IPOs gone wild?
But we begin right here with what some are starting to worry could be. IPO's gone wild check out the monster move in some of these recently. Public Dame's beyond me. Smile Direct Uber up double digits. This year in fact smile smile direct up. Thirty four percent Uber. Seventeen beyond meet up fifty five and we're only nine trading days into twenty twenty. Many of these names are still to well off their Alzheimer. IPO highs so as the recent rally too far too fast so which guy dom of those names. If you had to pick one of those names names that we showed would you say this is the worst and most egregious example of momentum gone amok I mean the most egregious except those names momentum Menem gone amok beyond me is fascinating to me. I mean the stock went from seventy five seemingly the current levels in a straight line. But it's also often at two hundred forty dollar level that we saw. I don't know back in July so I don't know if it's necessarily runamuck to your point. There's still well off the highs. I think the bigger picture or sort of the broader theme here is. We spent a lot of time talking talking about. We work a few months ago and it's not particularly interesting but I think one of the many unintended consequences of central banks specifically are fed. Is they've made people people lazy. They made investors lazy. And what do you need to know. Well Softbank was supposed to be the greatest investors on the planet. They invested we work at a forty seven and a half billion billion dollar valuation and that's now eighty percent less if that were publicly traded company. We talk about it every day now seems to be happening in publicly traded companies. Yes I think. That's a reason for concern. I don't think it's necessarily the red flag but it's one of many red flags. Well I agree on the Fed analog and if you think think about where we were a year ago we were actually pricing in if you looked at the forward curve three fed hikes and continue unwinding the Fed balance sheet. Well we did exactly the opposite and twenty nine thousand nine. We got three cuts and essentially by the end of the year added four hundred billion dollars to the Fed balance sheet that to me is is essentially what guys talking about. This is the manifestation of that I don't think every one of these companies can be painted with that brush and if I had to take one of those companies that I actually think is kind of interesting. I think it's Lufkin. And I think it is based upon obviously asleep. They are the opportunity to be starbucks in China. You probably know this metaphor We talked about this last week. Karen remember they did a convert issuance in the stock. Got Killed after that and some of the biggest hedge funds in the world are in this name so you WanNa be buying essentially there convert except for the fact that I do think these guys are taking market share and I do think they are competing locally gross story I like I I think Karen the point of this exercise is that maybe all these names are great now. They were ignored many of them or sold at their IPO. So something reading either. Fundamentally has changed with the story in the past three weeks or this is just all goes and hedge funds and frequency traders riding the tape tape until they can't anymore. I think that is the main thing driving one thing. Most of these talks about all of them have in common is big short interest right so that starts a sort of a virtuous or vicious cycle depending on. If you're long or short of of buying so you look at like beyond me. twenty-five percent smile direct which to me is the most volatile bill fifty-six percent short interests. So I need to apologize to you because the last time we talked about small director suggested you might benefit from the product and I got a lot. uh-huh nasty twitter's said back then. I grew up in northern westchester nuts. Southern Westchester like you. We didn't have the funds four orthodontists. And you were making fun of me. I have feelings too I just wanted but that's okay. I'M GONNA start back in a couple of things about smile. Yes it's been on a tear for the last week. They've had some really good news with Walmart and now and now wholesale two orthodontist. That's actually big news but ever this stock was twenty. The I don't know four or five. And now it's eleven seventy something after a huge run so I mean some of these are just gaining share gaining priced back point. They had news smile direct. PK had some news. This they're going to sell through orthodontist which by the way was their entire on model. I mean the whole model was don't sell now. We're like at least they had news. Many of these other names are just trading on New Zealand's. It's the short interest in my view. It's the short interest that run out that we're running out and dry everyone covers. I think you take this list of stocks and put it up there and say when the market starts to turn over these are the ones who either want to short or you want to sell smile direct being number one on the club. I mean well primarily you think about dentistry and cosmetic dentistry. That is the first thing you're going to cut out if for some reason there's a recession or your pay checks cut or you're not making the kind of money that used to make the first thing