Seeking Alpha

Beyond Meat Is Dead Meat, Also Other Stocks I Hate

by: David H. Lerner

When insiders are selling in a secondary and it swamps the new shares, run!

Pay attention to business models, are they unsustainable? Are they too hard to understand? Avoid them.

The CEO is one of the most important factors not found on the balance sheet. Does that CEO have specific expertise in the business? Avoid the name if they don't.

Psst, hey, wanna buy BYND shares in a secondary? Um, no thanks

First of all, one should not "hate" a stock, nor "love" any stock. Beyond Meat (BYND) is a great product and the company is growing fantastically. It is placing the product at seemingly every burger and donut chain on the planet.

Last night, as BYND posted the expected fantastic revenue numbers, it also unexpectedly announced a secondary offering of 3 million 250 thousand shares. This makes sense since BYND probably needs the funds to power further growth. Surprisingly (not really), 3 million of those shares are from insiders. They are circumventing the traditional IPO lockup to get out. As a cod-piece, they are selling 250 thousand new shares that go to the company.

Normally, I ignore insider selling, loyal readers know I monitor insider activity but concentrate on share buying because people sell for a lot of reasons. Not in this case, insiders are getting out while the getting is good. They are telling us all that this is as good as it gets, so good that they can't wait for the IPO lock-up to expire. Don't let these people "top-tick" you, don't buy this secondary.

Look, I can't blame them really, the stock is selling at a huge multiple of revenue. BYND reported $67 million in revenue last night for Q2. Let's be generous and say that this quarter together with the next 3 quarters they pull in $500 million, their capitalization is $13.5 BILLION, that's more than 27 times revenue! This is not a tech stock which is about moving electronic blips around. This is a processed food company that has raw material costs, logistics, factories, and an unpatentable product with no discernable moat other than a brand. In the food world, BYND is a king with the valuation of a Conagra (CAG) pulling in $9 billion in revenue. Luckily for us, we aren't confined to the food products industry. Please don't be the noob that buys this stock and gets stuck.

Yes, I want you to be ready to buy as the market goes down (if it does). This name is not one of them, the valuation is unsustainable and the insiders are telling you that and they're rushing for the door. This is not the only problem, there is a technical issue; the insiders are putting out 3 million shares of additional float. This liquidity will make it easier for savvy traders to short the heck out of this name. Please JUST DON'T BUY BYND. If you were lucky enough to get in at a lower level, be like the smart money and get out now.

Let me give you a twofer for disdain; Uber and Lyft

In a sign of lack of financial stability, Uber (NYSE:UBER) announced layoffs of 400 people in their global marketing department, and it's looking to sell Uber Eats of India. Lyft (NASDAQ:LYFT) is losing its COO recruited from Tesla less than a year ago. This is not the source of my problem with them, but this is perhaps a small hint of the troubles to come.

These two companies just plainly have unsustainable business models, full stop. I see no path to profitability ever. They are putting their hopes in robo-taxis; Uber puts further faith in helicopters, food delivery, and managing trucking loads. I could see Uber rely on a few of these niches for sustainability and running the car-share for the branding, or abandoning it entirely. I just don't see robo-taxis coming any time soon, especially in dense urban areas where UBER and LYFT get the bulk of their revenue.

They have no technology moat at all and there are tons of regional competition. I see a point soon where their individual apps are disintermediated by an app that combines their data with independent freelancers that pay no fees to Uber or LYFT at all. Please avoid these names. I could see them become penny stocks, or go to zero in a few years.

Next on my list is WeWork, soon to IPO

All I have to say is this, Adam Neumann, founder of WeWork (VWORK), sold shares and took loans totaling $700 million already. This joker didn't even wait for the IPO or the lock-up expiration to get out. I have written about this stinker before, except for this new gem that I have been meaning to warn you about.

WeWork is parading itself as a tech company that is changing the way "we work", ha ha. It is nothing of the sort. If you ever leased commercial space with some unused offices that you rented out to someone else, congratulations you are a competitor to WeWork. They are leasing long to rent out short term for more money. This is a business as old as the first time someone built a building. It is all fun and games until there is a recession and then WeWork goes belly up.

