Durable Dividends

You Don’t Have To Chase “Meme” Stocks To Get Rich

Nick Ward

56 postsJune 14, 2021

Throughout the last couple of weeks, the AMC Entertainment Holdings (AMC) rally has been one of the craziest headlines crossing the screens on financial news channels.

To a certain extent, I get it. AMC has become one the poster children of the “meme” trades inspired by Reddit’s wallstreetbets forum, which has been growing in popularity. At the peak of its recent rally, AMC shares were up over 2,500% on a year-to-date basis. That’s amazing and you’ll never hear me demonize those types of gains.

I sincerely congratulate any and all investors who entered into the stock at its ~$2.00/share price at the beginning of this year. Frankly, at that level, AMC was an interesting turnaround play, even from a fundamental standpoint. But, at today’s elevated prices, AMC appears to be a purely speculative momentum trade. And I do believe, from the bottom of my heart, that individuals considering joining in on the current rally are putting their finances at major risk because of the lack of fundamental support that AMC has at these levels.

I’m not going to speak ill of anyone who makes money in the markets. That’s the goal, right? But, let me explain why I’m not interested in the so-called “meme” trades in the slightest.

AMC recently hit a high of $72.62. The company’s shares have fallen nearly 32% since then and today they trade at $49.40. But, even after losing roughly ⅓ of their value, there is still no rational fundamental thesis to own shares.

AMC has posted negative earnings-per-share during 3 out of the last 4 years. And, looking ahead, the consensus analyst estimate on Wall Street is calling for negative earnings-per-share during each of the next 3 years, as well. In other words, this company has no clear path towards profitability.

It’s this poor fundamental performance that drove the stock down to the $2.00 level in the first place. Frankly, it appears that AMC’s business model is broken.

The advancement of home theater and streaming technology has proven to be a majorly disruptive force to the movie theater industry, and this trend isn’t going to change any time soon. The COVID-19 pandemic obviously hurt AMC’s business, (which showed up in the fundamentals, with the company generating -39.15/share in earnings-per-share last year) but the fact is, even before the pandemic struck, AMC was having a very difficult time generating profits during years when the global box office was breaking all-time records.

With that in mind, I see little evidence that AMC should participate in the reopening rally. If this stock couldn’t generate profits during 2019 then I don’t believe that it’s likely to perform well (from a fundamental standpoint) in the years ahead, meaning that a post-COVID-19 bounce back is irrational.

I commend management for striking while the iron is hot and selling shares in recent weeks. AMC made news, selling roughly $800 million worth of shares in recent weeks. The company has issued more than 400 million shares during the last year or so and the company raised roughly $1.6 billion in cash with these equity offerings between January and May.

In a recent interview on the Trey’s Trades YouTube channel (a popular destination for “meme” stock traders), AMC’s CEO Adam Aron touched upon the equity sales saying, “That’s very good for AMC. That strengthens AMC. That helps make sure that our long-term future is very bright.”

And this is true. The ~$1.6 billion that AMC has raised will certainly help to repair the damage COVID-19 has done to the company’s balance sheet. But, at this point in time, it’s highly uncertain as to whether or not it’s enough to fix what appears to be a broken business model and generate growth.

This dilution contributed to the stock’s sell-off, yet as a value investor, I think management was right to essentially lock in some profits here with its shares trading at such obscene valuations.

What’s more, I respect AMC management’s candor with regard to acknowledging the irrational exuberance surrounding its share price. In a recent 8-k filing, the company said:

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last. Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”

I know I’ve been bashing the AMC valuation throughout this piece. Believe me, I have nothing against the company. I love the movie theater experience and I’d love nothing more for the company to thrive. I also don’t have any position in the stock, so there isn’t any conflict of interest from an investing standpoint. I’m just a disciplined value investor who believes fundamental growth is what will take investors to the Promised Land in terms of financial freedom, not wild bets fueled by momentum and dreams of a massive short squeeze.

But thankfully, you don’t have to take my word for AMC’s irrational valuation – or AMC’s management’s, for that matter…

Trey Collins, who has risen to fame as one of the undisputed leaders of the “meme” stock rally, and responsible for the aforementioned Trey’s Trades Youtube channel, a podcast, and a broad social media presence, recently spoke on CNBC. In his opinion, AMC is worth about half of what the shares are trading for now. Collins said that he views the company’s fundamental value in the $20-$25 range.

