Broken Toys don't have to mean broken dreams

Investment Analysis Clubs Where Angels Fear to Tread
1

Calling all Broken Toys and Cigarette end aficionados!

Bring-out-yer-dead GIFs - Get the best GIF on GIPHY

I have never kept it a secret that I prefer lower entries vs chasing FOMO, but in the advanced internet/info age we find ourselves in now, those are harder and harder to find, it seems, as everything gets bid up and overvalued quickly.

We had some great opptys in June and Oct/Dec of 2022: NVDA, UPST, PTLO, GLBE…all hit 52 wk lows and then some. Not every stock has bounced back (looking at you, ZM) but many went on solid runs after those lows.

So time to start tracking new Broken Toys. The idea is that the stock should be broken, but a fairly reasonable expectation should exist that company will/can/should right itself and the stock will soon head back up.

Or in case of SPG during COVID, the company did nothing wrong, but were forced to shutdown due to the lockdowns, which caused an irrational price drop. Looking at parallels, at that time, to the 2007-2009 GFC, I came up with a target of $135 for SPG when it was sitting in the low $60’s. I wound up selling most near $170. That was an overachievement thanks to the irrationality of the 2021 market.

I believe a recession, whether soft or hard I am unsure, is coming. Anecdotally, enterprises are buying less, even if increasing some cloud spend. Generative AI has both upside (productivity gains) and downside (increased unemployment potential) and it appears the Unemployment Rate is soon the last domino to start falling.

Some similarities to the broadband/fiber boom of 1999/2000 that eventually went bust. Keep in mind…internet speeds, and networking speeds, never stopped increasing. The stock mania just burst as too much growth was built-in early on. I think AI will go the same route. Truly world-changing personal assistant AI’s may change my mind, but they will largely benefit a couple tech titans and not all the S&P500 or Russell, or DOW Industrial stocks, etc etc…

So…what is out there?

I bought some SE, BTI, JD, and NSSC all at/near 52 wk lows.
PTLO still about 15% off lows, but I like them longer-term too, so started a bit early.

Old favorite SPG is still about 30% off lows, so not pulling trigger there. Although I don’t think I will be as greedy as $85 to buy, if it gets into low-90s again, I may start there.

What are you looking at, and what targets do you have?

Stocks near/at 52 wk lows:
ENPH (former Saul darling left for dead. I wanted to short at $330, and chickened out…grrr!)

DIS - expensive theme parks, and rising wages don’t seem like a great fit into face of recession, and strikes are limiting streaming options. Iger back in charge is a plus. Fighting with Ron D in FL is distracting. The run up from the Marvel and Lucasfilm purchases was epic, and has never really been retraced. Jump in now, or wait to see if the $80 line from 2014 is breached?

Who else?

Dreamer

5 Likes
2

Even if you shorted at the peak at 330 (which I doubt), you’d still covered a long time ago.

2 Likes
3

Hard to search this board, but it is probably in my dreamerport thread. Here was tweet.

My short started on 12/13/22, and it was about $326. So, yeah, i, like, totally exaggerated. My bad.

My point was that I didn’t stick w it.

I love how my trades are questioned, yet i am down ytd, and transparent w moves when i dont have to be.

Outside of KC, does anyone on this site post fairly real-time updates? No. Most dont wven do monthly summaries. Some of Saul board will mention they made a move due to ER results, but other than that?

Dreamer

2 Likes
4

And, yeah, i listed in my tmf thread too.

I should just move to monthly summaries and claim i am up 40-50% like everyone else.

I guess people will believe anything they see on the internet…

Dreamer

5

You took it way too seriously, I really didn’t expect such a reaction.
Was it really worth digging up past posts?
I didn’t expect that from you, especially since you had nothing to prove.

Enjoy the weekend!

2 Likes
6

I needed workout motivation.
Had to double up workouts as i spend tomorrow moving one of my kids into college.

image
image1752×954 193 KB

Dreamer

1 Like
7

GTOG5961

2 Likes
8

There are probably a dozen categories of broken toys. Two of them, off the top of me head, are short term bargains due to misunderstood event ,such as ER, and what we could call “turnaround stories”. Maybe a third could be “near 52-week lows” which is a screener that Dreamer seems to use. The 52-week low can be partially a general investor sentiment effect, but there would often be a previous overvalued situation or some operational problem. The turnaround stock by definition indicates poor company performance, perhaps due to poor management or some external factor that cannot be readily solved. The misunderstood event and 52-week low seem to lend themselves more to a short term investment or trade. The turnaround is more “investment” oriented and probably requires the patience of a 2-3 year time period.

