The Value Game

You’ve got to be aware of the game you’re playing.

If you play football, you know you’re gonna get hit. If you’re in the NBA, you’re probably going to get dunked on. And if you invest in extremely discounted companies with high short interest, you’re likely going to have big downward price movements.

I’m currently -15% in my Aemetis (biofuels) position and -27% in my BigLots position.

I’m not surprised by the fluctuation in AMTX’s price but the quick and large swing in BigLots stock did give me cause for concern.

The sharp movement came after the investment firm Piper Sandler downgraded the stock to “sell” and provided a $7 price target – a 16% decline from the current share price. Their main reasoning was that furniture and mattress sales data had declined since March according to “channel checks” (I believe they’re referring to furniture suppliers/manufacturers’ sales data) and they anticipate it to continue to deteriorate.

At first, I got a little panicked because, at the end of the day, this is real money that I’ve worked to earn that could be lost; however, it’s important to fight off emotions and think as rationally as possible.

Most experienced investors echo the same advice to investors who experience short-term declines in their position, which is to ask yourself: Did any fundamental information change that would affect my original opinion on the stock?

Now, I don’t have access to, or at least don’t know where to find, this secondary sales data they’re using to inform their price, but let’s assume it’s true. For the short term, this “new” information would be concerning because even though they are cutting costs and getting rid of inventory, I’d still like to see top-line revenue stabilize.

That being said, Q1 US retail sales seem to have been decent based on the data I shared in my?last post, and a Q1 earnings surprise with this new public pessimism coupled with their high 32% short interest could lead to a big upward move post earnings.

Of course, they could also miss earnings and post poor forward guidance in which the stock would likely further decline – a negative picture that would likely cause me to trim my position.

But the fact remains that I feel very comfortable holding this company for a longer period given their book value per share of $26 and strong track record. To keep it short, I am holding my BigLots position and will reevaluate after their Q1 earnings in late May.

Additionally, I did purchase a position in Molson Coors Beverage Co ($TAP), the maker of Coors Light. There’s not much thinking in this one, just a short-term trend I want to follow.

Without getting into the political aspects of Bud Light’s latest marketing partnership with Dylan Mulvaney, the company has reportedly seen huge decreases in sales of America’s best-selling beer, BudLight.

Simultaneously, CoorsLight sales have reportedly been off the charts given it is the leading substitute for BudLight. A famous investor Chris Camillo shared a unique anecdote last week about a sales team he’s familiar with at Coors who has already?hit 80% of their entire 2023 sales quota, and it had only been a week since the controversial partnership.

I’ve heard anecdotes similar to this all over the place and sometimes you don’t need to overcomplicate things. Everything is pointing to this being a strong trend for 2023, and instead of betting against Anheuser Bush who has many revenue streams, I wanted to be long Coors.

Have a great week, folks.

Graham, out.

This is not financial advice. The information provided here is for general informational purposes only and does not constitute financial, legal, or professional advice. Always do your own research and due diligence before making any investment decisions. The views and opinions expressed here are solely those of the author and do not reflect the views of my employers or any other organization. The information provided here is not intended to be a substitute for professional advice and should not be relied on as such. If you have any specific questions about any financial matter you should consult a licensed financial or legal professional.