Now, I’m not sure what metrics he’s using to justify a share price that high (personally, I believe that AMC is worth much less), but the fact is, even a leader of the so-called “Ape Army” – which is what the Reddit traders like to call themselves – believes that AMC is grossly overvalued.

So, with that in mind, I think it makes a lot of sense to caution traders (because truth be told, anyone who is speculating on AMC is just that, a speculative trader, not an investor) from putting themselves at undo risk here.

I want everyone to reach their financial goals. And, I’m well aware of why so many individuals have become enthralled with the AMC-type rallies. Get rich quick stories sound great, right? But, they’re just that…stories. Actually, they’re more akin to fairy tales. In other words, they rarely occur in real life.

Miracles do happen; just not very frequently. We all wish that we could win the lottery. And ~2,500% year-to-date gains would likely make a big difference to anyone’s financial future. Yet, those gains are in the past and that does little good for anyone thinking about chasing gains and jumping onto the AMC bandwagon here.

Instead of risking hard earned capital on speculative turnaround stories with poor fundamentals and broken business models, I implore investors to consider investing in blue chip stocks with strong competitive positions in markets that benefit from secular tailwinds, healthy balances sheets, and reliably growing cash flows that result in regular (and rising) shareholder returns.

Sure, many of the Reddit traders will call this a “Boomer” stance on the market – but I assure you, I’m a proud member of the Millennial generation.

Just because I’m young doesn’t mean that I feel the need to take unnecessary risks. Value investing principles have proven themselves to be effective over the decades, and I see no reason to believe that will change moving forward.

Sure, investing in blue chips isn’t likely to generate triple (or even quadruple) digit gains in any given year. But, you might be surprised to see how large even a relatively small sum of money can become when it’s compounding, reliably, at a high single digit/low double digit clip over time.

The best thing about being a young investor is that – God willing – I have time on my side. There are few forces more powerful than compound interest and time in the most valuable resource when implementing a growth strategy built around exponential growth.

So, with that in mind, I think instead of investing in “meme” stocks like AMC, investors, young and old, should be focusing their energy on best-in-breed companies with proven track records, in terms of profit growth, and bright futures ahead of them.

For instance, Johnson and Johnson (JNJ), a company that has generated position earnings growth during 19 out of the last 20 years, provides investors with a 2.6% dividend yield, and is expected to grow its bottom-line by 19% in 2021, 8% in 2022, and another 8% in 2023.

Apple (AAPL) is a stock that has generated negative earnings-per-share growth just 4 times during the last 20 years. Over the last 18 years, Apple’s EPS has compounded at a 32.9% annualized rate. And, over the next 3 years, Apple’s growth is expected to continue with an expected EPS CAGR of roughly 18.6%.

Other than during 2020 (the pandemic period), MasterCard (MA) has produced double digit year-over-year EPS growth every year since becoming a publicly traded stock. During the next 3 years, analysts expect to see MA produced earnings-per-share growth of 22%, 33%, and 23%, respectively. It’s this type of fundamental growth that has allowed MasterCard to beat the S&P 500 by nearly 4x over the last 14 years.

These are just a few examples of blue chip stocks that not only generate reliable fundamental growth, but have also enabled their shareholders to generate significant alpha.

These are exactly the types of stocks that have helped The Intelligent Dividend Investor portfolio (AAPL, JNJ, and MA are all included in the IDI portfolio as of today) produce market-beating returns since the service’s inception.

The Intelligent Dividend Investor service is all about reaching financial freedom in a rational, responsible way that not only allows investors to generate wealth, but sleep well at night while they do it.

We’re certainly not interested in gambling on “meme” stocks.

So, if you like what you hear about strong, steady, and reliable returns that disciplined value investing in the dividend growth space can create, come check us out!

Disclosure: Nicholas Ward is long AAPL, JNJ, and MA.

Nick Ward

56 posts

View all my Posts

Nicholas Ward is a research analyst who currently writes for Seeking Alpha, The Dividend Kings, iREIT, and Forbes Real Estate Investor. Before that, he was Founder and Editor-in-Chief of The Dividend Growth Club, as well as the Income Minded Millennial. Nicholas has also contributed to Sure Dividend, Investing Daily, and The Street, where he covered stocks in Jim Cramer's Action Alerts PLUS Portfolio.