I looked at the BMW screen for potentially undervalued stocks. It contained my current or recent holdings of Stanley, Scott’s Miracle Grow, VFC and Monro. I still have VFC, PVH and OLED and VFC from my previous screening. No great winner for me among these. A new candidate appeared, International Flavors & Fragrances. A case of dismal stock performance for a reason. The company has undergone massive turnover at the executive level. New CEO in 2022. Four EVP’s on board, since 2022, 2019, 2016, and…1993??? IFF has three divisions with presidents, 2023, 2021 and 2019. CFO came on board 2021, CIO in 2016.

Looking at their Investor presentation, it seems as though someone just received an MBA… https://ir.iff.com/static-files/c372a96d-b36e-42c7-bddd-85ba55f5922a

You can see the BMW chart at BMW Method Screen Results for IFF
Remember this is stock CAG, not sales or profit CAG. This is more than a double if IFF returns to 30 or 40 year CAG. Previous times that the BMW chart was at this level of potential oversold were in 2001 and 2008.

I am not promoting the buy side, just re-introducing the BMW method which has not yet made me money.

KC

6 Likes
9

I own a little JD too. Everyone is increasingly negative on China. Maybe it wont be as bad as they think? The consensus right now is that China is going in a rapid decline lead by the authoritarian governmenrs massive oversight and regulation but what if its not rapid. JD still grew 8% last quarter and their margins continue to expand. I think they have like 20b in usd of cash on the balance sheet. Looked at SE but not sure their margins for the last two quarters are sustainable. Ive heard that garena basically copied some other game with their big hit.

10

Another possible broken toy to put up on our repair bench and take a look:

PRAA

Not an expert here, but high-level is concept that they take over defaults. We know delinquencies on the rise, and defaults should not be far behind. Stimmy money long gone, inflation has been persistently chipping away at budgets/savings, cc usage at record levels, etc etc…

then they lose CFO last week. Stock near a 52 wk low, and looking back longer it ain’t so great.

Some of the thesis is that they should have made bank during pandemic, but the govt free money rescued too many. So…overdue and ripe for success ahead if/as we get an actual recession?

Another that I think is more about timing, which always seems impossible to do, is ZIM, which is a shipping play. Shipping will do poorly in true recession, so you have to think bottom isn’t in yet. However, stock at 52 wk low, and their mandate is to pay X amount to dividends (when they have profits to do so). Dividend is off the table at moment, and so stock has floundered. Barring them going out of business, this should eventually spike up, plus divvys back at that time to boot. Dollar cost average down, or wait?

Dreamer

1 Like
11

This is an interesting discussion that is more actonable than the recent whining about what the market is doing or is supposed to do but is not doing…

Anyone looking at Chinese large caps? I only trade the FXI ETF when I am interested in making any money on China. I do not trust any data coming out of China and the FXI is the more dependable investment/trading vehicle, imo.

Sentiment on that market is in the dumps. As per Bloomberg, In the past 3 weeks, more than 400,000 news articles were published that mentioned China. More than 33,000 of them were explicitly negative. That’s the highest ratio in at least a decade. The only other time that came close was 8 years ago almost to the day.

And as per the contrarian-front-cover indicator, this latest from the Economist could be signalling a bottom of sorts.

image
image1080×2280 125 KB

4 Likes
12

@BeachMan2115
Personally, I’m sour on EM, but what’s your % allocation to FXI?

2 Likes
13

FXI would be a trade for me. i usually dont put more than 2% into a swing or contrarian trade.

RE: longer term EM investing…i currently have about 9% invested in EM via Vanguard mutual funds. When the DXY drops below say $95 and stays there consistently, I will double that allocation.

Currently I like Mexico, Brasil and India in terms of EM markets.

4 Likes
14

Hi Beachman,

Which ETF do you use for Indian markets? I too feel India and Brazil may really do well…and use EWZ for Brazil… I am not sure which Indian ETF really is the more apt one…INDY and INDA are more liquid/ larger ones, but looks like their 5 yr performance far underperformed the actual Indian market returns?

Would appreciate your thoughts on the ETFs you prefer for the Indian and Brazil market.

