4 HYPE Stocks to Sell Now!

We like to talk about stocks that are worth buying, but it's also important to think about stocks that are worth selling. So, today we want to go through four stocks that we have a on our sell list at this point, and there's good reasons to be skeptical of the price in the future for some of these companies. John, let's start with Take 2 Interactive. My question for you to start though is when was the first time you played Grand Theft Auto? >> I don't think I've ever played Grand Theft Auto. Okay, I'm going to date myself here. I played almost immediately when it came out. 1997 is when Grand Theft Auto f first came out. I don't think it was on consoles for about a year, but that was when I first played Grand Theft Auto, so it would have been about 1998. The crazy thing about that, and this is going to tie into the valuation for the company, but at that time and even up through some of the more popular versions like GTA 3, GTA 4, that was such a different product. I mean, we were playing Pac-Man, you know, you're playing uh Tetris, Mario, and then there's suddenly a game that you can like steal cars and do other terrible things that you would never do in real life. And it was it it had a crazy response. That's what ultimately built the business and the graphics get better and the the you know the whole thing gets better. Uh you know GTA 3 or 4 would have been kind of when I stopped playing on a regular basis. But that then gets to the changes that we've had in the market. And I think this is where we we see such a challenge for GTA 6 when it does eventually come out. Take 2 Interactive has a $45.5 billion market cap today and about 6 6 billion worth of revenue. So really expensive stock, which tells you the market is expecting a lot from GTA 6. But console sales are down. People are just simply not buying consoles as much they are. You know, PC gaming is not what it once was. A lot of that gaming has moved to mobile. The industry has really spread out. So instead of being one or two or three really big names every year, you have hundreds of names. So, the absolute dollars in gaming have maybe stayed flat, maybe grown just a little bit, but it's being spread out amongst more studios. And unless you're one of those one or two really great games, it's really hard to be profitable long term. And the ceiling of those games has come down over time. So, I just think this could be just a huge disappointment even if it's the most popular game of the year coming up. >> You hit the nail on the head. And I do want to clarify right here that we got a lot of comments on our last sell video. We're I'm not saying that these are stocks that are going to go to zero and that are going to crash tomorrow and so panic cell fire cell. We're not saying that. But I want to invest in companies that are going to create shareholder value. And if they're not, I want to sell. I mean, it's that simple. With Take 2, it became a fundamentally different business when it acquired Zingga in 2022 for $12.7 billion. And since then, margins have gone down and there's just been less left over for shareholders. So you look, the share count used to be going down and now it's going up. It it's rising modestly, but it's rising there. There's no dividend here. There just no I mean debt is getting paid down a little bit, but the cash position is roughly what it was a decade ago. There are there are a lot of eggs in the Grand Theft Auto 6 basket. It has been in development now for a long time. It's been delayed a couple times. It's been a disaster. And to your point, I think the market is pricing in that it's going to be the greatest game ever. Let's assume it is. We're already trading at 35 times forward earnings. If it's the greatest game ever, I I don't even know if that justifies its current valuation given uh the fact that its margins have gone down so much. I mean, I guess it could improve, but still. um you are looking at a stock that is trading within 8% of its all-time high in a raging bull market. I think this is a good time to look at this position and say it might be time to move on from this in the off chance that Grand Theft Auto 6 isn't what it was cut out to be. Let's also keep in mind that Grand Theft Auto 5 came out in 2013. So the users that you had who were in that prime target market, you know, let's say mid- teens to mid20s, those people now have kids. I mean, we're we're at the point where you're have you're going to have to bring in a new group of users, and I'm not certain that that same new group of users is going to be wowed by something like GTA. So, this is it's it's just it's a company in a very strange position. And I also think we've seen with the Activision Blizzard acquisition that those gaming studios just aren't as valuable as they once once were. Nintendo's stock has even come down because the Switch 2 again just not the hit that I think a lot of people thought it was going to be when it came out. So this is just a very very tough market to be in. And I think Grand Theft Auto, even though it is probably going to be a very big game, I just think it's not going to be the big profit driver that is worth 13, 14 years of investment for the company. All right, what do you have next on your list for stocks to sell right now? I'm going to catch a lot of flack from some people in the Mly Full community, but I'm going with PayPal here. I'm looking at PayPal stock. It is up 50% over the last 6 months. I say this is a good time to reevaluate whether you still want to be a shareholder there because I think that you are getting an exit opportunity. Look, I'm going to be very critical here of the leadership team at PayPal brought in what I believed was a great hire um several years ago in Alex Chris and Alex Chris was brought in to do a certain thing at PayPal and that was determined by the board of directors in collaboration with him. But as far as I'm concerned, Chris was doing the job that he was hired to do, but it was not yielding the results that PayPal had hoped it would yield. And so they decided to move on. And who is he replaced with? Someone on the board of directors in um Enrique Lores. So replacing Chris for doing what he was asked to do with someone on the board who was the one asking him to do it and who is continuing on with basically what the PayPal agenda was leaning into AI and leaning into some uh even some blockchain technologies. And so