🗑️ Best Tips For Dumpster Diving For Stock Deals

What’s on the Menu 🍴

We hope everyone in the U.S. had a relaxing long weekend for Memorial day!

There’s a lot to get into this week, so let’s get right into it:

• What To Watch This Week 👀

• Dumpster Diving For Stock Deals: Best Tips 🗑️

• Are Small Businesses Okay? 🛍️

Today’s newsletter is a 5 minute read.

What To Watch This Week 👀

Nvidia delivered a strong earnings report last week, which helped the Nasdaq, but the rest of the market faced headwinds.

Crypto benefitted from a rare positive regulatory surprise, as the SEC moved to approve several spot Ethereum ETFs.

Meanwhile the red hot commodities sector experienced a healthy pullback.

This week is a shortened trading week, as US markets are closed on Monday for the Memorial Day holiday.

However, investors will focus on the PCE inflation gauge at the end of the week as well as more retailer earnings reports:

Retail earnings have been a mixed bag thus far with the median sales figure for retailers & restaurants clocking in at -1.1%.

Costco earnings on Thursday should be interesting, as sales growth continues there but the stock trades at its highest valuation EVER as a public company.

The EU dominates the macro data calendar this week:

• Japan consumer confidence (Wed)

• Germany consumer confidence (Wed)

• Germany inflation (Wed)

• China manufacturing PMI (Thurs)

• Euro Area inflation (Fri)

• US Personal Income & Spending + PCE (Fri)

Meme stocks have fizzled out in the past week and a half, however GME announced the company had completed a fresh equity offering of $933 million on Friday.

With the offering overhang removed, will we see an echo pump for GME and other meme stocks?

We will keep an eye there as well as on the following assets & sectors:

📈 Rising Recently:

• Cleantech & Solar (TAN / PBW)

• Semiconductors (SOXX)

• Crypto (BTC / ETH / WGMI)

📉 Falling Recently:

• Meme stocks (GME / AMC)

• Energy (XLE / XOP)

• Chinese stocks (KWEB / FXI)

• Real Estate (XLRE)

• Homebuilders (XHB)

• Retail (XRT)

Dumpster Diving For Stock Deals: Best Tips 🗑️

Believe it or not… only roughly 5% of stocks in the S&P 500 are down -20% or more over the past year.

It’s safe to say, stocks have been holding up generally well.

It has people wondering where the deals are to invest in within a market near all-time-highs?

So, we did a scan to find prospects to research further.

Here is the list (-20% or more 1 year returns):

(BMY) Bristol-Myers Squibb Co

(DG) Dollar General Corp

(DLTR) Dollar Tree Inc

(EL) The Estee Lauder Companies

(HSY) The Hershey Co

(ETSY) Etsy Inc

(ULTA) Ulta Beauty

(WBD) Warner Bros. Discovery Inc

There are names that could be interesting that aren’t down as much, however, we like to find stocks that will have good risk to reward.

There’s a fine line while doing research for beaten down names however: be sure you’re not buying a dud, or a value trap.

If a stock is down significantly, it’s usually for a reason (maybe it’s a short-term reason though).

This is the art of stock picking and research to suss out what names are actually rock bottom deals or not.

You never want to blindly be buying a stock just because its price is down a lot.

So where is a good place to start on research stocks?

1. Learn the P/E ratio: The price to earnings ratio is the start of all stock research. It takes the price of a stock divided by the earnings per share. It helps us compare companies to see what’s expensive and what isn’t. If a company isn’t quite net profitable yet because they funnel cash back into growth, you may want to use the EV/S ratios aka: “Enterprise value to sales”.

2. Look at the debt of the company: Is the company highly levered? Could their debt ratio get them into some trouble? Can they cover the interest expense? These are a few things to look into.

3. Check out the revenue growth trend: Revenue growth is the lifeblood of any business. If revenue growth is falling off of a cliff, you need to get to the bottom of why that is. Is it a short-term issue or a more broad trend that could be the company’s demise?

4. Make sure free cash flow looks good: Free cash flow is what allows companies to continue to operate successfully. If free cash flow is negative, that means a company is likely burning cash and having to eat into their cash position. This can become problematic. How much cash does the company on hand in relation to their cash burn? That’s important to peek at for companies that aren’t free cash flow positive yet.

So, get your research on and use these companies as practice!

If you need more help, we have plenty of resources to teach you all about analyzing stocks in our Wealth Building Community.

Grab the free Hedge Fund Playbook course to get started on your stock analysis journey!

Are Small Businesses Okay? 🛍️

Small businesses are key to our economy. They employ nearly half of the American workforce and represent 43.5% of America's GDP.

Small businesses have been on quite a roller coaster since 2020 and recent data is making people question if small businesses are really okay or not.

Of course, with any business there is always a obligatory “it depends” that needs to be said. Sure, some industries are doing better than others.

Services like restaurants may be doing fine. On the other hand, a small business in furniture sales could be really struggling with less people moving and buying homes.

Geographics and demographics play a huge role in which small businesses are doing well and which are not.

There’s some general data however showing the big picture, and it’s a bit concerning.

Small business optimism is really in recession territory. It’s lower than the 2020 recession we saw and rivaling prior recession lows.

Why do small businesses have so little optimism out there?

Some of the data is hard data.

It is noted in the latest report that small businesses are having a hard time finding help…Still!

Current job openings for small businesses are up 40%!

This is certainly an anecdote for the unemployment rate to stay lower. This seems to be the biggest issue I hear about from small business owners that I talk to as a financial planner too.

Inventories are another data point that I think is important. Businesses increase inventory because they have demand for products. So, inventories not increasing and current inventory being down could be due to slower business overall.

The most frightening trend here is the earnings. Earnings are down for small businesses.

This is an interesting contrast to the public markets, which we’re wrapping up earnings season with. Earnings in public markets have been pretty good overall.

Small businesses have a bigger hit to the bottom line from increases in wages and inflation. They just don’t have the same scale and they pay the price for that (literally).

Off all the data points we get with this survey, the job openings data is probably what stands out to me the most. Why?

Not having the proper help in your business can cause a few things:

1. A business owner can’t serve customers at the same capacity. They could have the demand there, but the inability to actually fulfill the demand. This leads to unfavorable outcomes with growth.

2. Business owners burnout trying to get the right people working in their business and feel like the environment is hopeless. This is going to decrease optimism. I know business owners personally really struggling with this.

So, in the end, bifurcations will always exist. There will be small business owners doing great and those struggling.

But, this is a unique environment that I think all small business owners are feeling to a degree.

Not getting help and stubborn inflation are digging their heels in the side of business owners.

Food For Thought 🧠

"Adventurous investing should be left to the adventurer.
Conservative investing is for the business person looking to
preserve capital and make a reasonable gain.”
- Walter Annenberg

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.