If You Think Netflix Was Bad, Watch Out For These 300 Stocks
The investing world’s myopic focus on inflation lately is naturally leading to comparisons to the rampant inflation of the 1970s, and others want to point to the Great Financial Crisis when they see housing prices ballooning the way they have over the past two years. A whole separate group of crypto bros and gold bugs are still convinced we’re headed to a special unprecedented financial Armageddon that has something to do with the bond market and the Fed and the dollar crashing, but none of that looks remotely accurate at the moment.
There’s no reason to make the problem more convoluted than it needs to be. The most obvious historical parallel for today is the Internet boom and bust. A bunch of disruptive technology companies that posted extraordinary sales growth, made old businesses obsolete, and are now past their peak growth phase. You don’t need destructive inflation for this market to inflict pain on the investors who still haven’t come to terms with this. Remember when AR AR K ARKK K bulls said it was oversold down 25%? Then 50%? Now we’re 60% off the highs and about to make new lows.
Microsoft MSFT was a relatively strong performer in the Dot-Com collapse, losing just 2/3 of its market cap. Amazon AMZN went from over $100 to single digits. The Nasdaq lost 70%. After this week’s earnings-driven selloff in Netflix NFLX , the stock’s down 70% from its high. The irony is the company announced it will be free cash-flow positive from here on out, but because their growth trajectory has definitively peaked, everyone’s jumping ship. If a giant of our new online industry is already down 70%, what about the publicly traded stocks that are nowhere near profitability?
A lot of companies in the dot-com era went bankrupt, and gems like Enron were discovered in the market’s unraveling. What is our Enron today? I can’t tell you who’s cooking the books, but who even needs to in this market? All you need to do if you want to boost your stock today is make a vague allusion to a crypto project, NFT or maybe even buy a gold mine. If the giants of today’s Internet bubble are already in equal to bigger declines than the leaders from the original Dot-Com implosion, we should assume a lot of publicly traded companies today will not be around in a few years — either by way of acquisition, privatization, or bankruptcy.
There are 656 zombie companies — businesses whose interest payments exceed their income — in the Russell 3000, according to a Bloomberg analysis from the end of last year. I ran a screen a week ago of stocks whose shares are up from their pre-Covid high, but still are losing money. There are 1,000 unprofitable businesses on a 12-month earnings basis in the Russell 3000, according to my analysis, and more than 300 are trading at higher prices than before our pandemic.
MORE FOR YOU
Head over to my LinkedIn for the full list. Put a blindfold on, throw some darts, and happy shorting.