nothing has really changed here in the leadership team. And here's another thing. Lores was coming from HP where he was the CEO. Now you look at his tenure under at HP six years there during his time as CEO revenue was actually down 1%. Uh during a time where somebody like Dell during that same time period its revenue up nearly 50% during that time which isn't the greatest growth rate ever but it is growing. So I'm not sure that we replaced Alex Chris with an upgrade here at the CEO position. So I'm I'm pretty critical of this change. O think you look at the landscape in fintech in general and there are so many companies that are doing more interesting more exciting things more compelling things for their customers whether you're talking about consumers who are the end customer or the developers and business owners who are the ones ultimately paying most of these bills you know toast I think is much more compelling Stripe still private but much more compelling company PayPal is just kind of it's like olding owning the old legacy company that's just slowly dying and everybody knows that it's dying but nobody can quite admit it because the stock always just looks so cheap, >> you know, and well, and to your point, this stock does look cheap. I think it's trading at just eight times its free cash flow. So, if this is a company that you say, I I want to keep holding it because it's so cheap. I could understand that completely and you're probably not going to, like I said, it is still generating free cash flow and it trades at a cheap valuation. So, maybe it doesn't lose a ton of value from here, but does it create value? I think there's a tell in management's plan here recently trying to save $400 million these annualized run rate savings 400 million by the end of the year looking to get to 1.5 billion and you might say John don't we want our companies to find cost savings and save money where they can yes but keep in mind that PayPal's growth has dropped to low single digits normally when the growth has completely evaporated and then we start leaning into these cost synergies to kind of boost shareholder value. That's often times an early tell that yeah, we're just getting out competed at this point and and we've and we've lost some of the things that used to make us great. >> Yeah. And this is one of those companies that did used to be great and I I just think we are kind of past that point. All right. Last time we did this same concept, I talked about a company called Coreeave in the exact same area is Nebius. Nebius. Nebius. Somebody's gonna have to correct me on exactly how to say this company's name. It's a NeoCloud. So, it's a company that's building data centers to then rent those GPUs to other companies. So, there's multiple ways you can do that. You can do that with long-term contracts. Some of the contracts that they have are very short-term. So, for example, Alphabet when they reported, they said, "Hey, you know what? We're spending as much as we can or building as fast as we can, but we're actually going to offload some of this short-term demand that we have to bridge our way to when our data centers are built. So, when we sign a long-term deal with Anthropic, we want a massive amount of compute. We also need our own compute, all this stuff. So, we need some of this bridge. Part of that bridge is coming from companies like Nebius. That is why they have had pretty good economics with their recent quarterly report. So they said, "Hey, some of these contracts that we're signing the returns, the payback for these projects, not only are customers paying 60% upfront of 60% of the capex up front, but but our payback is only a year and 10 months. So less than two years to get that payback. That sounds phenomenal. The challenge here is everyone else is building capacity too. And what that is going to ultimately mean I think eventually is we are going to increase. We're at the point where there's apparently not enough supply for AI today for the amount of demand that's out there. But if you just go out to the projections of what's being built and where revenue needs to go, you get to several trillions trillion dollars pretty quickly. So, we're going from OpenAI and Anthropic maybe generating a hundred billion dollars in revenue this year to maybe potentially being a hundred times that five or so years from now. That seems like a huge lift to me. And in the meantime, these companies are not profitable. Corweave and Nibbius not profitable. And the other thing is that that concerns me is Nibbius in particular has been playing some interesting debt games. So they have convertible debt outstanding. That is not unusual. Okay. But typically there are sort of three ways to price debt. Typical debt you're going to you're going to say, "Hey, $1,000 uh bond I'll sell you. What's the interest rate that you need?" That's just straightforward debt. Then you can go, "Well, how about if I add a convertible option on that?" So now if you're buying that debt, you say, "Okay, I value that convert at a certain amount." So a lot of those convert convertible debt options they'll say you know what we'll pay very very low interest rate may sometimes even no interest rate your upside is really just in the stock. What NBS does is those two things and they add in that the coupon or the the principal rate will actually go up. So depending on the the uh vintage of their debt the recent debt uh was 10% or more depending on uh which version you're looking at. But so that means if they take out a billion dollars in debt, they're not going to just owe a billion dollars back in the future plus the interest rate that they pay in the meantime. They're going to owe 1.1 billion or more. So all of this works out really well if your stock keeps going up. The problem is if it doesn't keep going up because then you have to pay that money back. And then this is this is where you get in this doom loop. If your stock is going down, that means your borrowing costs are going up. That means when you have to refinance this debt or take out new debt to fund your next leg of growth, your borrowing costs go up. Corore is a recent debt was trading for 11 12% yields. That's an extremely high yield for any company, much less a company that should have relatively quick paybacks. NBS, you can't quite draw that same line because they've got these converts out there. So, it looks like their interest rates are much lower