Thanks,
Charlie

2 Likes
15

I have never liked any of the India ETFs due to underperformance and high fees. Imo, HDFC bank ($HDB) is the best way to invest in the Indian economy. The stock is showing a triple bottomming pattern that might be a good entry point.

2 Likes
16

Couple macro takes on India. I have no position or strong opinion, as I have a hard enough time understanding the US. :slight_smile:

Some think the Indian market has held up due to the boost from the AI trend. Not sure the angle there, but the timing would make sense.

Dreamer

4 Likes
17

Some broken toys I thought were kinda/sorta interesting at moment, near 52 wk lows:

ULTA - has been brought up before. Think we need the really oversold number before jumping in, because, as mentioned by others, this is a fairly large outfit already and not a huge growth story. So I would play it a bit like SPG during the covid beatdown. If they get really oversold, I think they are an easy snap-back buy for a 30-40% type gain over 6-9 months.

STEM - one of those dreaded SPACs from a couple years back (rhymes!). Basically an energy play. The idea always was that their software biz (small now) would eventually grow and be the profitable part of their biz. That story may just be on cusp of finally starting, plus quick scan of Seeking Alpha indicates mgmt has been reiterating guidance yet stock in a freefall and more revenues expected in 2H and presumably they are due to have their Q3 ER shortly (early Nov, I believe).

PARA - the often overlooked Streamer/entertainment outfit. we all know NFLX and DIS, and more may know WBD (HBO+Discovery) but PARA is at multi-year lows and apparently forward PE is saying 8 or under? Not sure how accurate Yahoo Finance is there. They may have cut dividend not that long ago, which would lead to the dividend folks abandoning ship, thus the big stock drawdown. So perhaps due a nice bounce?

What say you about these broken toys, or won’t you please bring forth the decimated carcasses of stocks you found dehydrated on the side of the canyon road, missing a finger or two?

Dreamer

5 Likes
18

STEM. Seems like a no-brainer from stand point of technology and energy usage. Get paid to build the systems, and then rent out the software to optimize the revenue stream from stored electricity. But is it a good stock? Looks like there is a pathway to profitability. But when? Capital intensive. Higher interest rates are a headwind against both energy production and battery storage. I also wonder what moat there is for the software. Got the AI buzzword going for it. Do they have better data for training and tweaking? They do have scale.
I noticed a big ramp up of inventory in the Q2 report, from $8.3 million on 12/31/22, to $145.5 million on 6/30/23. This can be compared to sales of hardware for the six months of $129.3 million. Seems o.k. to me. Their IR response:
Inventory
Inventory consists of batteries, hardware and equipment either in-process at the Company’s OEM suppliers or as a finished product at the Company’s warehouse, which are sold and delivered directly to customers under the Company’s partnership arrangements as individual assets or assembled systems. Battery inventory is stated at lower of cost or net realizable value with cost being determined by the specific identification method. Solar hardware and equipment cost is determined by the first-in, first-out (FIFO) method. The Company periodically reviews its inventory for potentially slow-moving or obsolete items and writes down specific items in inventory to net realizable value based on its assessment of market conditions.

My position is just 0.01% of portfolio now. When I raised cash, I sold off most of my moonshot stocks. I figured if we get the correction (down), that these guys will get hurt more than the overall market.

My position in STEM is now 0.01%. As I raised cash this summer, I figured these moonshot stocks would not fare well in the correction that I was positioning for. Out at $7.54 and $6.86 which looks good now. But I started to build the position in 2022, with small buys at $14.78 and $17.87. Biggest purchase was 3/29/23 at $5.03. A lot of churning in between. Anyway, that is all history. I would be buying STEM now if I were buying anything. But I still think that NASDAQ is vulnerable to a drop from 13,000 to 12,000 or ? So I am watching.

KC

4 Likes
19

I’d like to make a contribution to the broken toy pile, especially with various holidays approaching.

Broken toys I have (all still broken for me, by the way)
VZ div 7.7%, just bounced 10% on Q3 earnings
TGT div 4.0%
PNC div 5.5%, they bid on SVB so management must know what they are doing, right?

Broken toys I may have
MRNA
cash pile from covid vaccine, proven biotech platform, many mRNA-based vaccines and therapeutics in the pipeline, obviously a very risky stock

2 Likes
20

ENPH down AH…at $82 or Sept 2020 prices. Might be getting close to interesting for Long, despite incoming recession vibes.

Dreamer

3 Likes