theStreetFika: Scones, Sips, Strategy & Stocks

In light of what happened with Gamestop and AMC's respective stocks, there will be lots of hearings and calls for reforms in short-selling. What I really hope is that predatory hedge funds and their lobbyists don't get their way and undo  SEC rule 204 , which regulates the close out requirements for shorts- i.e. when a short seller is on the hook to actually buy a stock they borrowed.  Currently, short-sellers are forced to deliver on their short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement date. The predatory hedge funds will call for this requirement to be relaxed to give short sellers more time to buy the stock and close their positions. They will argue that giving short sellers more time will reduce the rush to buy back the shares and help avoid a short squeeze. Giving them more time will only enable them perform these charades on many more good companies - they almost destroyed Tesla not so long ag...

By now, you all know how a group of novice traders bested Wall Street elite at their own game and caused stock prices for GameStop, Blackberry, AMC and others to skyrocket. I won't waste time replaying it or discussing it further. What I want to discuss is how the rising stock price affects these companies. Can they somehow benefit from their astronomical valuations to improve their operations and change their destiny? Are they set to flourish?  It's ironic, but the inflated share prices don't affect the day-to-day operations of these companies in the slightest. Take GameStop for example, its shareholders are a lot richer, but the business of selling video games and consoles is unchanged, and it is not coming back to the mall. And it's only a matter of time before AMC and Bed Bath and Beyond go bankrupt.    However, under more normal circumstances, a soaring share price could be cashed in — the company could issue new shares to meet the overwhelming demand and then u...

Don't let Intel's stock price fool you - it's not having a great time and unless it undergoes a massive transformation, it's going to be on life support very soon. I held onto its stock for over a decade then early last year I gave up and decided it to dump it all in favor of Nvidia.  Intel is no longer the unquestioned heartthrob of the $400 billion chip industry. It's far from it; its problems run deep and the last decade has been a tale of many massive missed opportunities. First, there was the epic Mobile failure. Despite the boom and skyrocketing revenues in the Mobile space for over two decades, Intel got zilch. How did that happen? The short story is that Intel's design was poor - too focused on speed and too dismissive of power management. Intel wasn't even a candidate for the iPhone CPU, and despite years of trying, it couldn’t break into Android either. Despite this colossal failure, Intel prospered and its stock has risen thanks to the explosion i...

One of Warren Buffet's favorite quotes comes from the father of value investing, Benjamin Graham. It goes like this: in the short run, the market is like a voting machine but in the long run, the market is like a weighing machine. This means that in the short run, the market is tallying up which firms are popular and unpopular but in the long run, the market is assessing the substance of a company. Electric car-battery developer QuantumScape (QS) is a textbook example of the stock market behavior in the short term. One moment it was a market darling, and the next, it was completely out of favor. Lately the selling pressure on QS stock has been intense. So intense that the company has lost a whopping 60% of its value in the past two weeks. No, the company didn't declare bankruptcy and nothing equally devastating happened to it. In fact, nothing news worthy came out about the company, its technology or the market it's in.  As mentioned in a previous article , QS is not all hy...

In the last article on Netflix , I discussed why Netflix's promise to premiere a movie every week is not an overly ambitious strategy for the streaming giant. It's a brilliant move that isn't risky because Netflix can keep spending at this high rate for a long time. Yesterday's earnings call confirmed this. During the call, Netflix announced that it does not intend to raise any more capital, through debt or equity, as it plans to be cash-neutral this year and cash-flow positive beyond 2021. Looks like all those price increases are flowing through to the bottom line. Of course, saying you don't need any more capital is a really great way of getting people to offer you more capital at even more attractive rates (if you ever did want it).

Netflix has announced its 2021 strategy, saying it plans to release a new movie every week. Some will be Netflix originals, some acquisitions. That’s a lot of movie premieres, and with basic subscriptions starting at $9 a month, some are wondering whether it’s an overly ambitious strategy for the streaming giant. Why is Netflix doing it? The competition in streaming has heated up intensely in the last month, when “Wonder Woman 1984” debuted online, paving the way for every other Warner Media film to premier on HBO MAX this year. This also came on the eve of the big success of The Mandalorian on Disney+.  Bottom line, with people around the world still stuck at home and other platforms getting blockbuster deals, Netflix can't afford not to up the ante. So it countered with a weapon - or rather fifty two - and promised to premier a movie every week. Is this streaming stretched too far? I think it’s a brilliant move. Netflix has the cash and the ability. It's already a big movie s...

