As I write this, Keith Gill — better known as “Roaring Kitty” on YouTube and “DeepF***ingValue” on Reddit’s WallStreetBets forum — is testifying before the House of Representatives.
And man, he was not mincing words as he kicked off his prepared testimony.
Here are some of my favorite lines so far…
“I believe that the current price of the shares demonstrates that I have been right about the company.”
“A few things I am not: I am not a cat. I am not an institutional investor. Nor am I a hedge fund.”
“GameStop has a unique opportunity to pivot toward a technology-driven business. By embracing the digital economy, GameStop may be able to find new revenue streams that vastly exceed the value of its business.”
“I also want to say that I support retail investors’ right to invest in what they want, when they want. And I support the right of individuals to send a message based on how they invest.”
“As for me, I like the stock.”
That last statement, if you aren’t aware, is a clear reference to one of WallStreetBets’ countless memes… Should you need a dictionary to look some of these things up, Bloomberg was kind enough to put one out earlier today.
Source: Bloomberg, Adam Sarhan, VS Slack Chat
And though I’m speculating here, “I am not a cat” may very well refer to last week’s viral video where a Texas lawyer couldn’t turn off a feline Zoom filter.
Either way, it means that DeepF***ingValue trolled Congress right to its face.
And given the alarmingly low quality of questions coming from the ranking members of the House Financial Services Committee, it sure seems appropriate.
Well played, not a cat… well played.
Market action this morning — and the narratives being pushed by T.V. pundits — appears largely to be driven by Walmart earnings, which missed expectations and are down about 6% at the time of this writing.
Earnings per share came in at $1.39, short of consensus estimates at $1.50, while investors flagged slowing growth in the company’s e-commerce arm as bearish for its overall outlook.
Moreover, CEO Doug McMillon’s announcement that the company is raising average wages over the $15/hour level indicates costs are likely to rise over the near term.
Frankly, this trend is to be expected, as big-box retailers like Walmart, Target and Home Depot were the largest benefactors of the concentrated demand caused by the COVID pandemic. And as a result of these base effects, year-on-year growth comparisons will prove incredibly hard to top.
In addition, as the US rolls out vaccines and the overall population approaches herd immunity, that concentrated demand is likely to disperse, and benefit a broader array of brick-and-mortar retailers.
Data is already bearing that out, as location data provider Safegraph reports that despite weak-looking annual comparisons, more recent weekly comparisons at these forgotten outlets are growing at an accelerating pace.
Source: Safegraph, Bloomberg
And when we look at individual stores, we can see this trend even more clearly. Stores that got absolutely crushed last year, like Nordstrom, Macy’s and Victoria’s Secret, are all finally starting to see foot traffic grow at similar rates to their bigger competitors.
Source: Safegraph, Bloomberg
This is why I’ve been writing about companies like Designer Brands Inc. (NYSE: DBI) and Carnival Corp. (NYSE: CCL) lately — they’re set to disproportionately benefit from a reopened economy compared to other companies in the Consumer Discretionary sector.
They’re also up 10% and 24%, respectively.
Moreover, despite the slowdown in foot traffic relative to pre-COVID levels, U.S. retail sales growth rates have already risen to the highest level in almost a decade.
Source: Bloomberg
And those year-on-year comparisons are about to get incredibly easy.
So while I’m fine with targeting Nordstrom Inc. (NYSE: JWN) or Victoria’s Secret/Bath & Body Works parent company L Brands Inc. (NYSE: LB) here, we could gain broader exposure to the sector by picking up a ¼ tranche in the SPDR S&P Retail ETF (NYSEArca: XRT).
The XRT has really outperformed the broader market since the beginning of the year, and it’s generally a good idea to buy strong performers on down days.
Source: Bloomberg
Amongst its top holdings are GameStop (fittingly, given today’s hearing), Designer Brands and Children’s Place Inc. (NYSE: PLCE), another forgotten company poised to fare comparatively well over the next few months.
Source: State Street
I should also point out that most of these stocks have relatively high short interest — the biggest driver of the GameStop frenzy. As a performance factor, high short-interest stocks have outperformed those with low short-interest consistently going all the way back to a year ago. And given the retail-specific factors mentioned above, that is not going to change anytime soon.
Source: Seawolf Research
So, go get those red bandanas, everyone… I like the stock.
All the best,
Matt Warder