Nostalgic sentiment goes deeper than GameStop. Mattel stock is up 20% so far this year.
Tiffany Hagler-Geard/Bloomberg
I have spent the past two months trying to make sense of the GameStop mania. My colleagues—and other journalists—have done great reporting on the topic. Congress has devoted hours to hearings. And Wall Street analysts and strategists have filled pages of research notes. And yet I still can’t give you a rational explanation for the stock’s gyrations.
This past week, GameStop (ticker: GME) soared 9 % and is now back near its late-January highs. The latest rally seems to have been triggered by GameStop naming Ryan Cohen—a GameStop investor and director, and the founder of Chewy—to a board committee dedicated to the company’s transformation. But Cohen isn’t new to the GameStop story. He has been the core of the bull case for months.
His initial investments drove GameStop shares from $5 to $18. Joining the board took them from $18 to $325. Tweeting a picture of an ice-cream cone sparked a separate rally. I wish I were joking.
So, if you believe in an efficient market, there’s no reason that GameStop shares should have jumped on the latest board committee announcement. In fact, investors typically exit on that kind of news. After all, it’s “buy the rumor, sell the news.”
With GameStop, the news arrived and the stock just kept heading higher. It’s time to stop fighting the tape.
It has become trendy—and not unprofitable—to look for patterns in the GameStop trade. Highly shorted stocks, for instance, have had their time in the sun. And anything with lots of mentions on social-media site Reddit has been a good near-term trade. But at its core, the GameStop phenomenon feels like a rush of nostalgia.
It’s a vote for bricks and mortar over e-commerce, and physical (discs) over digital (downloads). The nostalgic sentiment goes deeper than GameStop and its fellow meme stock, AMC Entertainment Holdings (AMC).
The best-performing stock in the S&P 500 index in 2021 is ViacomCBS (VIAC). It’s up 155%. ViacomCBS is making a delayed move to streaming, but it was just 10% of revenue in 2020. This is still a broadcast and cable-TV company, with some extra film revenue.
Sticking with the old media theme, there’s also Gannett (GCI). The company long ago shed its broadcasting business and was supposed to be the place that newspapers went to die. Its shares are up 69% this year.
Still don’t believe me about the nostalgia? How about Deluxe (DLX), a financial-technology leader when it was founded a century ago to make checkbooks. The stock is up 42% in 2021.
The nostalgia movement even hit the initial-public-offering market this week. On Friday, Joann (JOAN), the fabric and craft seller founded in 1943, returned to the market for the first time in a decade.
Many of us are working through complex feelings about technology and the rapid pace of change. And now, investors have found opportunity in the ambivalence: Buying nostalgia could be the best way to hedge against expensive tech stocks and red-hot exchange-traded funds like ARK Innovation (ARKK).
In that spirit, I put together a Nostalgia Index, a basket of companies that should have been disrupted by technology but have managed to endure. In addition to ViacomCBS, Gannett, and Deluxe, it includes movie-theater chain Cinemark Holdings (CNK), toy maker Mattel (MAT), college campus bookseller Barnes & Noble Education (BNED), postage-meter maker Pitney Bowes (PBI), watchmaker Fossil Group (FOSL), tax-preparation chain H&R Block (HRB), and Weight Watchers’ parent, WW International (WW).
The Nostalgia Index
So far in 2021, investors have gravitated to stocks long viewed as old-fashioned.
Source: FactSet
The index is partially a reopening play, as people pull back on some of the tech that helped them through the pandemic and return to more-traditional ways of doing things.
So far this year, the group is up an average of 61%, led by ViacomCBS and a 91% rally for Barnes & Noble Education.
Craig-Hallum’s Alex Fuhrman is one of just two analysts who cover Barnes & Noble Education. He calls it his favorite reopening stock. The company operates 765 physical bookstores, largely on college campuses.
This past week, the company said on its earnings call that “every day, we are getting good news and good feedback from our universities about their plans—not just optimism, but their plans—for reopening in a much more normalized way for the fall semester.”
Fuhrman also covers WW, which he says is a “reopening play that nobody is talking about.” The company’s in-person weight-loss meetings disappeared during the pandemic, but membership is at record levels, Fuhrman notes, thanks to online subscriptions. “The brand is as relevant as it has ever been,” he says. As the economy reopens, “the news is only going to get better in terms of the physical meetings business.”
These nostalgia plays have rallied of late, but they’re all down from their historic peaks. Barnes & Noble Education traded for $15 shortly after its spinoff from Barnes & Noble in 2015. Today, the stock is $9.
Speaking of Barnes & Noble, I’ve wondered what its stock would be doing in our GameStop era. The companies have a shared history—both were built by Leonard Riggio—and a shared bricks-and-mortar legacy.
Elliott Management took Barnes & Noble private in 2019, at a moment of great pain for traditional retailers. The purchase price was $683 million, including debt. Retail traders on Reddit’s WallStreetBets would be having a field day with the company if it were still public. Using GameStop’s current multiple of 3.5 times trailing annual sales, Barnes & Noble would be worth $12 billion (based on the company’s last public financial data).
I asked Elliott whether it had any thoughts on the changing landscape for traditional retail, but the firm declined to comment.
Even so, the time might be ripe for a Barnes & Noble IPO. For the first time in years, traditional companies have a fighting chance against their disrupters.
Write to Alex Eule at [email protected]
