5 Hot Stocks Today (That Could Crash Tomorrow)

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Let’s admit it. We’re all fascinated by the stock market’s hot stocks, aren’t we? That doesn’t mean we’re adrenaline junkies hopping from bandwagon to bandwagon. But it can be mesmerizing to see a stock double, triple or quadruple in a short period of time.

While we’re on the topic then, we’re all on the hook for owning some real duds too, right?

So we wanted to combine the too and look at some hot stocks that could have the potential to be duds in the future.

By “duds” we don’t necessarily mean bankrupt or stocks that are heading to the over-the-counter exchange. Rather, we’re looking for stocks that are hot now but might cool off.

Hot Stocks For Now: Bausch Health (BHC)

hot stocks to fall -- BHC

It was probably a good idea to change its name from Valeant Pharmaceuticals to Bausch Health Companies (NYSE:BHC) given the former’s fall from glory. Shares went from more than $250 to below $10.

It’s actually been pretty hot, despite BHC carrying a tainted reputation. With a 52-week high of almost $28 though, shares have nearly tripled from their one-year lows.

The latest quarterly results inspired some confidence with an earnings and revenue beat. However, I’d be leery of the name still. Revenue fell 13% year-over-year (YOY), while net income dropped more than 33%. Operating cash flow decreased as well.

But let’s give credit where credit is due. After once carrying ~$30 billion in long-term debt as of year-end 2016, BHC has since cut that figure down to $25.25 billion. It’s a decent reduction and proof that management is at least trying to turn things around.

However, with just an $8 billion market cap, we’re still talking a lot of leverage and overhang here. Those who hate on Tesla (NASDAQ:TSLA) should realize it has a $55 billion market cap and “just” $11 billion in debt.

Hot Stocks For Now: Bitcoin Investment Trust (GBTC)

hot stocks to fall -- GBTC

I know what you’re thinking, “The Bitcoin Investment Trust (OTCMKTS:GBTC) has already fallen a ton!”

That’s true, as GBTC topped out around $35 back in December. Of course, it’s no surprise that that’s when bitcoin also hit its top, given that the GBTC tracks the price of bitcoin. While GBTC could soar should the cryptocurrency regain its momentum, investors should be leery of its near-50% rally over the past few weeks.

For starters, bitcoin has been highly volatile and under a lot of pressure so far this year. Bulls can make a case for owning it, but the GBTC shouldn’t be a way to do it. This fund trades at a more than 50% premium to its net asset value (NAV).

What does that mean? The price of the fund, which charges a way-too-high 2% annual management fee, trades at a 52.7% premium to the current bitcoin price. Were the fund to liquidate, its value would plummet.

Sorry crypto lovers, I’m not a buyer of GBTC.

Hot Stocks For Now: Fossil (FOSL)

hot stocks to fall -- FOSL

Man, Fossil Group (NASDAQ:FOSL) has been on fire. The company has gotten its act together a bit and has been cutting down debt. But does it warrant a 500% rally?

Within the last 12 months, shares traded for as low as $5.50. Fossil stock recently topped out near $32 just last month and the 50-day moving average is acting as support as we speak. Trend-line support is also in play.

Look, I’m not saying I’d lever up on a short position in FOSL, but I would be questioning the run. The company is expected to lose money this year, before earning just 37 cents per share in 2019. That means FOSL stock trades for more than 70 times next year’s earnings. Further, sales are expected to decline this year and next year.

Fossil also does not pay a dividend.

It’s no wonder momentum traders are sticking with FOSL. The stock has the wind at its back and it’s a low-market-cap stock that’s easy to push. That said, I’d look for more quality investments for long-term holders.

Hot Stocks For Now: Netflix (NFLX)

hot stocks to fall -- NFLX

Netflix (NASDAQ:NFLX) is certainly a controversial pick for this article. This FANG stud has outperformed Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Alphabet(NASDAQ:GOOG, NASDAQ:GOOGL) this year and over the past 12 months. It’s taking over the world with its streaming platform and is disrupting one of the world’s largest industries.

So this isn’t to say load up a short position or don’t ever buy it. But it’s important to point out its flaws.