So far Bitcoin is having a decent 2021. It hit a record high of more than $41.5K last week, continuing the upward trajectory it has been on since April of last year, when a single Bitcoin cost less than $5K. That rise now means that the sum of all Bitcoins in existence is worth more than $700B.  Because Bitcoin dominates much of the media's attention, it can be easy to forget just how many other cryptocurrencies there are. A quick look through the full list from coinmarketcap reveals over 100 alternative cryptocurrencies with a "market cap" of more than $100M. Each hoping that their unique take on the core blockchain technology will be enough to propel them out of obscurity, to where Bitcoin is today. With some of the names on the list you can't help but think someone is having a joke, or planning something nefarious - there is a "dogecoin", "YEP COIN", "OMG" and even "SushiSwap" (???). This time it's... different? Some of ...

Many of the big, incumbent automakers are going to be big losers in the next decade. Disruptive and existential threats have been coming for big, incumbent automakers for a while, but they are now playing out faster and in more dramatic fashion than originally predicted. So much so that many of the incumbents will vanish over the next two decades. Those who survive won't be anything close to their current form and will be miles behind Tesla and other new entrants such as NIO. The closest analogy to the fate of the automakers is what happened to mobile phone manufacturers (remember Ericsson, Nokia, Sony etc.). The auto giants have not been sitting idle. Since 2017 - when Tesla's stock started its ascent - many have done massive overhauls of their structure to become more nimble and efficient. They have also been reducing their costs. Despite all these efforts, they find themselves in a more precarious situation than in 2017. What has really changed that they didn't foresee -...

One of the most unsettling developments in business in 2020 was the trend that having no revenues proved not to be a deterrent for electric vehicle (EV) companies to go public. Although, the practice is unheard of in the the automotive world, Nikola, Fisher and others have done it and achieved multi-billion dollar valuations. The latest rebel is QuantumScape (QS) - a battery start-up that became a public company in November after merging with a SPAC. Although, it won't generate revenues until 2026, its market cap exceeded $50B in the last week of December. When the SPAC deal was announced, the parties decided a $3.3B valuation was appropriate. Except for QS showcasing its lab results, nothing material has changed between the SPAC deal and the last week of December to prompt the astronomical rise in valuation. It would appear that the same speculative fever that has many investors chasing the next Tesla has taken hold of QS investors. But is QS all hype, like Nikola, whose own techn...

AWS is currently the dominant cloud provider, with 32% of the cloud computing market. At the same time, Amazon is a major force in the e-commerce market, and several of its acquisitions have helped it become a significant player in other industries. Amid increased antitrust scrutiny, I expect Amazon to spin off AWS. Let me start by saying, while the threat of anti-trust action against Amazon is real, I think it will happen to Google and Facebook first. It will happen to Amazon only after those two, and that will be in a couple of years. I personally think Jeff Bezos, who’s the smartest businessperson in the world, will likely spin AWS before the danger becomes grave. When that happens, I think the most valuable company in the world will be a recently spun, independent AWS. The largest, most profitable cloud company in the world would be a stock that everyone would own. AWS is Amazon's silent (but deadly) superpower. It's a "silent server" for a huge swath of the dig...

2020 was one of Wall Street’s wildest years on record. Following an early-year collapse, everything came back roaring to close the year at record highs. Stocks in the S&P 500 index rose 16%, while the tech-heavy Nasdaq gained a remarkable 44%. Even the Dow didn't miss out and it began the first trading session of 2021 at a record. But it wasn’t just stocks. All assets hit stratospheric levels. Gold (+24.6%) and silver (+47.6%) had their best years since 2010. And Bitcoin gained more than 300% in 2020. The b-word Throughout the year, we kept hearing about a bubble that would soon pop. It sure looks like a bubble, smells like a bubble, and exhibits price-to-earning ratios like a bubble, but it doesn't look like it will pop anytime soon. So were the bubble calls just wrong? Or are we in a new era of wild speculation driven by cheap money that must inevitably come to an end? I lean towards the latter. So am I going to sell now? Absolutely not. The stunning performance of so man...