Why am I so sure they will go kaput? Because they didn't lease at the bottom of the market and they spent a ton on beer bars, kitchens, recreation rooms, nicknacks and tchotchkes to make working FUN! No, they will go belly up big time. This is what Adam Neumann is telling you. He got out even before the IPO. He's taking no chances that people will come to their senses and not snap up every IPO that comes up.

Tied for third is Blue Apron

I have written about Blue Apron (NYSE:APRN) before. Recently, it had an announcement that it was going to put Beyond Meat on the menu and the stock shot up THIRTY-FIVE PERCENT. I expected it to give up all its gains and it hasn't as yet. I thought it deserves to be on this list since it's tenuously associated with BYND, and that it's poorly run with a terrible business model.

Here's why: Tremendous churn and high customer acquisition cost. Difficult to scale. Because the meal kit is perishable and must be fresh, it requires hyper-local logistics. Poor management, they are spending huge amounts of money advertising to build a great brand, but they are not extending product or services against that brand. Where are the Blue Apron aprons? Where are the pots, the condiments, Blue Apron restaurants, Popup stores, or even Blue Apron cooking events? It's a total loser.

Okay, so what makes it an especially bad stock? Let's talk about the technical situation first. APRN just recently did a reverse-split, meaning that this name's shares fell so hard they went under a dollar and were under threat of being de-listed. This is a monumental red flag. So, APRN after it executed a 15 to one 1 reverse split, the shares were once again trading above $5. This was the siren song for short-sellers because they can short once a stock is above $5. Naturally, this stinker was heavily shorted and popped on the BYND news. In case you are having trouble wrapping your head around this, if you had 15 shares the day before June 17, you now own 1 share, albeit at the equivalent value, voila you no longer own a penny stock. If by some chance you see it go down and are tempted to get in, fight that temptation

Then there was Intel

I, of course, don't hate Intel (NASDAQ:INTC), even rhetorically. I lament that INTC is run by someone who is a bean-counter who is clearly out of his depth when it comes to chip manufacturing. Intel was once considered the most sophisticated producer of semiconductors. Its founder Gordon Moore was the creator of the eponymous Moore's Law. Intel pushed the boundaries of physics to achieve what was thought impossible.

Today sadly, it lags the state of the art. It made much on the news that it finally achieved 10-nanometer chips when its rivals were already at 7 NMS. It took credit for selling more PC chips when in reality that happened only because the overall market grew. They need to dump the CFO cum CEO and get a technology guy to run Intel once again. Avoid.

International Business Machines

The big news of IBM (NYSE:IBM) acquiring Red Hat is in the rearview mirror, but alas Ginni Rometty is still CEO. She is not a technologist and has done much to destroy IBM. Recently, I saw an advertisement for IBM being involved with the Apollo program, at one point IBM was at the leading, leading edge of technology. They literally were on the moon-shot. Would anyone think of IBM as the "go-to" for leading-edge computing today? Nope.

There used to be a saying, "you will never get fired for hiring IBM." Today, I would bet that bringing in IBM to solve a problem would result in head-scratching. Yes, they were fortunate to nab Red Hat and even more fortunate that the CEO James Whitehurst is staying on. It gives me hope that he will take over from Rometty. Let that day be soon. Am I unfairly faulting Rometty for a decade long decline before she became CEO? Not really, she presided over an astounding loss of capitalization, spending tens of billions of dollar on stock buybacks and dividends instead of investing in technology internally and also buying promising technology companies. You can find Rometty everywhere; Davos, Aspen, DC, but I wonder how much real management is being done. Watson is no more than a corporate mascot like the GEICO's Gecko, and the IBM Cloud is a joke. Stay away from IBM.

Broadcom is neither fish nor fowl

I want to register my hesitation with this name. I don't think it's a bad company, I just don't know what it is right now. I know that it's an acquisition machine having pivoted from being a buyer of chip manufacturers to a buyer of enterprise software with the acquisition of Computer Associates. I don't hate it, I don't disrespect the sustainability of their business model. I just don't understand their business model. Broadcom (NASDAQ:AVGO) will have to be judged purely on profit growth. I usually give a lot of value to organic revenue growth, but with this new model, AVGO is going to pick up underperforming software companies and stripping away costs and inefficiencies. This is not the world I want to inhabit. So I would stay away from AVGO too.

That is my bad list. Please only buy the very best names that I believe will be going on sale. Keep your powder dry, wait for the prices to come to you.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.