The stock is still up a whopping 132% over the past year and an insane 95% so far in 2018. However, on Monday Netflix reported quarterly results. Despite beating on earnings, it missed on revenue estimates. Even worse, second-quarter subscriber growth was worse than expected — far worse, actually.

That follows four straight quarters of obliterating subscriber expectations. This isn’t a case of analysts getting overzealous either. The guidance from Netflix management was similar to consensus estimates too. Even worse though? Management’s guidance for third-quarter subscription growth was well below expectations too.

At first, NFLX paid the price, down 14% in early trading following the results. But investors immediately bid up the stock, dismissing the miss-and-miss on estimates and guidance.

So what gives? Bulls used to argue that the story isn’t about earnings or cash flow right now. Instead, it’s all about subscriber growth. That’s what fueled shares higher more than 100% on the year, despite Netflix spending half of its expected revenue on content in 2018.

Now that subscriber growth is disappointing, we’re what, going to buy the dip again?

Maybe so. But Netflix just showed some cracks, even though the stock’s not acting like it. Maybe this is the wrong gut feeling to have, but I wouldn’t be surprised to see NFLX revisit its recent lows.

Hot Stocks For Now: Riot Blockchain (RIOT)

hot stocks to fall -- RIOT

Riot Blockchain (NASDAQ:RIOT) thought it could change its name to something crypto and it would solve all of its problems. Unfortunately, some investors surely got taken for their money, as shares ran from ~$3.50 to more than $45 between August and December 2017.

Even worse, its CEO unloaded more than 30,000 shares near $28 in December too.

Some may dismiss Riot being on this list because it’s related to blockchain and crypto. They may argue ignoring it near $6 is a crime in itself. I am not one of those believers though, at least when it comes to RIOT.

While the stock fell 9% on Wednesday, it follows a near-40% one-day rally earlier this week. The technicals are still terrible, the company trades at a laughable 65 times its 2017 sales and makes no money.

So do you short this work of art? Of course not. Because a rally — however ridiculous it may seem — could more than double the stock. We’re looking for quality stocks to own, not lottery plays at the casino.

And some may wonder, “how is this a hot stock that could become a dud,” especially when RIOT has gone from $30 to $6 in the last seven months? Because it’s up 40% this week and its 52-week lows are still far below current levels.

Admittedly, a bitcoin rally could heat up RIOT. But if you want exposure, just stick to crypto.

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Congressional Hearings Show Appetite for Smart Crypto Regulations

Earlier this week, I visited my old stomping grounds in Washington, D.C. to cover a pair of Congressional hearings about cryptocurrencies.

If you’ve never been to a Congressional hearing, you should try to attend one. They’re actually open to the public. And there’s no need to sign up or get tickets. But show up early! Seating is extremely limited. At the House Committee on Agriculture, there’s room for about 25 spectators – not including a press table that seats about six reporters (that’s where I was). At the House Financial Services Committee, there’s room for about a dozen spectators. The remaining dozen chairs are reserved for Congressional staff and reporters.

I’ve covered my share of House and Senate hearings – and it never gets old. The rooms that hold these meetings are impressive, awe-inspiring and intimidating. And that’s by design.

The witnesses testifying before Congress are typically the smartest, most accomplished professionals in their field. Members of Congress are not usually described that way.

That’s why the legislators sit on raised platforms and desks while the witnesses testifying before them sit at the bottom of the room, staring up at the bright lights and people in power. It’s a power play – a not-so-subtle reminder that it doesn’t matter how rich or accomplished you are. In that moment, you are answering to Congress.

If you think that such an obvious and dramatic power play wouldn’t rattle truly accomplished people, think again. As I talked to the crypto experts who testified on Wednesday, their reactions ranged from “that was terrifying” to “well, that could have gone worse.”

So how did the “crypto double-header” go on Wednesday? Actually, way better than expected.

For the first time, there seems to be an emerging consensus from the crypto industry about how cryptocurrencies should be regulated. Even better, the suggested framework was either tacitly accepted or (at worst) unchallenged by the politicians in attendance.