Nicholas holds a bachelor of arts from The University of Virginia, where he studied English and studio art. Prior to transitioning into the financial industry, he managed a vineyard in the foothills of the Blue Ridge Mountains.

What’s Going on With Washington Prime Group

REIT Mutual Fund	Symbol
Alpine Realty Income and Growth Fund	AIGYX, AIAGX
American Century Real Estate Fund	REAIX, REACX, AREEX, AREWX, ARYCX, AREDX
Real Estate Securities Fund	MRESX
AR Capital Real Estate Income Fund	ARIAX, ARICX, ARIPX
AssetMark Real Estate Securities Fund	AFREX
Aston/Harrison Street Real Estate Fund	AARIX, ARFCX
Baron Real Estate Fund	BREIX, BREFX
BlackRock Real Estate Securities	BIREX, BAREX, BCREX
Brookfield U.S. Listed Real Estate Fund	BRUAX, BRUCX, BRUIX, BRUYX
CGM Realty Fund	CGMRX
West Loop Realty Fund	REIIX, REIAX, REICX
Cohen & Steers Institutional Realty Shares	CSRIX
Cohen & Steers Realty Income Fund	CSEIX, CSDIX, CSBIX, CSCIX
Cohen & Steers Realty Shares	CSRSX
Columbia Real Estate Equity Fund	CREAX, CREIX, CRRVX, CRERX, CREEX, CRRFX, CREWX, CRECX, CREBX
Compass EMP REC Enhanced Volatility Weighted Fund	CWRAX, CWRIX, CWRTX, CWRCX
Davis Real Estate Fund	RPFRX, DREYX, DRECX, DREBX
Delaware Real Estate Investment Trust Portfolio II	DPRTX, DPRBX
Delaware Real Estate Investment Trust Portfolio	DPREX, DPRSX, DPRRX, DPRCX
DFA Real Estate Securities Portfolio	DFREX
Dunham Real Estate Stock Fund	DAREX, DNREX, DCREX
DWS RREEF Real Estate Securities Fund	RRRRX, RRREX, RRRAX, RRRSX, RRRBX, RRRCX
DWS RREEF Real Estate Securities Income Fund	REFAX, REFCX, REFIX, REFSX
Eaton Vance Real Estate Fund	EAREX, EIREX
EII Realty Securities Fund	EIIRX
Fidelity Advisor Real Estate Fund	FHEIX, FHEAX, FHETX, FHECX, FHEBX
Fidelity Advisor Real Estate Income Fund	FRIRX, FRIQX, FRINX, FRIOX
Fidelity Real Estate Income Fund	FRIFX
Fidelity Real Estate Investment Portfolio	FRESX
Fidelity Spartan Real Estate Index Fund	FSRNX, FRXIX, FSRVX
Fidelity Series Real Estate Equity Fund	FREDX, FREFX
Fidelity Series Real Estate Income Fund	FSREX, FSRWX
Forward Real Estate Long/Short Fund	KSRYX, FRLSX, FFSRX, KSRAX, KSRCX, KSRBX
Forward Real Estate Fund	FPREX, FFREX, KREAX, KRECX
Forward Select Income Fund	KIFYX, FSIMX, FFSLX, KIFAX, KIFBX, KIFCX
Franklin Real Estate Securities Fund	FREEX, FRLAX, FRRSX, FSERX
GMO Real Estate Fund	GMORX
Goldman Sachs Real Estate Securities Fund	GREIX, GRETX, GREAX, GRESX, GRERX, GREBX, GRECX
Great-West Real Estate Fund	MXREX
Heitman REIT Fund	OARTX, OBRTX
ING Real Estate Fund	CRARX, IREWX, IDROX, CLARX, CRWRX, CRCRX, CRBCX
INVESCO Real Estate Fund	REINX, IARFX, IARIX, IARYX, IARAX, IARRX, IARCX, AARBX
Ivy Real Estate Securities Fund	IRSAX, IREIX, IRSYX, IRSRX, IREEX, IRSCX, IRSBX
John Hancock Real Estate Securities Fund	JIREX
Johnson Realty Fund	JRLTX
J.P.Morgan Realty Income Fund	URTLX, JRIRX, URTAX, URTBX, URTCX
J.P. Morgan Security Capital U.S. Core Real Estate Securities Fund	CEEAX, CEERX, CEEFX, CEESX, CEECX
J.P. Morgan U.S. Real Estate Fund	SUSIX
Lazard U.S. Realty Equity Portfolio	LREIX, LREOX
Lazard U.S. Realty Income Portfolio	LRIIX, LRIOX
Manning & Napier Real Estate Series	MNRIX, MNREX
Morgan Stanley Institutional U.S. Real Estate Portfolio	MSUSX, MUSDX, MSULX, MURSX
Natixis AEW Real Estate Fund	NRFAX, NRFYX, NRFBX, NRFCX, NRFNX
Neuberger Berman Real Estate Fund	NBRIX, NBRFX, NREAX, NRERX, NRECX, NRREX
Nuveen Real Estate Securities Fund	FREAX, FARCX, FRSSX, FREBX, FRLCX, FREGX
Oppenheimer Real Estate Fund	OREAX, OREIX, OREYX, ORENX, OREBX, ORECX
PHOCAS Real Estate Fund	PHREX
PIMCO RealEstateRealReturn Strategy Fund	PRRSX, PETPX, PETAX, PETDX, PETCX, PETBX
Pioneer Real Estate Shares	PWREX, PYREX, PCREX, PBREX
Principal Real Estate Securities Fund	PIREX, PIRPX, PREPX, PRETX, PREJX, PRRAX, PRERX, PRENX, PRAEX, PRCEX, PRLEX
ProFunds Real Estate UltraSector ProFund	REPIX
Prudential Select Real Estate Fund	SREAX
Prudential U.S. Real Estate Fund	PJEAX, PJEZX, PJECX, PJEBX
REMS Real Estate Income 50/50 Portfolio	RREIX
REMS Real Estate Value-Opportunity Fund	HLRRX, HLPPX
Rydex Real Estate Fund	RYREX, RYHRX, RYCRX
SA Real Estate Securities Fund	SAREX
SEI Institutional Mgd Real Estate Fund	SETAX, SEIRX
Spirit of America Real Estate Income & Growth Fund	SOAAX
SSgA Clarion Real Estate Fund	SSREX
Stratton Real Estate Fund	STMDX
T.Rowe Price Real Estate Fund	TRREX, PAREX
TIAA-CREF Real Estate Securities Fund	TIREX, TRRPX, TRRSX, TCREX
Vanguard REIT Index Fund	VGSNX, VGRSX, VGSLX, VGSIX
Virtus Real Estate Securities Fund	PHRAX, PHRIX, PHRCX, PHRBX

