Toxic Stocks

Speaker 1 (00:00):
Hi, this Carter clues, welcome to a better way to wealth. Tim. Melvin’s a better way to wealth, a very, very, very important topic today because frankly, it’s fraught with danger danger. You need to avoid, you know, we’re hearing, you know, the stock market’s so good. You can almost like shooting fish in a barrel. It’s not the fact of the matter is 70% of the companies who stocks you may be advised to buy right now. Don’t do it because they’re losing money. They’re losing money. So we’re going to talk about toxic stocks, the ones to avoid Tim, what are we going to do? Where are we going to go? What’s the better way to wealth.

Speaker 2 (00:33):
Good morning, garter. Look, the better way to wealth is the simple truth is over time. If you go back a hundred years, researchers have found out that only 4% of the stocks have produced all of the return of the stock market. So you get stocks out there that are super popular. Everybody loves them, but they’re just stories, right? There’s no numbers to back them up. And having these in your portfolio can really be dangerous because they’re going to blow up at some point in time. And it’s almost like a game of past the burning match, right? I’m sure every well, our generation played that as a kid. It’s probably illegal now, but it’s not where you pass the match around to see who’s the bravest to hold it till somebody gets their fingers burned. Yeah. That’s what owning these stocks is like, and you need to not have them in your portfolio. And today I’ve identified five that I think you really need to stay away from them right now. Yep. Five.

Speaker 1 (01:29):
And we need to emphasize, I think, again, some of these stocks are being touted for people to buy

Speaker 2 (01:34):
It. Almost all of these stocks are being touted for people to buy it. That’s kind of where I went with this when I’m looking for toxic stocks, stories that everybody loves right now where the stories and the numbers don’t add up at all. Now as an example, the first stock I’m going to talk about is one that’s all oversee and BC and you know, last Friday, it was just a huge story. And you know, everybody’s trading and owning this stock. Okay. That stock is Virgin galactic, the symbols SPC. Now this Richard

Speaker 1 (02:10):
Symbol, again, folks S P E E. Okay.

Speaker 2 (02:15):
Virgin galactic is doing space tourism. They’re using a spacecraft aircraft to fly up into low orbit. It’s going to cost millions thousands, if not millions of dollars to have a seat on this spacecraft and fly into low orbit, pretty cool story. They got approval from the FAA to make these low orbit flights. They’ve had a successful test flight. So it’s a cool story. There’s really only one problem with it. They don’t make any money and they’re a long, long way from ever making money. If in fact they do, it’s a very cool story, guys, tourists flying into space. You and I, if we got the money we could get on this vehicle and know we can play John Glenn ourselves and re relive childhood dreams and you’ll get to be weightless. Yeah. For a little while. And you know, you can get excited telling the story.

Speaker 2 (03:09):
The problem is it’s a crappy business and they have another problem. Okay. Jeff Bezos is coming with blue orbit and his rockets and bayzos is richer than Richard Branson. The guy behind Virgin, you can outspend even if he wants to. Now Virgin galactic popped last Friday because Bezos and Branson decided to play a rousing game of whose is bigger. Bezos announced a few weeks ago that his flight, his next test flight was going on July 20th. And he was so brave and so confident of the success of his mission, he was going to be on the flight. So Branson came back Friday and said, oh yeah, well, I’ll tell you what, I’m flying on July 11th. And I’m going to be on it too.

Speaker 1 (04:02):
Hm. Excuse

Speaker 2 (04:04):
Me. One second guys. The phone going off there. So the stock actually, the stock actually opened up 30%, which is just crazy. It’s settled back down later in the day. But look, this is a fantastic story to tell people who’ve been telling it. They’ve been promoting it. Look, if you caught it with the SPAC IPO, you took it from a spec arbitrage trade into a growth stock. You made some money. You got stopped that a long time ago. If this stock is in your portfolio, you have to sell it. It’s currently, they have no revenue and it’s valued at seven and a half billion dollars. That’s just no, no revenue, just a business plan. They only had a couple of successful test flights. They blown up a couple of test flights. So you just don’t want to own this thing because when something goes wrong, it’s going to open down 50, 60, 70% or more. So if you own this stock, Virgin galactic, sell it and sell it. Now, get it out of your portfolio before we go any further.

