It's been a wild ride for GameStop (GME 3.17%) stock in the last couple of weeks. Shares of the aging video game retailer shot up from less than $20 at the beginning of the year all the way to a peak of $483 on Jan. 28 thanks to a massive short squeeze organized on Reddit's WallStreetBets board. However, since that peak, the trade has quickly unraveled with GameStop shares closing at $92.41 on Feb. 3, wiping off more than 80% of its value from the top less than a week ago.
If you're one of the investors on the losing side of this bet, don't get discouraged. While GameStop is unlikely to return to its former heights and faces significant challenges over the long term, there are other stocks with more promising future prospects. Keep reading to see three that can help you recoup your GameStop losses.
Image source: Getty Images.
1. CarParts.com
E-commerce stocks surged during the pandemic, and CarParts.com (PRTS) was no exception. The stock has gained nearly 600% over the past year as its sales have jumped during the crisis, rising 69% in its most recent quarter with e-commerce sales up 105%. Despite those monster gains, this is still a small company and has received little attention from Wall Street. It's valued at less than $1 billion, and only three analysts are following the stock.
Auto parts is a huge market, with about $100 billion in annual sales in the U.S., and CarParts.com has only a sliver of market share with less than $500 million in annual revenue.
Additionally, the business has been transformed since Lev Peker took over as CEO in 2019. Formerly known as U.S. Auto Parts, the company is as old as the World Wide Web, founded in 1995, but it was poorly run for most of the time. Under Peker, the company has invested in new technology, brought in a new management team, and concentrated resources under the CarParts.com brand, the company's biggest brand. It also changed the corporate name to CarParts.com to reflect that transition.
As a result, gross margin has expanded and sales have boomed in recent quarters with the help of favorable trends that are set to last at least through 2021. CarParts.com is following a similar playbook to other e-commerce disruptors like Amazon, undercutting competitors on price with private-label products, accelerating delivery speeds, and expanding product selection. The stock is still modestly priced and should continue to gain market share as it executes its new strategy, setting the stock up for long-term gains.
2. Innovative Industrial Properties
Marijuana stocks have generally been high-risk plays, rising and falling on legalization prospects and commodity prices. Innovative Industrial Properties (IIPR 0.19%) is the exception that proves the rule. Unlike most marijuana stocks, IIP isn't a grower, but a Real Estate Investment Trust (REIT). It owns properties like growhouses that it leases out to marijuana growers, essentially making it a landlord for the industry, or a picks-and-shovels play on cannabis.
The company offers a unique combination of growth, safety, and income. In its most recent quarter, revenue jumped 197% to $34.3 million and net income of $18.9 million, showing the company is highly profitable. It also offers a dividend, unusual for a company growing this fast, with a yield of 2.6%. IIP is also expanding rapidly, acquiring five new properties in the third quarter with a total of 448,000 rentable square feet.
Prospects for legalization under the Biden administration only make the stock more appealing; Tilray CEO Brendan Kennedy recently said he expected legalization at the federal level within two years. Biden campaigned on a promise to decriminalize marijuana, and said he would reschedule the substance to allow it to be studied for medical benefits, an important step toward legalization.
Considering the momentum at the state level with four states having just legalized recreational marijuana, IIP is in on the right side of the trend no matter what happens at the federal level.
3. Pinterest
Social media advertising has soared in the second half of the year, and Pinterest (PINS 3.81%) has been among the biggest winners -- stock as more than tripled over the past year.
Pinterest is benefiting from a number of trends inside the industry as well as its positioning as a positive platform, unlike peers such as Facebook, Twitter, and Instagram, which have had their own problems with trolling, hate speech, and other kinds of divisiveness. As the company itself has said, people come to Pinterest to work on themselves, rather than connect with other people.
The company's foundation as an image discovery tool also makes it an excellent fit for advertisers as users come to Pinterest to learn more about things like weddings, home improvement, or style, and users say that they want to see ads on the site.
The company has built up a substantial user base with 459 million monthly active users as of Dec. 31, 2020, up 37% year over year. Management is also in the early stages of monetizing the platform, as its average revenue per user (ARPU) was just $1.03 in that quarter. That's well below Facebook, the social media leader, which had nearly $8 in ARPU in that quarter.
That figure should naturally move higher as the company rolls out more new ad products like automatic bidding and shopping ads. That improvement in ARPU combined with steady user growth should pave the way to long-term growth for the company.
