What a good day to invest. The $SPX500 is down by more than 1.6%. I've taken the opportunity to buy more of $GME and $AGN . I might buy more of $PE and $CXO if prices continue to fall in the coming days. Why are stock prices falling? Because of poor manufacturing data. The fears of a recession are rising. Am I worried about this? Not really. As we have seen a few weeks ago, the largest oil field in the world has been attacked and oil supply worldwide will be lower for a few months with fears of tensions in the Middle East but $OIL prices are goin down. We now have a very low attention span and investors already forgot about what happened in Saudi Arabia two weeks ago. I'm pretty sure, they will forget about the manufacturing data soon. As a long-term investor, I only take opportunities in such a situation. Be fearful when others are greedy, be greedy when others are fearful.
GAMESTOP STOCK ANALYSIS: The Big Short Investor MICHAEL BURRY is Buying 🎮
Michael Burry has been buying shares of GameStop $GME recently and he now owns more than 3% of the company. It is not because Michael Burry was right in 2008 about the housing market that he is right about GameStop. GameStop is a gaming retailer with 5830 stores in 14 countries. They own several brands including EB Games, Micromania, ThinkGeek and the Game Informer magazine which is the best selling gaming magazine in the world. They have a moat. Their competitors include Amazon $AMZN and Walmart $WMT but these are general retailers and are not focused on gaming.
The numbers do not look so good. Revenues are going down and last year they lost money. It was actually because of goodwill impairment but still GameStop has not been growing in years. They cannot sell their products because of the competition. People don't buy video games on disks anymore, they can just buy it and download it online. This is reflected on the stock price which is a falling knife.
They are making the most money right now from software than from hardware. When was the last time Sony $SNE , Microsoft $MSFT or Nintendo $NTDOY had their last console? Nintendo launched their last console in 2017 while Microsoft and Sony launched theirs in 2013. There is no reason for you to buy a new console if you already have a Sony PlayStation 4 or a Microsoft Xbox One. It is not like Apple $AAPL launching a new iPhone every year. But even here we can see that the lifespan of an iPhone is increasing. When Microsoft and Sony launching their new consoles? 2020. That's one of the reasons Michael Burry is buying the stock. Both Microsoft and Sony confirmed that their new consoles will still have a disk drive.
Looking at the balance sheet, we can see that the goodwill is zero. They had an impairment of goodwill of over $1 billion over the last year. That's because their goodwill was lower than their market cap. Goodwill is intangible assets. They have a moat. They own great brands with sales in 14 countries and you're telling me that they don't have any intangible assets? The average gamer doesn't care about goodwill. For him/her the brand value is still here. We should account for that even though it is not on the balance sheet.
They have enough cash to buy the whole company. They initiated a share buyback program of $300 million and already used $263. Right now, they have more than $400 million in cash which is enough to make the company private. What Michael Burry wants, however, is for them to buyback 80% of their shares. This will greatly inflate the stock price. He is acting as an activist investor. I don't want my investments on these share buybacks. I'm not an activist investor(YET) and cannot force them to buy back shares. It is better we just ignore that.
However, I still see the company as a cigar butt. A cigar butt is a discarded cigar with a last puff in it which you can smoke. Warren Buffett $BRK.B and his mentor Benjamin Graham saw this in stocks. Some stocks are not great but they have a good enough balance sheet that you can take advantage of to make money in the short-term. GameStop has a lower valuation than its book value and its net current assets. It has a lower valuations than its cash and cash equivalents. I see the possibility of a 35% gain over the next year in this investment. But longer than that, it becomes risky. For this reason, I've added GameStop to my portfolio recently. Now if they buyback their shares, the profits can be much more than just 35% but I'm not focussing on that.
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