when in reality, the market's still demanding a lot from them. I just think this is the kind of thing where if things start to go down, we start to see contracts not signed at the same rate, maybe growth starts to slow, those payback periods go from a year and 10 months to 3 years. Then what happen? What happens when they're five years now? You start going that down that downward spiral. That's something that I would be very concerned about if I was buying shares of Nibbius. And this is not a company that is cheap at this point. $60 billion market cap. I'm perhaps a little bit more bullish on this Neoclad space than you are, Travis. That said, I will acknowledge that this is a tough business model. This is a complicated business model. And that being the case, I would want to, if I own any of these stocks, which I currently do not, if I owned any of these stocks, I would want to own the definitive best-in-class. And I would want to know exactly what makes this business model work, what makes this business model break, and then define what is the best in class on that basis. And so, yeah, to your point, um, I don't know this company extremely well, but you've brought up some interesting points here with the debt. And so, uh, Nebius would be one that I would maybe say look at with a skeptical eye, and I would take need some convincing to see that this was the best in-class in the NeoCloud space. The other thing to think about with these NeoCloud companies, I think this is something that the market and investors are going to realize over time. The economics of these companies do not look like tech companies of the past. They look like energy companies, commodity companies of the past. And that is a very, very different business model. It's a very different upside. I would argue that a lot of these companies need to hire some old energy traders, you know, companies that people that were uh learning how to decide which wells are we going to drill, how much are they going to cost, what's the payback, how am I going to hedge that, all of that kind of stuff because those risks are very real for these companies because tokens are much more commodity-like. Renting out GPUs is much more commodity-like than it is techlike, than it is SASlike. So, let's go to our fourth stock today. That's yours. You brought to the table Eolab. What do you have against cleaning commercial buildings? >> Ecoab, ticker symbol ECL. You know, this has been uh for many years a great company and a lot of people do hold this and so apologies in advance here. I I'll cut to the chase. It trades at 35 times forward earnings and the growth is poultry. I mean 10% less than 10% when you add it all up in the most recent quarter, but organic growth just down at the 5% level. So, for me, the the growth rate does not justify the price tag that you are having to pay for this stock right now. And it trades again within 8% of its all-time high. So, I just kind of see this as an opportune moment to exit if you're going to exit. But my real beef here is yes, okay, the growth rate is struggling. And you might say, "But John, don't you know that it just made an acquisition for much better growth?" And so I do want to talk about why I don't like the cool IT systems acquisition. So Eagle Lab acquired this. This is not in its core domain. This company right here provides liquid cooling solutions for AI data centers. That's way outside of what Eolab is known for. >> Yeah, that that is pretty wild. This is EcoAB's actually not headquartered not too far from me. uh one of the companies I interviewed with coming out of engineering school back in the early 2000s. So I got a little peak behind the scenes there. But yeah, it the from the multiple standpoint, this is one of those companies that I look at and so interesting where the market is today because the market either seems to want very very high growth or just a business they know is going to exist 30 years from now. And cleaning floors is something that we're going to be doing 30 years from now. It's kind of like Walmart or Costco trading for 50 times earnings. It doesn't really make sense financially, but the market is just going, man, if I if I'm taking a low-risk trade, what in the world am I going to buy? EcoAB kind of fits that bill. That doesn't mean it's a good buy. And I I like your framing that this is an opportunity to sell a company if you own it and just take a nice profit. >> Yeah. And to just double down on on what I don't like here with the acquisition. Not only is it outside the wheelhouse, okay, it has it's reached about 1.5 billion in revenue. This is the cool IT systems part of the business. Expected to hit 4 billion perhaps by 2030. Is hoping it has a 25% margin. I mean that that is good growth and a good margin for that part of the business. So you're looking at a billion in profit maybe by 2030. it spent five billion for the company. When when you're already struggling for growth uh and shareholder returns, I I just don't see that. And that's the optimistic management of where it could be. Oftent times it doesn't even hit its own ambitious goals, right? When there's an acquisition like this, just I'm talking across Wall Street. I'm not picking on Ecoab there. For for me, it overpaid for this company that it's going to take a while before that ever pays back. If it pays back. >> All right. Question for you. Over the past 20 years, I always think about Ecoab and 3M sort of in the same bucket. I don't know if you know 3M also makes some commercial cleaning products. Do you know which one of those companies has performed best over the past 20 years? >> I would immediately guess EOLA. >> EcoAB over the past 20 years up 544%. 3M up just 20.5%. Which over a 20-year period, you're not beating the market with that. It's actually been pretty pretty poulry. And I think the stock's even down since 3M stocks down since about 2018. So there is value in some of these triedand-true companies, but they're not going to be market beaters. So I think the other thing is setting those expectations for some of these companies is probably a good thing to do. All right, let us know what you think about those four stocks. Do you think they are sells today? Take two, PayPal, Nebius, Nbius, and Eolab. Let us know your thoughts in the comments section below. Don't forget to subscribe to the Mly Fools channel here on YouTube. Thanks for watching everybody. See you next time.