The coronavirus pandemic has played a huge role in shaping overall market performance since early 2020, and attention is now turning to stocks that are poised to thrive as the economy bounces back. Stay-at-home tech stocks have been losing some steam, and investors have been gravitating toward value stocks and reopening plays. However, there's still plenty of uncertainty in the air.
With economic recovery gaining ground and stock market trends in flux, we put together a panel of Motley Fool contributors and asked each member to profile an investment that could be in for a bumpy ride as the world moves closer to normal. Read on to see why they think you should exercise caution with these three investments.
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GameStop
Keith Noonan: Despite having fallen far from its recent high of $483 per share, GameStop (GME 2.04%) stands as one of 2021's best-performing stocks. With its price sitting at about $160 per share, the stock is up roughly 746.5% year to date, and some adventurous investors are betting that the video game retailer still has more upside.
With signs of economic recovery, resurgence in the retail space, and a dash of GameStop's meme stock magic, it's possible that the company could see another big rally. However, it's probably not a good fit for investors without high risk tolerance, and there are reasons to suspect the company's share price will end the year below current levels.
Even after the peak of the short-squeeze mania that drove the stock to a record high in February, GameStop has managed to hold on to big gains because some investors are bullish on the company's plan to restructure around e-commerce. While recovering traffic for brick-and-mortar retailers should benefit GameStop, the possibility of significantly weaker performance for its e-commerce business could take some of the shine off the stock.
GameStop's e-commerce sales surged 191% annually in 2020, but overall revenue still fell 21% in the period. With the company still closing underperforming store locations, the business could wind up posting underwhelming sales this year, even with the benefits of retail reopening and recent console launches from Sony and Microsoft.
Despite still having a large brick-and-mortar retail footprint, GameStop is an e-commerce stock now. Many players in the online retail space will face difficult comparisons this year, and GameStop's huge gains and speculative outlook prime the stock for a pullback if its e-commerce numbers don't support the bull case for a quickly orchestrated business transformation.
Dogecoin
Jamal Carnette: Here at The Motley Fool we embrace revelry but are serious when it comes to our core mission of making the world smarter, happier, and richer. That seriousness puts at us somewhat at odds with Dogecoin (DOGE 1.80%), the cryptocurrency initially created as a joke.
Admittedly, avoiding Dogecoin has been horrible advice in 2021. Dogecoin started as a joke but the returns are serious: The cryptocurrency's value exploded during the pandemic, up 13,000% year to date. In fact, Dogecoin's $79 billion market cap is now bigger than 80% of the companies on the S&P 500, as billionaires like Mark Cuban and -- the most famous Dogecoin acolyte -- Elon Musk continue to hype the currency.
Twitter is ablaze about whether Musk will use this weekend's Saturday Night Live appearance to boost the token. Unfortunately, that's the bulk of Dogecoin's investment thesis. Unlike Bitcoin, where companies like Square and PayPal are spending billions in capital expenditures amid its increasing functionality as a transactional currency, driving prices higher, Dogecoin is rallying on possibly being pumped on a TV show.
Admittedly, there are a few use cases for Dogecoin, most notably as a tipping feature on social media and to buy tickets for Cuban's Dallas Mavericks, but there's no significant investment to support this token. Even worse was a recent report that approximately 100 people control 65% of Dogecoin's supply. If any of these owners want to cash in, it could crash the market.
That said, I understand the allure, especially when reading feel-good stories like that of Glauber Contessoto, the Los Angeles man who became a Dogecoin millionaire in two months! Therefore, instead of telling investors to avoid Dogecoin entirely, I share Musk's advice to "invest with caution" and will add: Treat Dogecoin not as an investment but rather as entertainment.
AMC Entertainment
Joe Tenebruso: I'm a huge movie fan. And AMC Entertainment's (AMC 1.77%) theaters are terrific. But while I want to see the company survive the pandemic and its aftermath, I'm worried that its stock won't provide investors with the gains they're hoping for.
Here's why.
It's true that AMC has benefited in some ways from the downturn. CEO Adam Aron said during the company's first-quarter earnings call that AMC's "market share in the United States has soared, increasing by about 25% compared to pre-pandemic levels." Yet while these gains will help, will having a larger share of a struggling industry be enough to drive AMC's shares higher?
AMC posted a $567 million net loss in the first quarter on an 84% decline in revenue. Yes, this was largely due to theater closures -- and most of its locations have already reopened. But AMC struggled to turn a profit even before the pandemic began. Will enough people return to its theaters -- despite the persistent coronavirus-related health risks -- for AMC to become even more profitable than it's been prior to the COVID-19 crisis?
Moreover, AMC had over $5.4 billion in debt as of March 31. Although borrowing this money was necessary for the company to survive the pandemic, the costs to service this debt will weigh on AMC's profitability.
Aron tried to gain shareholder authorization to sell 500 million more shares to help pay down this debt, but he later backtracked after investors criticized the move. Even if Aron is ultimately successful in completing a massive new share offering and paying off AMC's long-term debt, the resulting dilution will make it even more difficult for it to generate meaningful per-share profits.
For these reasons, while we can certainly root for AMC's survival, you may not want to bet your life savings on its success.
