Tuesday’s trading collapse, which saw the Standard & Poor’s 500 Index fall by 1.9%, had at least one upside – small stocks had a very limited downside.
“On Tuesday, the Russell 2000 Index (down 1.91%) and Russell Microcap Index (down 1.27%), while still in negative territory, held their own relative to large-caps,” said Jonathan Heller on Real Money. “That was good to see.”
At least It was better than the recent alternative.
“Continued ‘throw the baby out with the bathwater’ trading days where smaller stocks are ditched to a much greater extent than their larger cousins send shivers up my spine,” Heller added.
In the aftermath, Heller sifted through the ashes, looking for slightly-scarred – or better – opportunities.
“I continue to look for year-end bargains, and they are few and far between, at least in my view,” he said. “I also continue to look at busted initial public offerings (IPOs), but am in no hurry in this environment. For instance, higher-quality (in the beef they use, that is) burger name BurgerFI International (BFI) continues to head lower. Its shares are down 52% year to date and closed at a 52-week low Tuesday.”
According to Heller, restaurants are tricky in the best of times, and this is certainly not the best of times.
“BurgerFi is expected to ramp up revenues in 2022 to $210 million, up from an estimated $68 million this year, which is a nice jump, but the company is not expected to be profitable,” he said. “I can get very interested in a name when the growth crowd moves on, which appears to be the case with BFI. In addition, short interest currently stands at 13.8%.”
“PetMed Express was a member of my 2018 Tax Loss Selling Recovery Portfolio and has seen its revenue stagnate in an increasingly competitive environment for pet product dollars,” he noted. “PetMed shares are down 15% year to date and currently trade at about 20x next year's "consensus" estimates (just two analysts cover the name); they yield 4.4%.”
“PetMed ended its latest quarter with a pretty clean balance sheet, including $107 million, or $2.28 per share in cash and no debt. Short interest is fairly substantial here as well, at about 25%,” Heller added.
Get more trading strategies and investing insights from the contributors on Real Money.