Don't Roll the Dice on GameStop

With meme stocks like AMC and GameStop back in the headlines, enjoying meteoric gains of 75% yesterday and pushing yet higher today, it can be tempting to jump on the bandwagon and try to make a few quick bucks before the current frenzy dies.

Especially for those who missed the last rallies in 2021.

But if you leave these stocks alone, you're actually the smart one. As Warren Buffet likes to famously say, "Stick to what you know." His stance is always, "I just need to know how a business makes its money. Once I know that, I can understand the business and determine if it is worth owning."

That's really key when understanding why it is so dangerous to play along in something like these meme stocks. They aren't rallying because these are solid companies making massive profits with strong fundamentals to back up their share prices and the current surges. They are rallying because the same man who fueled the last big surge has resurfaced for a second round of squeezing the shorts.

In other words, the rally won't hold and when the smoke clears the same as it did last time, it will be a swift and strong pullback, and the reality is that most people won't get out soon enough before their money is all gone.

It's gambling, pure and simple. Something that is never appropriate to do in the stock market. 

It's that temptation to wonder, "But what if it jumps another 50% today?" That's the same mentality of someone sitting at a slot machine wondering, "What if the very next pull is the one that hits the jackpot?" 

I'm a bit of a seasoned guy. I feel like I could smartly navigate the rallies and make some money. But it's just a game I refuse to play—because it doesn't make sense. It defies all of the logic I have learned over the years regarding share prices and why stocks move. Or more importantly, why they should move.

If it doesn't make sense, I'm going to leave it alone. 

Granted, some part of it makes sense. For example, we know that the short positions of GameStop were around 24% of the total of outstanding shares. So basically, buyers of the stock are running up the price through a frenzy of buying essentially forcing the short sellers to have their short positions squeezed and forcing them to sell their shorts to cover their positions.

But again, it's an artificial move. There's nothing to back up the share prices. Therefore, the prices are doomed to fall back sharply. The question is exactly when, and no one, even the most seasoned of investors, can time the markets.

I say hold onto your money and continue putting it into long-term investments that make sense. Like I said, it is tempting. Some may experience a sense of FOMO. But it's a fool's game to be sure. And the old saying that a fool and his money will soon be parted holds very much true in this case.

If one is going make a play, you have to consider it in the same way a responsible gambler would consider it. "This is money I can afford to lose and that I am willing to wager knowing I may walk away empty handed."

And, "I'm okay if I walk away empty handed." Because more people will likely walk away with nothing than will cash in on a big prize.

Like the way I write or the things I write about? Follow me on my Facebook page or on X to keep up with the latest writings wherever I may write them. 

© 2024 Jim Bauer

This blog post is for informational or entertainment purposes only and does not substitute for seeking advice from a licensed professional before making any investment decisions. 

Plummeting McDonald's Sales May Be An Economic Signal

A couple of years ago I wrote that one thing about downturns in the economy is that it causes people to, of course, scale back their purchases, and that means low-end retailers such as Dollar Tree, Dollar General, Walmart, and even thrift stores like Goodwill will tend to do very well since consumers are more concerned about value than necessarily quality, or customer service. That is not to disparage any of those companies on either quality of product, or quality of service, but simply to suggest that price becomes king in that kind of an environment. In that commentary I suggested that when the economy begins to fire up a bit, retailers to look at to buy shares in are slightly higher end, or steps up from the deep discounters. Places like Target and Kohl's, for example.

During the same period I also wrote about how well McDonald's stock performed throughout the entire recessionary period. To put it literally the stock was on fire, and that was because people were flocking to McDonald's stores, particularly interested in their value menu which offered consumers the best bang for their buck when it came to dining out. Even when it came to coffee, a cheap cup of what is arguably a noteworthy brew was just what the hurting consumer needed to get their coffee fix at a price that went easy on their wheezing wallets.

Interestingly enough, Starbucks did not fare all too poorly during the recession either, but that's another story. There's a different dynamic going on there.

