Quitting at a loss to free up capital and the mind

Today, I’m writing about one of my (former) best stock ideas which didn’t play out as initially thought. Besides describing the case and the reason that led me to throw in the towel, I also want to use it to show why it’s important to regularly go over one’s portfolio and to cut the weeds.

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Paypal – despite –80%, I think it can fall another 50%

PayPal’s stock was without a doubt one of the highfliers during the 2020–2021 tech mania. At its top, PayPal was valued at around 15x sales, having a market cap of more than 350 bn. USD, despite only 6 bn. USD in free cash flow. Not so surprisingly, the stock came back from this unsustainable level, though many likely didn’t expect to see less than 15x earnings after a drop of 80%. Time for a turnaround? I think this is still a strong value trap, good enough to fall another 50%.

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Time to look at gas + new research report

Energy in general is a hotly debated and controversial topic. But when it comes to natural gas, it can become extreme, especially if you mix in liquefied natural gas – or in short: LNG. For long, I have been sitting on the sidelines regarding this market. But I feel now is the time to not only write a Weekly, but also a research report for my members about it – as a hedge from a European perspective. As a bonus, I estimate a 10% dividend yield to be announced next week from my latest pick.

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Why I don’t like diversification

Buying either parts of or even entire other companies is a common way for businesses to grow. This inorganic route though is often used for empire building (higher salaries and bonuses), sometimes even to hide own problems inside the core business (presenting an external growth story) and more often than not destroying shareholder value by overpaying for the targets. Today, I’m discussing a company that is losing through diversification.

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Is this the logical pick in the weight loss mania?

Hypes and manias are part of the game of stock markets. Whenever a new trend emerges, more and more people hear of it and start to invest. Commonly, it’s first the professionals and depending on the underlying theme also ultra-contrarian investors. If a story has legs, then the retail crowd jumps in which often leads to exaggerations and bubbles. One of the current hypes is clearly weight loss drugs. But thinking around the corner, is there an overlooked, more conservatively valued stock to benefit?

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A second look at tobacco stocks after BAT’s gigantic write-down

One the most heavily watched and discussed stocks last week was British American Tobacco after it released a trading update. While the headline read relatively okay-ish, on the following pages they admitted to take a hefty 25 bn. GBP impairment on their US operations with the next earnings. While many see this as a non-event due to not affecting cash flows, I’m looking at it differently. I rather feel confirmed with what I wrote earlier in the year about Altria.

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Today’s tech-leaders… can stop existing tomorrow

Tech stocks, “Big Tech” or the “Magnificent Seven” – the same the names get more stupid, the riskier investing in their stocks becomes. Many do not see it this way. For the bona fide investor these are core investments of their portfolios with great future potential. However, a critical look back at history tells us that the risk / reward ratio is not favorable. Size does not equal safety.

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“Fallen Angels” – why you should be cautious + new research report

No matter whether experienced or not, almost every investor is on the hunt for undervalued stocks to make money. What could be less welcome than a stock which has fallen in price and become cheaper? The problem is, “cheap” is not automatically “cheap”. In fact, buying cheap can become a costly mistake. I see a strict urgency to clean up with this dangerous myth that a stock only has to fall enough to become attractive.

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From hype to bust – the story of 22nd Century Group

Likely, everyone will know a story that kicked a stock into hyposphere, only to fall into dust later. The respective companies either did not recover anymore or went entirely bust. They all share one commonality: a nice story that catches the interest of especially retail investors. But where there is excessive greed without the support of fundamentals, the fall from grace is just around the corner. Here’s an example that was set to disrupt an undisruptable industry: tobacco.

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Why I don’t care about the Lindy effect

There are many rules of thumb and well-intentioned advice for younger investors. One such “rule” says that it is better to buy stocks of older and proven companies. While I do not disagree with this on an isolated basis, I am missing the second part, namely that every business has a certain life expectancy. There comes inevitably a time for every company to either step into the background or to disappear altogether. History is full of examples.

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