Do Not YOLO This Stock

Quick Hits from GRIT

Happy Friday Everyone 👋

Did you catch Genevieve featured in yesterday’s Bloomberg piece? GRIT IS EVERYWHERE!

FIVE things you need to know this week in 60 seconds.

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Blockchain is like the Internet in the 90’s. It will change the way we do everything. The sector is expected to grow at a CAGR of 53% this year to $1.62B. How to get exposure? TAAL is a vertically integrated blockchain infrastructure and service provider for enterprises. It’s publicly traded and recently raised $40MM!

*as of 4pm ET, 8/5/21
1. MACRO

Infrastructure bill winners & losers

A $1T bipartisan infrastructure bill is working its way through the Senate this week, which means some industries are going to be getting a nice tailwind. Others, not so much…

Biggest winners:

  • Freight/transportation: $110B for roads & bridges

  • Airlines: $25B for airport upgrades, reducing emissions, and improving congestion

  • Internet providers: $65B to improve internet access

Biggest losers:

  • Chemicals: a tax levied on companies to clean up hazardous waste sites

  • Cryptocurrencies: increased IRS surveillance (I think this is actually long-term positive)

  • Deficit hawks: not much in the way of tax hikes, which leaves funding for the bill coming from the equivalent of “raiding Congress’s couch cushion for money.”

GRIT’S TAKE: Something that’s been holding back cryptocurrencies is a lack of trust, transparency, and stability.

While it seems like a tough pill to swallow right now, these new provisions could put those worries to rest and help legitimize crypto within the mainstream financial community, and more importantly institutional investors.

GRIT’S ACTION: Long Bitcoin and looking for an entry point on Ethereum

2. DEALS & IPOs

Square’s Afterpay acquisition pays off immediately

Earlier this year, Jack Dorsey said that Square wanted to bring their merchants and Cash App ecosystems closer together. Well, that’s exactly what they’re getting with Afterpay, the Australian buy-now-pay-later (BNPL) leader which cost Dorsey’s favorite company $29B (their biggest acquisition yet).

Investors love this deal ($SQ and $AFTPY are up 13% and 38% this week, respectively) because it gives Square’s merchants the ability to offer BNPL to younger customers who have been shying away from traditional credit. In fact, BNPL usage increased 215% YoY in January and February.

GRIT’S TAKE: Apple disclosed last month that it was working on its own BNPL product, which begs the question: “Was it worth the 31% premium for Square?” Investors certainly seem to think so!

But I still have trouble wrapping my head around the valuation on these BNPL lenders who have nothing proprietary. I wrote a bearish newsletter on the Affirm IPO on Jan 20th, 2021, and the stock is down 40% since then.

At 20-40x revenue with no profits, these are essentially expensive ‘moatless castles.’ PayPal trades at 13x, but it’s profitable. Shopify trades at +40x, but it’s profitable and innovative.

GRIT’S ACTION: Not buying

3. STOCK MARKET

It’s the circle of life!

If you thought that the original meme-stock facilitator wasn’t, itself, going to become a meme-stock, then you haven’t been paying attention!

After what seemed like an appropriate reception by investors last week, shares of Robinhood fully embraced their meme-stock status and started doing meme-stock things. Honestly, it’s probably best for the brand at this point.

While that entails 25% and 50% daily swings to the upside, it also means big downside risk which we saw yesterday as some of the company’s biggest investors filed to sell nearly 100M Class A common shares for roughly $6.85B.

GRIT’S TAKE: The average Robinhood account holds $4.5k. That’s a low number as is, but they’re also having trouble retaining those accounts as they grow bigger. According to Wolfe Research analyst Steven Chubak, in Q1, users who left Robinhood for another brokerage took an average account value of +$20k with them.

It’s also never a good sign when an analyst who initiates coverage on a stock labels it ‘uninvestable’ and titles their report “Do Not YOLO This Stock”!

GRIT’S ACTION: Still not interested.

4. COMMODITIES

Natural gas is the new lumber

Yesterday, the price for natural gas settled at $4.16 per million British thermal units, a 37% increase from April.

Another point of reference: that’s DOUBLE the price of a year ago.

Big producers aren’t drilling to chase the high prices, though, but rather they’re laying back to keep them there. This low supply going into more hot weather before the heating season, plus an expected boom in exports is expected to drive the price of the US’s most prevalent energy source (40%) up even further.

GRIT’S TAKE: It’s not only in the US:the cost of natural gas in Europe is also surging, reaching records in some countries, like Germany where prices have risen 60% this year.

GRIT’S ACTION: Sold my energy stocks for 20-30% profit last month — might have been too early…time will tell!

5. ENTERTAINMENT

Hello Sunshine: content mercenary

It took 20 years, but we finally found out just how valuable Elle Woods could be: $900MNot going to lie, I would’ve kicked and screamed until I got my even billion ; )

Reese Witherspoon will continue to run Hello Sunshine, which is responsible for Big Little Lies (HBO), The Morning Show (Apple)and Little Fires Everywhere (Hulu), but it will operate under a larger media venture to be named later backed by Blackstone Group.

This new venture is being led by former Disney C-suite veterans Kevin Mayer and Tom Staggs, with Witherspoon and her CEO occupying board seats.

GRIT’S TAKE: Blackstone’s approach is a little different from the bigger players in the space who typically don’t license their content outside of their own streaming platforms.

Instead, the venture’s production companies (Hello Sunshine being the first) will be free to license programs to any studio or network, giving them greater mobility in a fragmented streaming market.

GRIT’S ACTION: Content is king: long Amazon & metaverse-machine Roblox.


Under the Radar…

New World wants to enhance the relationship between user and creator. That’s why they built the first ever augmented reality NFT platform where consumers can interact with their favorite artists, musicians, celebrities, and companies on a global scale. They were just acquired by publicly traded DeFi firm Graph Blockchain!
More than 26 million people are affected by Chronic Heart Failure (CHF).Cardiol Therapeutics is fighting CHF with an ultra-pure, high concentration cannabidiol (CBD) formulation, CardiolRx™, that is currently being studied in an FDA approved Phase II/III trial. Cardiol’s shares are in the process of being uplisted to NASDAQ!
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*SOURCES
1. BloombergWSJ
2. TheVergeGoBankingRatesWSJ
3. BloombergCNBC
4. WSJBloomberg
5. WSJ

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