McDonald's sales have taken a turn for the worst, having seen percentage decreases for nine straight months, and even Walmart has been seeing some declining sales.

With gas prices lower and jobs numbers higher, the shortfall in sales at McDonald's may actually be a lagging indicator of better times ahead. What it suggests is that people may be stepping up to slightly
higher end operators like Wendy's, Chipotle, and Panera Bread to name a few. Five Guys burgers are a strong competitor in this sector as well, and have been one of the fastest growing quick serve hamburger chains for some time now.  My gosh, if they went public, I would be one of the first guys in line.

Shake Shack may shake things up a bit as well for McDonald's. And actually Wendy's stock has been seeing new highs, so to my mind these are very clear signs that there is a paradigm shift in where consumers are spending their dollars.

And the begging question? Could it be that with lower gas prices and better job prospects, consumer confidence may be rising, and consumers are now willing to spend a little more elsewhere?

If that's the case, it could well be a signal that the economy may be getting better. I think it is too soon to tell for sure. Certainly I am not going to use hamburger sales alone as any indicator in the macro-economic picture. But in the micro it seems to at least make a suggestion which I think is worth taking a close look at.

People are beginning to make a shift in their spending, and McDonald's horrible sales numbers are making that all too clear. Stocks that I think are ripe for this environment are Wendy's and Chipotle (I'd stay away from Shake Shack), Whole Foods, Target, and I will go ahead and throw Darden Restaurants into the mix as well. These are companies I want to own right now. I think these companies are primed to benefit from any improvement in the economy, and I think stocks to avoid right now are stocks like Dollar Tree, Walmart, and yes. McDonald's. But do watch the company very closely. McDonald's has historically been able to weather many storms and has an uncanny ability to right its ship eventually. I do not recommend writing it off completely in the short term. But these other companies, I think, have a lot more going for them as it currently stands, and that is where I would put my investment dollars.

We're up for a ride, and the ones who will win are those who are treats to the American consumer if it becomes all too clear that we are headed for better times. In this case playing the value play is not as good a bet as playing the upgrade play.

Sometimes You Simply Root For Sideways Stock Movement

Options in the stock market are something I enjoy using from time to time simply to generate cash. I actually really like them. Especially when a stock is trading in a range that already has you showing a profit on paper, you can generate wads of cash doing it this way.

I always sell options contracts. I never buy them. Or at least I rarely do.

Cypress Semiconductor is one such stock that has been trading rather nicely in the past month or so, and so I decided it was time to generate some additional cash and sell some contracts on the underlying stock.

I made a pretty little penny, and I want to do it again next month as well on this one. I sold covered calls with a $15 strike price for February. It is trading today at around $14.15 and the expiration is of course about 30 days away.

So I am keeping my fingers crossed that the stock continues to rise a little bit of course, but also trades a bit sideways until the calls expire. The beauty of these things is that even if the stock is at $14.99 on the day of expiration, it is unlikely I will be called. I get to keep my shares, continue to earn dividends on them, and when I go to sell March contracts hopefully I'll be close enough to the mark to sell them at a $16 strike price.

Best of all worlds.

The key for me is simply to get as much out of any stock I own as I possibly can. That's the plan for Cypress Semiconductor. There's another currently on my radar, but I don't like the market price right now for it's calls.

In due time. I am patient, and the contracts I sold for Cypress should more than allow me some time to wait to pull the trigger on the other candidate.

Photo credit: Image is from Springboard Images.

Cautious Optimism for the US Markets

Today wound up being another fairly good day in the markets, and certainly the markets have been enjoying some fairly nice runups of late. And while there are definitely positive signs that the economy may slowly be in the beginning stages of coming out of the doldrums, I am still fairly cautious about the moves I make in the markets, but also optimistic going forward that certain stocks will see some nice gains.

