Ikeanumba on Saturday said he sees plenty of cheap stocks worth buying, even with the S&P 500 sitting at record highs and signs of overvaluation in pockets of the market.
1.AMC
So, given extraordinary gains through late May, is it time to take profits off the table? After all, the May rally displayed elements of a climax run. And now, gains from a recent buy point at 14.64 have now shrunk to just over 110%.
Or is it a buy now?
This story examines fundamental, technical and fund ownership factors to determine if the Leawood, Kan., company with 1,004 theaters and 11,041 screens scores a good probability of making more money for stock traders.
After Memorial Day, AMC jammed nearly 23% higher after the company announced an agreement to sell 8.5 million shares at $27.15 per share to Mudrick Capital. AMC said the proceeds would go toward strategic acquisitions of “additional theatre leases, as well as investments to enhance the consumer appeal of AMC’s existing theatres.”
Some of that money could also go toward paying down debt.
On June 3, shares at one point fell more than 30% on news the company plans to sell up to 11.55 million shares — or roughly 2.6% of the total common shares outstanding. AMC raised $587 million. On July 6, the company decided to shelve a plan to sell more shares to the public.
Meantime, consider this stat: Prior to the giant gain on June 2, over just five sessions of trade (May 24 to 28), AMC obliterated the short sellers by rising as much as 203%. In the week ended June 4, AMC stock almost finished up 100% or more for a second straight week. Incredible.
Earlier this year, WallStreetBets chat-room traders on Reddit joined in unison in buying shares and bullish call options in AMC stock. They did the same in a band of other companies that had been heavily sold short and struggling.
When a stock shows a high level of short interest and is getting bid up, you can almost count on a chain reaction of buying to occur. Why? Short sellers, betting on a decline in the stock, often have to do an about-face. They cover their short position by buying back shares.
According to data analyzed by MarketSmith, short interest — shares sold short by individual and professional investors — stands 0.4 times AMC stock’s daily average volume of 192 million shares, or roughly 76 million shares. That’s still equivalent to 15% of the stock’s entire float, down sharply from 21% in the spring.
The NYSE publishes data on short sale positions only twice a month. Plus, the short coverage ratio can be skewed by dramatic changes in daily share turnover. The above data also does not consider any shares that may have been sold short in dark pools.
The Investor’s Business Daily team will keep close watch for any signs that short interest has dropped lately.
Since late January, AMC stock has followed an extreme zigzag path. Just two weeks after that 20.36 peak, AMC crashed. Shares fell to as low as 5.26. Then came a huge second wave of buying, sending shares back in the low teens.
Week to week, the stock (pumping its market value this year to as high as $36 billion on 502 million shares outstanding and a float of 497 million) has lately seen its overall price range narrow. That’s good as the new base formed.
2.GME
Yes, you can trade GME stock, but be careful. The stock is now available for trading at all major brokerages.
There are caveats, though. Given the intense volatility in GME stock, some brokerages like Robinhood limited some transactions in GME stock earlier this year. At one point, investors could only sell shares of GME stock they owned and couldn’t buy more.
Also, since GME stock is highly volatile, some stop-loss selling and buying may not work as you’d expect. The stock can be halted on extreme volatility. Also, if you set a limit order, it might not execute at your price if the stock moves too fast.
Why Is GME Stock Volatile Now?
GME stock is rising as investors think it can pull off an amazing business turnaround. GameStop is seen losing money in 2021, a big blow to the fundamental story of GME stock.
Meanwhile, many of the forces that propelled GME stock aren’t as strong as they were. Shorting activity is down sharply — as short sellers see the risk of their moves and pull back. Shorts only control 15% of GME stock now, says S&P Global Market Intelligence, down from roughly 90% in early 2021. That’s still higher than the typical single-digit short position, but nowhere near what it was.
Additionally, much of the “good news” on the stock, like Cohen’s involvement is priced in. Cohen is now the third largest holder of GME stock, with 9 million shares or roughly 13% of the company. And many analysts continue to tell investors to “sell” as they see the company unable to compete in a new world of digital game distribution.
Wall Street analysts who follow the stock closely warn its worth much less than retail investors think it is. The average 12-month price target is just 28.33. If they’re right, that’s nearly 90% potential downside from its current price of 224. The four analysts following the stock rate it “underperform” on average.
GME Stock Recent Quarterly Report
GME stock’s most recent quarterly report should have offered some hope. But GME stock is lower anyway. On June 9, the company reported a smaller first-quarter loss of 45 cents a share. That topped forecasts calling for a loss of 84 cents a share. Meanwhile, revenue rose 25% during the quarter to $1.28 billion. The top line topped estimates by 9.9%.
It’s a decent quarter following years of decline. The company’s EPS growth rate started declining consistently in 2017 and turned into outright losses for fiscal 2021, which ended in January. Meanwhile, GME stock’s sales posted an 18% annualized drop in the past three years.
Interestingly, GME stock’s consumer electronics retail group is doing well. Its ranked 1st out of 197 groups, says IBD’s Stock Checkup.
GME Company History
GameStop used to hold an important position in the video gaming industry. It was the spot to buy the latest video game consoles and games.
The company, based in Grapevine, Texas, turned stores, usually in malls, into hubs for gamers. You could always get your hands on just-released games. But more importantly, you could save money by trading games you were bored with for new or used ones. By being a used game bazaar, GameStop remained relevant even with competition from Amazon, Walmart (WMT) and Target (TGT).
Back in 2016, GameStop ran 7,117 stores. And in the 12 months ended in January 2016, sales at stores open at least a year rose 4.3%. But now many people just download games to their phones or computers. Now GameStop runs just 4,800 stores. And sales at stores open at least a year are down nearly 10%.
