Are the tides turning for an EV maker, a meme favorite and a pandemic high flier?
When the financial markets are experiencing a serious decline, as is the case with stocks so far in 2022, there are plenty of chances to buy into some New Jersey pothole-sized dips.
But what if the issue at hand isn’t stocks – what if it’s cryptocurrencies?
The fact is, cryptocurrencies are down this year, too, and at an alarming decline rate. Last week, Bitcoin fell below the $33,000 per-coin mark. That’s a 45% decline from all-time high prices.
Cryptos seem to be performing in tandem with falling stocks, especially technology stocks, as investors grapple with higher inflation and interest rates, and a tighter monetary policy by the Federal Reserve.
As a result, investors are hearing calls of “buy the dip” but often not much beyond that buzz from experts who understand the crypto market. That’s starting to change, however, as Bitcoin traders weigh in on buying cryptocurrencies on the dip, reported TheStreet’s Rob Lenihan.
“Igneus Terrenus, head of communications at the cryptocurrency exchange Bybit, said the pullback “could be a window of opportunity for investors who have been eyeing on the space and waiting for the right time,” Lenihan reported.
“It’s easier said than done but it’s equally important to stay calm in a bear market as in a bull market,” Terrenus noted. “In each correction so far we have seen leading digital assets come out stronger and stabilize in a higher price bracket when the turbulence settled, and it’s a lesson for us to be rational about cyclical movements.”
According to Lenihan, Terrenus said the first thing for the average crypto investor to consider is the time frame of their investment.
“Short term trading counting on no other factors than the ‘dip’ practically requires a precise prediction of the bottom,” he said. “Investing in quality assets for the long run gives you a buffer for volatility.”
Therefore he said, “an investor should have a realistic evaluation of their own risk appetite before diving into any project and adjust their strategy accordingly.”
“One thing long term investors can take heart in is that no one has ever lost money by holding bitcoin for four years,” he said.
‘Be patient and rational’
Another bitcoin maven, Yubo Ruan, founder of Parallel Finance, said that “dollar cost averaging is a great way to buy the dip.”
“Crypto’s volatile nature can make it challenging to know the best time to buy and how much as well,” Ruan said. “Defining a set of rules with a DCA strategy and adding more crypto to your balance sheets when those rules are met is a useful way to ensure you don’t wait for the bottom and miss opportunities.”
“Many platforms offer recurring buys, which are a great way to fully automate your DCA strategy,” he said.
Most importantly, said Antoni Trenchev, co-managing partner at Nexo, “be patient and rational.”
“It takes a little bit of a cool head to successfully buy the dip,” he said. “First, watch and monitor the market carefully, rushing into a large purchase immediately after the market’s first downward slide, is often the downfall of many newer investors. As I’ve heard some say, ‘I bought the dip, but it just kept dipping!'”
Back in the stock market, where the issue of buying low is prevalent right now, TheStreet’s market experts have their eyes on these “buy the dip” opportunities.
Tesla
Tesla (TSLA) – Get Tesla Inc Report $936.72 5-Day Performance (-) 0.80%. Tesla stock is down 20% for the first month of the year, and company shareholders seem to be getting the yips.
Perhaps they shouldn’t be.
The last quarter was quite good,” TheStreet’s Bret Kenwell wrote last week. “Sales and profit surged year over year, as did deliveries. Revenue came in more than $1 billion ahead of consensus estimates, while automotive gross margins were firm at 29.2%.”
Kenwell noted that the company’s commentary surrounding the supply chain took away some of the shine from the fourth-quarter results. “Additionally, a delay until at least 2023 for the Cybertruck also disappointed some investors. On the plus side, the stock can’t shake off that news though, even as the Austin, TX. facility has started production and as the company plans for a new factory by the end of the year.”
So how to trade into Tesla on the dip? Patience is one key, Kenwell said.
“The $900 area has been rather significant this week,” he noted. “It’s where Tesla stock opened for trading on Monday and this area marked the low on Tuesday and Wednesday of last week.”
Breaking below this zone last week had Tesla dipping below last month’s low at $886, with a weekly market low near $851.50.
“If we eventually lose this level, it opens the door to a more interesting level near $800,” Kenwell said. “Around $800, the stock finds its 50-week and 200-day moving averages, as well as channel support.”
“If Tesla does get a bounce going from current levels, keep an eye on $900 on the upside, then the previous week’s week’s low near $940, followed by the declining 10-day trading levels,” he added.
AMC Entertainment
AMC Entertainment (AMC) – Get AMC Entertainment Holdings, Inc. Class A Report $16.06. 5-Day Performance (-)5%. A skittish stock market and a struggling box office are complicating this theater chain’s attempts to turn around its fortunes, said TheStreet’s Michael Tedder.
“Let’s give credit where it’s due,” Tedder said. “Most people don’t follow through with their New Year’s Resolutions, but at least AMC Entertainment (AMC) – Get AMC Entertainment Holdings, Inc. Class A Report CEO Adam Aron is trying.”