Part of the activity in the markets was due to the start of a two-day meeting by the Feds which, for all intents and purposes appears that they will not make any immediate changes, which is positive news overall. It willalso be interesting see what the Fed will have to say about some of the predictions they made in March when they last met in which they said they saw GDP growth around 2.6% through 2013, and a nearly 1 point increase in 2014 to 3.2%. In March the Fed also suggested that unemployment numbers would continue to improve, dropping to 7.4% by the end of 2013, and down to 6.9% by 2014. I think that if the Fed reaffirms these figures, or show better numbers for GDP growth projections and unemployment figures, obviously this will cause the markets to continue to rally. If the Fed adjust these numbers to the negative, it may throw a bit of uncertainty in the markets and cause stocks to go lower. My strong suspicion is that the Fed will not adjust their figures, but rather will state that they are on track to meet these projections they made back in March. That is still a positive, to my mind, and I think the markets will react positively to that news.

I also think that, for the time being, the Fed will maintain monthly purchases of $85 billion worth of bonds. They won't start scaling this back, I believe, until some of the projected figures begin to get closer to becoming fact. Bernanke, I think, tends to be a bit cautious about acting too soon. Although a scaling back of these bond purchases would certainly be a strong signal for the economy, and the markets could see gains as a result.

Stocks I like right now are Ford Motor Company (F), Dunkin Brands Group (DNKN), Target (TGT), and Masco Corp. (MAS).

I picked Ford due to what I perceive as better auto sales figures due to improving employment, an uptick in refinancing of mortgages which may open some money up to potential buyers, and aging fleets which will need to be replaced sometime in the near future which Ford could be a beneficiary of. Dunkin Brands Group was picked due to a good earnings cycle, and strong expansion of their business and upgrading of stores. Dunkin is making a strong push for market share, and I think they have a good chance of getting some of it. Target is my choice because consumer confidence is up slightly, and because I think Target is considered by many consumers as an upgrade to other discount players like Dollar Tree and Walmart. If economic conditions improve, and employment situations improve, consumers may well treat themselves to shopping up at Target over the other discounters. Plus, their stores look great. Masco Corp. is a play on the nearly 7% uptick in new housing starts recently reported, and improving home sales overall. When people buy new or existing homes, they tend to want to spruce things up a bit, and Masco Corp. is definitely a company who offers products new homeowners can turn to to help them to do this.

Will Lincoln ever offer a truck again?

Content Is King of the Internet

Ford Motor Cpmpany: An American Gem

TO BE OR NOT TO BE...A TURKEY

Luckily the turkey I'll be stuffing into my face today only cost me 58¢ per pound at my local grocery store. I'll have to make sure I can get all I can out of that bird considering where the markets fell to on yet another dismal day in the markets yesterday. Gazing at my wheezing portfolio, this bird, my friends, could well be my last meal.

It sometimes feels like what we have here is the Energizer Bunny of dips, doesn't it? It just keeps going, and going, and going...down!

I mean, yes. I am being a little bit fecetious. We're still above 11,000 on the Dow. And our lowest lows were in the 6000's, so we're not doing all that bad considering where we've come from.

So, what am I thankful for this fine Thanksgiving Day? I'm thankful for my gumption and my tenacity to stay the course despite it all. It's a horn I've been blowing for quite a while that the sky is not falling. The end of the world as we know it is not upon us. The world economy is not really on the brink of collapse, and certainly neither is the U.S. economy for that matter.

It just feels that way.

So yes. I'm staying the course. I'm not pulling my money out of this ugly thing, as much as I've been inclined to do so several times, having had enough of watching my hard-earned, and dilligently saved dollars slowly disappear. Nowadays it definitely seems to be true that the more I save the less I have.

But again, I'm thankful for my willingness to just keep going with it. I'm going to buy, buy, and buy some more of all of the stocks that I think will be good and strong when all is said and done—and that are quite frankly good and strong now.

I hope in the end the real turkey doesn't wind up being me.