REIT ETF	Symbol
Flex Shares	ASET
Wisdom Tree Global Ex-US	DRW
S&P 500 Equal Weight	EWRE
iShares FTSE Industrial/Office	FNIO
MSCI Real Estate Index	FREL
S&P REIT Index	FRI
First Trust S&P REIT	FRI
iShares Real Estate 50	FTY
Flexshares Global	GQRE
iShares Cohen & Streers	ICF
iShares International Developed RE	IFGL
iShares US RE	IYR
Premium Yield Equity REIT	KBWY
ETRACS Monthly Pay 2x Leverage	MORL
Market Vector Mortgage	MORT
iShares Global REIT	REET
iShares FTSE Mortgage	REM
iShares Residential	REZ
IQ US Real Estate Small Cap	ROOF
iShares FTSE NAREIT Retail	RTL
DOW Jones Global RE	RWO
SPDR Dow Jones	RWR
Schwab US REIT	SCHH
Super Dividend REIT	SRET
ProShares Ultra RE	URE
Vanguard REIT	VNQ
Vanguard Global ex-US	VNQI
iShares International Developed	WPS
Wilshire US REIT	WREI
Pacer Benchmark Data & Infrastructure RE	SRVR
Pacer Benchmark Industrial RE	INDS
Pacer Benchmark Retail RE	RTL
Hoya Capital Housing	HOMZ
NetLease Corporate RE	NETL

REIT Name	Ticker	Annual Increases/yr
Federal Realty	FRT	51
Universal Health Realty	UHT	33
National Retail Properties	NNN	29
Realty Income	O	27
Tanger Outlets	SKT	26
Urstadt Biddle	UBA	25
Essex Property Trust	ESS	25
W.P.Carey	WPC	22
National Health Investors	NHI	17
Equity Lifestyle	ELS	15
Digital Realty	DLR	15

You Don’t Have To Chase “Meme” Stocks To Get Rich

Nick Ward

56 postsJune 14, 2021

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56 postsJune 14, 2021

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