Speaker 1 (05:06):
Excellent Tim, you know, once again, you’ve said something that we’d like to drive home with. People don’t buy that. You’re not buying the store. You’re buying the store. Okay. That’s you wouldn’t be in the business. That’s exactly right. It’d be in the book. I listened to an interview the other day with Munger, Charlie Munger. And he said, exactly the same thing you said. He said, look, if somebody opened the gas station on the corner and you said to him, well, how much money you’re making? They said none. And you said, well, how much you think you’re making three months for me? And they said, none, you wouldn’t buy

Speaker 2 (05:37):
Right, much, much less play at premium premium price for it. So that’s, what’s going on with some of these toxic stocks now. Okay. The next one is Madison square garden, sports to symbols, M S G S. And again, this is a super cool story. Okay. You own the New York Knicks. You own the New York Rangers and you own a couple of minor league hockey and basketball teams and a G league NBA team. So this is a great story, a couple of practice facilities around the, around the United States. Very cool story. Again, not really making a lot of money revenues down year over year, in spite of the fact that you could actually have people at games this year winning the 2020, you really couldn’t. So, and you played a full season for the Knicks and the Rangers and not an abbreviated season. So, you know, we don’t like seeing the revenue growth being down there.

Speaker 2 (06:35):
More importantly, Carter, this thing is trading at 117 times earnings. That’s just insane. And it’s not expected to make much more than a handful of profits next year with a full year behind them. So it’s a fantastic story. It’s you know, if you could buy this in a bear market, I’d say, let’s just jump all over it. But we’re in the late stages of a bull market. You’re paying a premium of 15 times sales for businesses, just not all that profitable. And let me qualify this. I love sports related stories. You know, when the Cleveland Indians were public years ago, we, we bought them. We made money when they were sold out to a management group years and years ago, dating myself back into the eighties. You could actually buy shares of the Baltimore Orioles on the pink sheets, if you were patient and just left an order sitting out there.

Speaker 2 (07:31):
So we had a little bit of that. We were owners of the Boston Celtics back in the eighties and nineties when they had an, a dividend paying MLP. That was one of the coolest investments ever because that was in the Larry Bird days. Right? And it paid dividends. So we’re sitting there. Yeah. We were going to 10% dividend and you could walk around saying, I’m getting, you know, I own part of the Boston Celtics. It was, it was fun. And it made us money. This stock bought at the right price. Maybe it would make you money, but at this price, in this valuation, it’s almost impossible to make money from this point, going forward, anything goes wrong, one bad announcement, a bad market. And this thing’s going to fall 40, 50, 60% or more. It’s toxic. You need to get it out of your portfolio and get it out now,

Speaker 1 (08:21):
To be honest with you, Tim, as a Baltimore boy, and I think you are too, I wouldn’t buy a ticket to the Baltimore Orioles. Now let alone a stock.

Speaker 2 (08:31):
No, I, I still, I w I don’t want to get too far down this rabbit hole, but I still, I still watch him when they’re in, come down and they’re in Tampa, I’ll watch them cause I’m still a fan. And when you look at the minor leagues, I love the way the rebuild is

Speaker 1 (08:42):
Going. So I’m not afraid of yeah, there you go. I’m going to give them the miners

Speaker 2 (08:46):
Next up, next up again. This is, it’s a good story someday. It’s going to be a pretty good business. And if you could buy it the bad market, it might make sense, but shares of Durham tech right now, that’s de MTK is just not a great idea. Again, it is a cool business. They do diagnostics on a molecular basis tests for skin cancer, inflammatory diseases, and they do some some DNA risk assessments all on a molecular level. Okay. So could be a great business when it grows all the way up right now. It’s just, they really expensive stock. Excuse me, guys. One’s over to make sure all of my numbers right for you. Okay. So this thing with very little revenue, about six, $6 million of revenue last year, that’s how new this company is. They’re valuing the stock at about $1.3 billion.

