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Since my last video on the state of the markets in the wake of Russia's invasion of Ukraine, we're still seeing aftershocks in the Dow and the S&P 500. But my perspective on it hasn't changed - things are looking grim, but don't sell yet.
The smart plays to make now are looking for choice opportunities to "buy the dip" on companies that are going to course-correct more swiftly than their peers.
Also, more speculative trades, like call and put spreads on short-term trends, can help keep investors in the black while all the chaos shakes itself out.
I'm really liking the online retail space right now especially, for a couple of reasons. First of all, it's diverse, with a lot of different storefronts serving a wide variety of needs, and auxiliary businesses like payment processors hooking into the overall ecosystem. Diversity goes hand in hand with resilience, so even with all the ups and downs, it's a good place to find solid plays.
Second, even with (and perhaps because of) inflation continuing to spike, many online retailers are reporting record sales and profits, easily beating projections. The strong fundamentals mean that when the inevitable rebound comes, this space is likely to skyrocket.
I have two picks for you today that I think represent the best "discount buys" in the online retail industry, both short-term, quick profit trades. Here they are...
This Company Plays a Unique Role in the Market
First up is Etsy Inc. (NASDAQ: ETSY).
After the close on Thursday, the New York-based online marketplace reported its stunning fourth-quarter (Q4/2021) results, driving shares up as much as 15.60% in early Friday trading.
But that's not the only reason I like it. Nor is it the reason buyers love it. Etsy fills a niche that most online retailers don't. Instead of selling the same mass-produced items that Amazon carries (which so many online retailers are trying to do), Etsy focuses on unique, one-off items that are often hand-made by the seller themselves. That means, in many cases, Etsy is the only place where these unique items, from jewelry to oil paintings, can be purchased for a premium.
Growing interest in these items, and the willingness to buy them, was reflected in the report. Gross merchandise sales per active seller hit an all-time high of $136, up 16% over the same period a year ago. Additionally, more than half of Etsy's 2020 active buyers and 37% of 2020 new buyers came back to make a purchase in 2021.
For the quarter, the company reported record gross merchandise sales of $4.2 billion, up 16.5% from the same quarter last year.
Revenue came in at a record $717.14 million, which represented a year-over-year increase of 16% and handily beat analyst expectations of $685.47 million.
Adjusted earnings for the quarter came in at $1.11 per share, well above estimates of $0.79 per share.
The company's Q4 earnings looked great, but I don't want to chase a stock that jumped more than 15% in early Friday trading, especially with the escalating conflict between Russia and Ukraine.
If shares of ETSY trade down to $132 by Friday, March 4, let's buy the ETSY April 14, 2022 $140/$145 call spread for $2 or less. Plan on exiting the ETSY April 14, 2022 $140/$145 call spread for a 100% profit, or if shares of ETSY close below $108.
The Payment Processor That's Crushing Estimates
Then there's Block Inc. (NYSE: SQ), the parent company of Square, the point-of-sale payment provider.
Shares of SQ jumped more than 20% in early Friday trading after the company reported Q4/2021 net revenue and gross payment volume that topped analyst estimates.
Net revenue jumped 62% to $4.42 billion, easily beating estimates of $4.04 billion.
Adjusted revenue rose 54% to $1.4 billion, topping estimates of $1.34 billion.
That's also good.
Earnings for the quarter came in at $0.27 per adjusted share, down 15% from $0.32 in the same period a year ago, but still above analyst estimates of $0.23 per share.
And that's good, too.
But here's what's caught my attention.
Before Thursday's Q4/2021 results, the company had beat estimates three out of the last four quarters, but the stock has still fallen 56.83% since last Wednesday.
I think we could see the same pattern (trading lower after beating estimates) play out here after the initial excitement surrounding the recent results subsides.
If shares of SQ trade up to $127 by March 11, let's buy the SQ May 20, 2022 $105/$100 put spread for $1.85 or less. Plan on exiting the SQ May 20, 2022 $105/$100 put spread for a 100% profit or if shares of SQ close above $140.50.
Given everything that's happening in the stock market, it's more important than ever for investors to find unique places to put their money. And the most lucrative investment I know of at the moment isn't even a stock at all...
It's something I call "pre-IPO rights" - the right to claim shares in a company yet to go public. Often these rights can be had for a buck or less - the ones I'm thinking of, belonging to a crypto business, cost just $0.70 or so. But I've seen projections that hint these could rise to $7 over the next year.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.