▶And this reminder: Rates for new premium subscribers will be rising January 15. Existing subscribers are grandfathered in. For the premium tier, I’m currently testing a private group “chat” on Substack with paid subs… and will soon hold another group office hours – this time with an effort for direct conversation. Also for paid, I’ll soon be testing an audio version of my reports. (Had to get my voice back to normal after this “thing that’s going around” before I could start. Almost there!)

▶Moving on, if you missed it: Earlier this week I published an update on Vital Farms , with a focus on egg pricing.

Since then, prices have continued to fall, with pricing front-and-center on the Cal-Maine call the past week. As Cal-Maine clearly pointed out, lower egg prices led to lower profits and lower margins… and even losses. For perspective, check out this annual chart of its gross margin vs. wholesale egg prices as of the end of its last fiscal year, in May 2025…

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Getting back to biz (and post-flu or whatever the heck that mind-fogging respiratory thing going around is)…

First, just before the break I published a Red Flag Alert on Ingersoll Rand $IR…

And after that, my year ender…

Obviously new alerts are in the works. And if you missed it, I’ve done a soft launch on my Red Flag Alerts Pro…

And for new subs after January 15, my prices will be rising. More on both shortly. Now onto the show…

Shell Game

After rising roughly 70% at one point since I started coverage, Vital Farms is finally back to below or roughly at the price when I first wrote “The Shell Game” in September 2024, depending on the day…

The reason? Depends on which narrative you want to believe…

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