Speaker 2 (09:40):
Math just does not add up at all. So that’s 159 times sales. They’re not going to make any money this year. They’re going to lose more next year. Now, the stock’s been popular. It’s a good story again. And wow, there’s a tremendous growth market in front of it. And maybe there is, but for now, it’s way ahead of itself. More importantly, it’s starting to underperform the S and P 500. And when these stories, stocks, which have been outperforming start underperforming, the relationship between that stock and your profits can get really toxic, really fast. Once they started underperforming the market, selling off a little bit, and this thing’s now 13% this week, if you own it, you have to sell it. Or you’re going to take that ride all the way back down to the bottom. I don’t think you want to do that. You know, good story, toxic stock, get it out of your portfolio. Get it out

Speaker 1 (10:38):
Now. What’s next.

Speaker 2 (10:43):
The next word it, yeah, I’m going to give you a total five. The next one is one that, you know, one of the hottest trends in the country is what, the amount of money that we spend on pets. In fact, the amount of money that Americans spend on pets and lawn care is shocking. And it’s just, it’s a horrible thing to really contemplate how much cash we spend on those two items. To be honest, I have two dogs and a cat that probably live better than most people in the world. So I’m guilty of the same thing

Speaker 1 (11:13):
We all are. We all are. Yeah, we’ve done well with them. Pet

Speaker 2 (11:17):
Related stocks in the past. Okay. However,

Speaker 3 (11:21):
I mean, moving on shares of fresh pet right now

Speaker 2 (11:25):
Are just at levels that I do not believe are sustainable. The stock is starting to underperform the S and P 500. Just like some of the other ones that we’ve talked about today, they sell dog food and cat food and F RPT. They sell the fresh, you know, dog and cat food that you have to keep refrigerated. I think we’ve got some in the fridge for the older cat. I’m not sure my wife takes care of all that. Pretty sure there’s some in our refrigerator having said that they’re losing money this year. They’re hoping to make a very small profit next year. And for that, they want us to pay 20 times sales and 236 times that small profit that they hope they make next year. They may not though Carter because they’ve got supply chain problems, just like everybody else. They’re having a tough time getting the stuff in the stores right now.

Speaker 2 (12:22):
Obviously, if it’s not in the store, you can’t buy it. That’s going to hurt. So it’s primarily in stores. They’re not really doing the mail order thing right now. It’s like, I don’t believe you could get this from chewy because it does have to be refrigerated. Matter of fact, their marketing campaign has been, they give the stores, the refrigerator provided they only fill it up with fresh pet. So in a lot of independent pet food stores, you’ll see them as the only fridge in the store. Of course, in PetSmart the other ones, they’ve got a wider variety, but so it is a competitive business. It’s for high end consumers. Cause I got to tell you most people that just have a dog that dog’s getting dry food or table scraps, you know, they’re not getting the con

Speaker 1 (13:05):
Sore cat and dog

Speaker 2 (13:08):
Food. There’s a market for it. I don’t think it’s a market that is worth the current valuation multiples that they want us to pay. And again, over the last month, it’s down almost 7%. So this stock is starting to outperform the under-performance sorry, the S and P 500. So if you got it in the portfolio and you don’t want to take it on a ride all the way back to a reasonable valuation, which is a huge drop folks, okay, you need to sell it.

Speaker 1 (13:37):
So you’re, you’re letting people know two things here. One, if you don’t have these stocks, don’t buy them no matter what the hype, you hear it. So if you have it, get out while they’re getting still good, am I right? Yes. You’ve

Speaker 2 (13:53):
Been fortunate enough to have these in your portfolio because you bought them last year and you know, you’re sitting on big gains. Hey guys, take the gains and take them for two reasons. A stock’s probably going down great. The risk of the stock going down a lot is very high and the probability is increasing. And the second reason is take, take your gains. Now, before the capital gains tax has changed. So and so don’t roundtrip these stocks, they’re toxic, good chance. They’re going to go lower, get out of them, move on one more left for you. And this is, this is the most ridiculous stock of the day. This company is called Winmark. The symbol is w I N a. Now when mark franchises, five retail store concepts. Okay. And it’s not that I believe that these are horrible businesses. It’s that I believe, I don’t believe anybody’s willing to pay the price for these.