In oral and written testimony to the Agriculture Committee, Perkins Coie Managing Partner Lowell Ness outlined a two-phase approach to regulating cryptocurrencies (emphasis mine):

  1. Pre-Functionality – Until the token achieves full functionality, offers and sales of tokens would generally constitute investment contract type securities under Howey, unless a reasonable purchaser is purchasing with consumptive intent. In this case, the token should generally be treated as a security unless use of the token (as opposed to resale) is reasonably certain.
  2. Full Functionality – Once the token achieves full functionality, offers and sales of tokens would generally not constitute investment contracts under Howey. Software networks, however, generally require ongoing updates and upgrades, so it may be appropriate to create limited but ongoing investor protections.

This regulatory approach to cryptocurrencies is both innovative and remarkably practical. It allows for cryptocurrencies to be defined as securities (and regulated by the SEC) when they’re being created and developed. Once the development phase is over, so is the “third party” work that adds value to the coin (that’s the Howey test at play). At that point, the cryptocurrency becomes a commodity and can be traded without SEC oversight.

This new “hybrid” asset class formalizes a conclusion the SEC has already reached about ethereum. Here’s what the SEC’s corporate finance division director, William Hinman, said about ethereum in a speech in San Francisco (emphasis mine):

And putting aside the fundraising that accompanied the creation of ether, based on my understanding of the present state of ether, the ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions. And, as with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value.

Reading between the lines, the SEC’s view of ethereum matches up pretty nicely with the proposed regulatory scheme. In the minds of the regulatory agency, when ethereum was in its development phase, its initial coin offering (ICO) constituted a sale of securities. The coins were an investment that investors hoped would rise in value based on the work/efforts of a third party. But once ethereum launched, its decentralized nature and usage made it a commodity.

If this seems like pretty technical stuff, well, it is. But it’s also critically important. The marketplace needs clarity and certainty in order to mature. It also needs a light regulatory touch. Anything less than that will stifle growth. And this path potentially walks that tightrope.

In many ways, Wednesday’s hearings mark a sea change in the government’s approach to cryptocurrencies. It was a significant effort to create a positive, constructive framework for cryptocurrencies.

At previous crypto hearings, much of the discussion (by politicians) centered on people using bitcoin for nefarious purposes like money laundering, dodging U.S. sanctions, smuggling drugs and whatever other shady activities people could think of.

And there was still some of that on Wednesday. Over at the House Financial Services Monetary Policy and Trade subcommittee hearing, Rep. Brad Sherman (D-Calif.) said:

There is nothing that can be done with cryptocurrency that cannot be done with sovereign currency that is meritorious and helpful to society. The role of the U.S. dollar in the international financial system is a critical component of U.S. power. It brought Iran to the negotiating table… We should prohibit U.S. persons from buying or mining cryptocurrencies… As a medium of exchange, cryptocurrency accomplishes nothing, except facilitating narcotics trafficking, terrorism and tax evasion.

Sherman wasn’t the only member of Congress who shared that sentiment. Fortunately, it’s both laughable and provably false. As Andreessen Horowitz Managing Partner Scott Kupor noted in the Agriculture Committee hearing, the digital trail created by bitcoin allows law enforcement officials to track down criminals – including Russian hackers.

Sherman (and others like him) is now the outlier in Congress. Even his fellow subcommittee members looked like they were just humoring him because he put on a good a show. Far more prevalent was the approach of Agricultural Committee Chairman Mike Conaway (R-Texas):

For the first time, we have a tool that enables individuals to reliably exchange value in the digital realm, without an intermediary. We can have assets that exist – and can be created, exchanged and consumed – in digital form. The promise of being able to secure property rights in a digital space may fundamentally change how people interact with one another. This technology holds the potential to bring enormous benefits to each of us, if we are willing to give it the space to grow. Providing a strong, clear legal and regulatory framework for digital assets is essential.

We’ve moved from the “bitcoin is bad” era to the bitcoin acceptance era. That’s a huge step forward. Let’s celebrate that before we think about the next step – getting Congress to pass crypto-friendly legislation.

Good investing,

Vin Narayanan

Senior Managing Editor, Early Investing

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