Following a Tweet earlier this month in which the head of the beleaguered movie theater chain announced plans to “refinance some of our debt to reduce our interest expense, push out some debt maturities by several years and loosen covenants,” Aron is now making moves to try to get the job done.
Aron has reportedly been “in advanced talks with multiple parties” about refinancing, according to The Wall Street Journal. “But the ongoing volatility of the stock market, amongst other factors, is complicating matters,” Tedder noted.
A big part of the problem is the onerous debt load AMC is holding right now.
“To make it through the pandemic, AMC ended up having to take on a great deal of debt,” Tedder said. “It reportedly owed $5.5 billion as of last September and also owed $376 million worth of lease payments, which were deferred for a while during the pandemic. “
AMC had a reported net loss of $13.5 million in 2019, even as total revenue was up 2.4% to $1.44 billion from the year before. “Things improved for the company last year once people felt safe returning to the theaters, as access to vaccines helped unlock some pent-up demand, and the box office rose by 112.5% to $4,468,850,254,” he added.
A big chunk of that rebound is due to the jaw-dropping success of “Spider-Man: No Way Home,” which recently returned to the top of the box office, on its way to making $1.69 billion worldwide. (Will Peter Parker eventually conquer the blue aliens from “Avatar” to become the highest-grossing film of all time? Stay tuned.)
“But you can’t turn around a struggling industry based on the success of one film, and even Marvel and Disney (DIS) – Get Walt Disney Company Report can’t put out a general-audience pleasing blockbuster every week,” Tedder added.
This year, Aron is stepping up his efforts to refinance AMC’s debt, but it’s rough out there right now.
Amid Wall Street’s current market contraction, AMC’s stock has dropped by 41% this year, erasing the meme stock gains, and AMC’s $1.5 billion in secured 10% bonds “traded as low as 92 cents on the dollar, down from 99.5 cents at the start of the year,” according to The Wall Street Journal.
AMC was able to stay in business by “selling new shares, taking on new debt, and getting landlords to agree to delay collecting rent payments. “But meme investors have objected to Aron’s plans to allow more AMC shares to be sold, out of fear that it would dilute what they’ve already purchased,” Tedder added. “Aron and AMC have a skittish-at-best stock market and an industry that is struggling to get people into theaters for all but event films.”
“On the other hand, it has a loyal group of investors that are nonetheless limiting the company’s options,” Tedder added.
Netflix
Netflix (NFLX) – Get Netflix, Inc. Report $427.14. 5-Day Performance 8%. Netflix seems to be rallying after a disastrous platform subscription number’s release in mid-January. The stock is down 30% over the past month, but last week’s trading numbers look fairly robust.
There’s likely a specific reason for that.
“Even if for a brief moment, Netflix stock has finally caught a break,” said Daniel Martins on TheStreet.com. “After tumbling 48% from the November 2021 peak of $692 per share, the stock climbed 4% in after-hours trading on January 26, despite the S&P 500 futures heading lower by nearly 1%.”
“The reason – famed investor Bill Ackman disclosed ownership of 3.1 million shares of Netflix by his investment firm Pershing Square,” Martins added. “The position was set up in the last few days, following ill-received Q4 earnings results.”
While catching price bottoms has traditionally been very tough, Ackman makes good business fundamental arguments about owning shares of the video streaming giant. Could this be a turnaround moment for Netflix stock?
Martins thinks so.
Start with Ackman’s investment in Netflix, which was explained in a brief, three-page letter to investors.
“The decision to pull the trigger and become a top 20 investor in the streaming firm came after “an attractive valuation emerged when investors reacted negatively to the recent quarter’s subscriber growth and management’s short-term guidance,” Martins noted.
Support for Mr. Ackman’s investment also included the following:
Netflix is at the center of the secular transition from traditional TV consumption to streaming entertainment, also known to many as the “cord-cutting” phenomenon.The revenue model is subscription-based, which offers top-line stability and predictability, and the growth opportunities are many.The company is competent at producing high-quality content that can be leveraged and scaled globally.Economies of scale should allow for margin expansion, while growth can be funded through Netflix’s robust cash flow.
Martins believes that Ackman and his Pershing Square team make great points about owning Netflix stock.” We also believe that, within streaming, it is hard to argue against Netflix’s market dominance and growth potential,” he said.
“To be fair, a solid counter-argument could also be made about slowing growth rates, especially in the more profitable developed markets,” he said. “Also, rich content costs could continue to serve as headwinds to profitability — although much of it has been offset by growth and scale.”
The question that remains is whether NFLX is the right stock at the right price.
“According to Alpha Spread, the 2022 P/E multiple of 31 times is substantially lower than what it has been historically,” Martins added. “Should earnings growth start to rebound from flat in 2022 (projected), current valuations will eventually prove to be attractive.”
