The Wrap – What a Long, Strange Trip It's Been
Also, very quick updates on G-III, SharkNinja, Hims & Hers.
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▶Before we get going… If you missed my mini case study on AeroVironment AVAV 0.00%↑, whose big acquisition last year appears to have backfired – and not in a small way – you can read it here…
After reading it, my pal Bob Howard, who writes the Positive Patterns newsletter from “down in the Ozarks,” quipped, “I’ve been following ALL the Defense stocks for years. AVAV has always been a ‘cheesy’ outfit with C- hardware - comparable to Jack-in-the-Box in fast food.” That’s what he said!
Special thanks to FinTool, Tenzing MEMO, and Fiscal.ai, which were used as part of this research.
▶Meanwhile – I’m exhausted.
So is everybody else, bulls and bears. But for anybody who has factored risk into the investing equation, the past year has felt like a decade – or at least half of one. As was the case immediately post-pandemic, it hasn’t been merely “risk on,” but full speed ahead for unbridled speculation, supercharged as the markets merged with gambling. Except this time, as I’ve written in the past, it was speculation on steroids…
Suddenly, it was as if everyone who knew nothing about stocks knew everything about stocks and had become an overnight stock market genius.
The peak of the looniness was when Attorney General Pam Bondi, testifying before Congress about the Epstein affair, did the ultimate pivot by bizarrely blurting, out of the blue, “the Dow is over 50,000 right now… that's what we should be talking about! ”
If ever there was a top-ticking moment that anybody could see, it was that, memorialized in the chart below…
Never mind that the market’s moves higher, especially these days, is a meaningless measure of anything more than a gamified market propped up on excessive leverage, juiced by double-, triple-, and quadruple-levered ETFs. The only thing that would have been more of a market jinx would have been if Dow 50,000 had hit the cover of Time, like the fake one I created…
And don’t you worry: I’m well aware that the very fact that I’m pointing that out, with the Dow down 7% from the magical 50k, is like a reverse magazine cover… and could be a sign it’s about to boomerang. The catalyst could very well be a halt to war in Iran and… oil flowing freely through the Strait of Hormuz. Or if, in a world of minute-long news cycles, yet another shift in the narrative. And given the increasingly shortening of attention spans against the backdrop of fatigue, the war becomes yesterday’s news as quickly as it became today’s.
That’s the world we live in…
If nothing else, that long, strange trip down memory lane – one I’d prefer to forget – can be seen in the spread between the lows, highs, and current prices of individual stocks.
Look no further than the swings on the list of companies I’ve formally red-flagged since inception three years ago. Pay special attention to those in green, which are highlighted vs. their highs since joining the list. This reminder: This is not a coverage list, but merely a record of all formally red-flagged ideas… some of which might be even better now than they were back then! (The full list, including names, is available behind the paywall for premium subscribers at the tail-end of this report.)
And if you’re wondering: The biggest outlier is the stock up the most, Bloom Energy BE 0.00%↑, but even it’s down from its highs. (Thanks to Paul Wick, chief investment officer of Seligman Investments – one of Bloom’s largest holders – for reaching out and sharing his bullish thoughts here well ahead of and during the stock’s explosive rise. You can read his comments here, here, and here.)
The other two outliers, highlighted above, are Oklo OKLO 0.00%↑ and MP Materials MP 0.00%↑ , both of which are well off their highs.
Just for fun, I also highlighted AeroVironment and Hims & Hers HIMS 0.00%↑. (A quick comment about the latter, behind the paywall.)
▶ Moving on… When I originally red-flagged G-III Apparel GIII 0.00%↑ last July, in collaboration with my friend Katherine Spurlock, the focus was on the potential for the company to stuff merchandise into a little-watched, offshore related party… and how the company went out of its way not to disclose just how significant the relationship had become. Not that any of this mattered, especially in that market: Its stock subsequently rose by nearly 50%.
It has since done a near-complete round trip, hastened by a Q4 earnings miss and disappointing guidance.
While the company says the miss was almost entirely due to a bad-debt expense tied to the Saks Global bankruptcy, with management insisting it would have otherwise beaten expectations, poor guidance was mostly blamed on the continued impact of the unwinding of its PVH PVH 0.00%↑ relationship.
After thinking through what management did and didn’t say, and putting together a few scattered pieces of the mosaic, here’s what struck me…