to do is cut out your cosmetic dentistry whether you need it or not. So that's it's number one on my list too short not doing it now. Because of the fifty six percent short interest this thing could still keep get blown. You can still get ten. Would you agree. This is is not the time if you're thinking I don't like beyond meat unlike smile direct. I don't like luck and this is not the time to short these names. Well I think you can have a plan and you can certainly take a Exposure on in the option market. I think you can measure your risk and I think if the valuation is is absurd. I think you you. You don't necessarily need to put it on today that you can leg into the trade I will just say that if you remember back. It was only October when high multiple story stocks structuring unprofitable. With the last thing you wanted to own it was not that long ago. We're having this conversation in reverse. We will get back there. It doesn't mean that these are all bad companies. It's GONNA come back to valuations in the market when we're in a risk off environment. These will be the first to go. Yeah I could throw two more names on here. Guy Dummy Occidental Petroleum Down Twenty eight percent over twelve months up fourteen percent. This year I get through an L. brands down. Twenty four percent percent over twelve months or different up ten and a half percent this year. Sorry guy no jump in. I don't know what is with those names are they are. They're different but they're very similar more than there's been there's been news brand specifically and and a quick to go off the board for five hundred if I may in this conversation. But we didn't mention lifting this conversation but I think lift is much different Uber. That's a company with a pathway to profitability. Last two quarters from a good they were put in a couple of weeks. You've had this stealth rally and lift. I think this is the the name. I don't think it's going to get back to that. Sixty three dollar level that we saw over the summer. But I think it's destined to trade in the low fifties and percentage wise. That's a big move quickly. O'Brien you're someone that spends a lot of time folks folks on energy I I think the turnaround in oxy is really all about a reassessment of the energy sector in terms of the bottom up fundamental companies being run for equity investors again. The fact that we're seeing energy prices and commodity prices. Crv Ryan thinks that are actually starting to accelerate after years of basic. I I think the energy sector is very different. I think a good lesson here those you want to own a stock go to a CNBC DOT COM and check out the short interest. You should always know what the short interest is in a name that you all all right. Let's talk more now about these monster moves in the market in what is happening. Underneath the Hood Chad Orlando Senior portfolio manager at Washington crossing advisers and a value investor. And you've got to be as valuable guy watching in this tape watching those names wondering well what everyone here has been quite cautious telling investors to shy away from A lot of excess talking about the Federal Reserve lowering rates and being too accommodative if you raised rates by one hundred basis points or the tenure went up by one hundred and fifty basis points that group of names we just spoke about would be vastly different. Evaluations would be vastly different. So I WANNA I wanNA give credit to through the team here to the other traders around this desk because the easiest thing to do would be to say get on that momentum train maybe leave a little on the table but these are risky trades. Hr they're not absolutely and that's what we would caution at this point okay. Momentum right now is in style for the time being but the reality is that investors should now be pivoting their portfolio polio to more quality companies that are consistently growing consistently profitable. That don't have a lot of debt on their balance sheet that proven track records over the last five and ten. There's a lot of this story stocks. I'm telling you when you get the Federal Reserve re pivoting or global growth at disappoints. A lot of the multiples are gonNA come down quite a bit so when you think think about value how do you define that as something cheaper than its own history something cheaper than the SNP multiple. How do you think about it? So that's a great question. We're thinking about value and quality quality so we don't mind paying up for equality company like a Hormel or like a starbucks but as an investor one should focus their attention. They're not only on the P. E. multiple but all the debt. That's on the balance sheet. Really look at the company as if you're a private equity firm and give a cautious view to everything everything so you want companies out of diversified from a product line perspective from a client perspective and our reinvesting back into their business and a lot of these companies. What they're doing doing is they're taking on debt and they're buying back stock Chad every night? We come in. We tried to paint sort of the cautionary tale from time to time. We try to speak about the market but now the market the performance is the ultimate judge and jury in your position how difficult it is to watch the market. Go up every day yet.