Speaker 2 (14:45):
Let me tell you the five retail chains that they’re selling franchises for style used clothes, and they’re selling used clothing store franchises. I guess they’re comedic, competing with Goodyear. I’m not sure what’s going on there. Then we’ve got oh, play it again. Sports use sporting goods. I’m familiar with them. I’ve been in them, never bought anything in there. But I’ve checked it out just because I’m curious, but I’m not sure how big is the market. I’m not, not quite sure that we’ve got music go round again. That’s a consignment store for musical instruments related to electronics, and they do sell some new stuff once upon a child to know when you stop clothes toys for kids primarily used. Now, remember they’re selling franchises and I’m just trying to think of the sales pitch of franchising, a used clothing store. That’s I’m having a hard time with that one.

Speaker 2 (15:44):
Salvation army. Yeah. Right. I mean it’s and there’s yeah. There’s three stores lug salvation army. So then their style on Gord, that’s used upscale women’s clothes. So now these businesses may be successful, but let’s put this in perspective. Okay. All right. They want us to pay 24 times earnings and 11 times sales for this business sales have been flat for the last five years. Actually they’ve been down a little bit for the last five years. You break even quarter over quarter as far as sales recently. So it’s not this tremendous fast growing business. There’s no analysts jumping up and down super excited about this stock. We have seen insider selling included the CEO late last year at lower prices. I might add. So this, I don’t know how you take five businesses, put them together and get a great company, but that’s what they’re trying to tell us that they’ve done.

Speaker 2 (16:46):
Now. They have an equipment leasing business to where they at least electronics and other equipment to businesses, but surprise, surprise. That’s a tough business. It’s very competitive. You’re going to go up against banks, leasing companies. They’re going to stop taking new orders and just let that go into runoff and focus on these five retail concepts. These are like boring retail concepts to me. And I don’t think packaging, the five of them together makes it any more exciting or any more worth the amount of money they want me to pay. And again, the stock is starting to underperform. There’s signs that it’s slipping. This should probably fall in half or better. I mean, retail franchising’s most retail is trading. You know, one to maybe two times sales, a bargain would be 50 cents, 50 per you know, 50 cents on the dollar of sales, 11 times sales, even though it’s franchising and you get, you know, revenues from PR from the franchise fees and not just the sales in the store.

Speaker 2 (17:45):
I don’t think it’s an exciting high growth concept that we can make a lot of money on. So again, if you own shares of Winmark really think that you need to bail on this thing. It hasn’t made you a ton of money anyway, and now it’s starting to actually, you know, underperform what it’s been doing. I think it’s time to move on to this stuff before they’re going to miss an earnings forecast. Somebody is going to come out and write a better report on them. And this stock is going to crater and create a quickly. So again, there’s your five toxic stocks. Excellent. No matter how good the story is, if you own them, you need to sell them before you get hurt

Speaker 1 (18:21):
Before you get yeah. Devastated. You know, as my, with all five of those is my old friend, the great country comedian, Jerry Clower used to say that dog won’t hunt. No,

Speaker 2 (18:31):
These dogs won’t hunt. So you need to move off and you know, we’ve got some other stuff we’re going to talk about later this week, where you could put that cash to work with a much higher probability of investment success. So there’s your five toxic stocks for this week. We’re going to talk about this all the time guys, because it’s part of the secret to making money in the market is to not lose a lot of money in the market. So winning by not losing is important as winning outright. So we’re really going to talk about this a lot,

Speaker 1 (18:59):
Tim. Thank you. Thanks for that. Better way to wealth, avoid stocks, Tiffany. That’s great, Tim. Thank you very much. Thanks a lot. Carter. Talk to you tomorrow. Bye-Bye bye-bye.

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