Trade Alert: Adding SKLZ To My Basket Of Beatens As Greed Turns To Fear

Santa’s not showing up for the speculative parts of the markets and people are like, “Dude, where’s my sleigh?” Omicron and the spiking covid numbers around the developed world is part of the problem for the speculative stocks this week, but as has been the case for most of this year, the mega cap stocks are hiding the damage underneath. Cathy Wood’s ARKK ETF, which focuses on trying to invest in technology disruptors is down 25%+ on the year. Most of my more aggressive trading friends are probably down similarly. Moreover, the pullback from her all-time high is at 40% or so and there are a lot of people out there, especially retail traders and investors whose portfolios were up huge and at all-time highs earlier this year that are now down 80% or more from their highs. I respect Cathy and her approach and that ARKK chart is a big reminder that this is a hard business, as I’ve been trying to remind all of us all year.

Earlier this year, I wrote an article called Trade Alert: Beware The Frauds When The Tide Goes Out and talked about how I thought this year would be hard for the bulls:

“I tend to think that this year will be much harder for the bulls than the last ten years or so has been. On the other hand, I think we have some opportunities to find some of these frauds and/or companies that came public with big promises and big hype but little substance. I’ll be mentioning some of the names I find that I will be betting against this year by shorting and/or buying puts. I’ve already started small short positions. I think there’s a ton of fraud in the crypto markets.

Remember that we were aggressively buying tech stocks and cryptos in years past when nobody wanted them. These days, everybody wants tech stocks and cryptos. Be careful out there, don’t be greedy and don’t let yourself risk money on anything fishy out there. And there’s a lot of fishy stuff that’s come out in the last year.

There will be some great buying opportunities and some great themes to invest in at good prices this year. Stay tuned for that but be patient in the meantime.”

It has indeed been a much harder year for the bulls, unless you happened to own megacap stocks. And we did see some fraud finally get revealed, but there’s much more of that to come. That said, notice that last sentence there:

“There will be some great buying opportunities and some great themes to invest in at good prices this year. Stay tuned for that but be patient in the meantime.”

And I am indeed starting to find some buying opportunities in some great themes that we can invest in at good price here at the end of this year. I’m adding a new name to my Basket of Beaten Down Stocks and this one is my favorite one so far — SKLZ.

The company enables developers to create and monetize e-games, they’ve got 90%+ gross margins, growing quickly at 70% this year and another 40-50% next year. They company has ramped up spending so they won’t be profitable for another couple years and the market is smashing the stock which is trading at less than 5x next year’s sales estimates. When I compare this name to, for example, Roku which has 50% gross margins and is growing slower but is already slightly profitable, I’m even more intrigued. More on this company later, as I plan to spend some time really getting to know this one and perhaps making it a bigger position. I already have made it the largest position of a small Basket of Beatens with plenty of room to buy more if I like what I find as I play with their products and study the management team and business model more in depth in coming weeks.

If you own a stock that’s not profitable and is speculative, you’re probably losing money on it for the last month. That’s where the opportunities can be created and where we are starting to nibble. Don’t get greedy or overly aggressive here, but be open to some opportunities that are presenting themselves. Greed has become fear for many people in the markets.

Happy New Year! See you next year.