Just one month into the new year, there are already plenty of stocks that have more than doubled. You won't recognize most of the dozens of names on that list. Many of them are obscure micro-cap stocks, and most of them are simply recovering after being decimated in 2022.
Some of the names you might know are Carvana (CVNA +3.73%) and BuzzFeed (BZFD 5.18%). Let's take a closer look at these two speculative names that hit the ground running in 2023.
NYSE: CVNA
Key Data Points
1. Carvana: Up 115%
Whether you're talking about stock prices or car racing, starting lines matter. Carvana has more than doubled this year, but largely because it cratered in 2022 on fears about the company's financial troubles.
You may know Carvana through its ads promoting its high-tech platform for the selling of used cars. You may even live in one of the handful of cities where Carvana has a towering physical presence with its 9-story glass-enclosed vending machines offering shiny secondhand vehicles.
With its over-the-top approach to making used car sales seem glitzy, Carvana expanded aggressively across the country. At one point it delivered 23 straight quarters of triple-digit revenue growth. The streak slammed on the brakes when the pandemic arrived in 2020, as homebound consumers didn't prioritize replacing their aging but idle vehicles. Then came the reopening play of 2021, and showrooms couldn't find enough new cars to sell. With new rides in short supply prices for used cars started to shoot higher. Carvana found itself with appreciating assets inside its gargantuan vending machines. What could go wrong?
Image source: Getty Images.
Last year was different. Demand for cars in general -- but used rides in particular with supply chains catching for new car showrooms -- dwindled. Used car dealers no longer had pricing leverage, but Carvana itself had plenty of leverage on its balance sheet. You don't grow that quickly without taking on gobs of new debt -- $6.6 billion to be exact. With money-losing growth stocks also out of fashion last year, Carvana shares plummeted 98% in 2022. The stock may have more than doubled in January, but it's still 96% below where it was at the beginning of last year. As I mentioned earlier, starting lines matter.
Carvana benefited from a few aerodynamic tailwinds in January. Many beaten-down growth stocks raced back into favor, especially once tax loss selling subsided in late 2022. There were also a lot of people betting on the retailer to falter, making a short squeeze that much easier to drive the stock higher.
Bulls will still want to check the crash safety ratings before getting behind the wheel of Carvana. The debt burden is real in a climate of rising rates. Auto sales will cool if the economy doesn't achieve a soft landing this year. And financial difficulties are still a concern.
NASDAQ: BZFD
Key Data Points
2. BuzzFeed: Up 233%
If you've spent enough time online there's a good chance that you've stumbled across a few BuzzFeed stories or trendy quizzes. Even if you've never succumbed to answering a few questions to see which Friends character you're the most like or what Hogwarts School house you would be sorted into, you likely are familiar with the brand.
Last year was hard for BuzzFeed investors. The stock plunged 87%. BuzzFeed continues to crank out double-digit revenue growth, but losses are proving to be problematic. BuzzFeed has posted a larger-than-expected deficit in each of the first three quarters of 2022.
This year's rally essentially happened in the final two trading days of last week when the stock quadrupled. Yes, quadrupled. A pair of possibly overblown stories surfaced to stir up the previously moribund shares. On Thursday BuzzFeed's CEO told his staff that the platform would experiment with ChatGPT creator OpenAI to enhance its signature quizzes and personalize some of its content. The process would mean saving money by leaning on artificial intelligence instead of its suddenly nervous team of writers and editors. BuzzFeed staff was likely already on edge after layoffs were announced a month earlier. BuzzFeed also announced an expanded partnership with Meta Platforms to drive creators to the latter's social platform.
The moves turned heads. It's what BuzzFeed knows how to do. However, sustaining that attention is the trick it hasn't been able to master in the past. If it can keep growing its top line while shrinking the losses on its bottom line it has a chance, but you don't need an interactive quiz with pop culture references to know how this ends if that doesn't wind up being the case.
