I still see a few places to invest in the stock market right now despite improving investor sentiment. But there are also stocks I’d avoid like the plague. Here are two of them.
A cacophony of concerns
Hipgnosis Songs Fund (LSE: SONG) is a FTSE 250 investment trust focused on music royalties. It has a portfolio of some 40,000 songs from a wide range of artists including Blondie, Shakira and Neil Young.
In theory, I like the idea here. Music royalties typically provide a steady stream of income over time. This is generated from various sources, including radio, adverts and streaming services like Spotify.
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However, in reality, this fund’s been a major disappointment, so far. The stock’s down 34% since listing in 2018 and there’s been constant uncertainty around the true value of its intellectual property.
To help clear things up, the company hired banking firm Shot Tower Capital last year to conduct due diligence on its assets. It found the fair market value of the fund’s song catalogue to be $1.9bn. That’s 26% less than the fund reported it was worth back in December.
Additionally, Shot Tower’s analysis showed that 67 out of 105 acquisitions made by the fund are worth less than the price paid.
Now going on today’s 68p share price, the latest portfolio valuation suggests the fund is undervalued by around 20%. I’d imagine bidders will eventually emerge for some of its hit songs. So perhaps there is value worth pursuing here.
However, the fund said it won’t be paying dividends “for the foreseeable future” as it focuses on paying down its $674m debt pile (as of September). Ouch!
Basically, the whole thing has become a royal mess and I want no part in it.
Another meme stock
The second stock I wouldn’t touch with a 10-foot bargepole is Trump Media & Technology Group (NASDAQ: DJT).
This company operates Truth Social, an alt-tech social media platform that’s affiliated with former president Donald Trump.
It completed its merger with a special purpose acquisition company (SPAC) and started trading on 26 March. SPAC is an entity listed on the stock market that holds cash and merges with a private company.
Currently, the share price is $46.
One plus point here is that Trump Media now has over $200m in the bank and no debt after this merger. It might be able to use this cash to grow subscribers and revenue.
It’ll need to. The company generated revenue of just under $4.1m last year, while it lost $58.2m. And the latest figures I can find suggest around 5m monthly active users on Truth Social after 26 months of existence. That’s not many for social media.
Then again, perhaps that’s not surprising given that its goal is to provide a “home for cancelled content creators“. That sounds like a somewhat niche market to me.
Anyway, we’ve got a company that generated $4.1m in sales with a marke-cap of $6.3bn.
This means the stock’s trading on a price-to-sales (P/S) ratio of around 1,000. And this places it squarely in speculative meme stock territory. History shows that’s not an attractive place to invest.
Needless to say, I think there are far better stocks for me to buy and hold in April.
