Whitney Tilson

Avoid 'DORK,' the latest burst of meme-stock foolishness; Public companies are buying crypto to ride the speculative wave; This market reminds me of 1999, not 2000; Small-cap stocks look like attractive bargains right now

1) There's a new acronym for the burst of speculative foolishness infecting corners of our markets: "DORK." It stands for the first letter in the ticker symbols of four beaten-down, garbage stocks that have been pumped in message boards for the past week: Krispy Kreme (DNUT), Opendoor Technologies (OPEN), Rocket (RKT), and Kohl's (KSS).

This Wall Street Journal (WSJ) article explains the recent meme-stock resurgence: The Latest Meme Craze Is Flashing a Warning to Wall Street. Excerpt:

Like GameStop and AMC four-and-a-half years ago, and Bed Bath & Beyond more recently, [the DORK companies are] shunned by Wall Streeters who can read balance sheets but bought aggressively by individuals who mostly read Reddit posts...

"Meme-ing only happens at extremes in sentiment," says social-confidence consultant Peter Atwater, who teaches economics at the College of William and Mary.

According to Goldman Sachs' research referenced in the article, speculative trading is at its highest level since the dot-com bubble and the post-COVID bounce. At the same time, investor fear is at a five-month low, as measured by the CBOE Volatility Index ("VIX").

2) Publicly traded companies are trying to get in on the action by buying cryptocurrencies, as this other WSJ article notes: The Hottest Business Strategy This Summer Is Buying Crypto. Excerpt:

Companies are raising tens of billions of dollars, not to invest in their businesses or hire employees, but to purchase bitcoin and more obscure cryptocurrencies. A Japanese hotel operator, a French semiconductor manufacturer, a Florida toy maker, a nail-salon chain, an electric-bike maker – they're all plowing cash into tokens, helping to send all kinds of digital currencies to record levels. News that a new company plans to buy crypto is enough to send its shares flying – spurring others to consider joining the frenzy.

Since June 1, 98 companies have announced plans to raise over $43 billion to buy bitcoin and other cryptocurrencies, according to Architect Partners, a crypto advisory firm. Nearly $86 billion has been raised for this purpose since the start of the year. That's more than double the amount of money raised in initial public offerings in the U.S. in 2025, according to Dealogic.

3) This third WSJ article attempts to analyze the implications of the surge in speculative fervor: Five Signs of a Market Bubble Investors Are Tracking. It's not all bad news, as the market's breadth is at healthy levels:

The number of stocks in the benchmark S&P 500 closing above their 50-day moving average is hovering at levels last seen in the fall, before the postelection "Trump bump" in share prices. Analysts typically consider that kind of improving breadth a sign of a sustainable bull market.

As the article notes, "the economy is holding firm," and the sharp slowdown in the labor market that economists worry about has yet to materialize. However, it concludes:

There are some signs of weakness: The annual inflation rate ticked up in June, as tariffs started to affect consumer prices. One basket of leading economic indicators recently pointed to slower growth in the second half of the year...

Private-sector job growth has fallen to the lowest level in eight months. Hiring has slowed to a trickle, and college graduates are struggling to land roles.

4) Lastly, according to Goldman Sachs' Speculative Trading Indicator, stocks have historically outperformed in the three-, six-, and 12-month periods following sharp increases in speculative trading.  But then they underperformed over the next two- and three-year periods. You can see the data in the chart below, shared by Business Insider

This makes sense to me. While there are pockets of foolishness in the market right now and valuations are rich, I don't think we're in bubble territory – especially in light of how resilient the U.S. economy has been.

For example, among the 10 largest U.S. companies, I'm only bearish on one of them: Tesla (TSLA). I think six are comfortable holds: Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Broadcom (AVGO), Berkshire Hathaway (BRK-B), and JPMorgan Chase (JPM). And three are buys, as I've discussed in many e-mails: Amazon (AMZN), Alphabet (GOOGL), and Meta Platforms (META).

(I analyzed Alphabet's and Tesla's earnings last Thursday. Microsoft, Apple, Amazon, and Meta report earnings this week.)

In summary, this market reminds me not of the Internet bubble peak in March 2000 (after which the Nasdaq crashed by nearly 80% over the subsequent two and a half years), but rather 1999 (a year in which the Nasdaq rose 85.6%).

5) That said, I never suggest speculating. Instead, I'm doing the same as the investors in this WSJ article – "eschewing megacap tech stocks for undervalued, and overlooked, potential gems": Investors Are Flocking to the Stock Market's Discount Rack. Excerpt:

Sky-high valuations on the market's tech heavyweights have left investors in search of less-expensive alternatives. What's more, the Trump administration's trade policies haven't affected all companies the same way, creating winners (and losers) for research-driven investors to discover.

Stocks in the benchmark S&P 500 index are moving less in lockstep now than at any point since February, when the market was still rallying on the results of the 2024 presidential election.

6) In particular, I think WSJ columnist Jason Zweig is correct that out-of-favor, small-cap stocks look attractive right now: The Stock Market Bargain That's Right Under Your Nose. Excerpt:

Money always chases performance, and big stocks have all the momentum – burnished by the artificial-intelligence boom. But what if AI turns out to be a bust, it fails to meet expectations or the biggest stocks end up stagnating? Then investors who didn't give up on smaller stocks will be rewarded...

The market value of the five biggest companies in the S&P 500 is nearly five times the combined market value of the Russell 2000 index, according to Steven DeSanctis, an equity strategist at Jefferies. In fact, Nvidia alone – at its recent market value of $4.22 trillion – is 65% more valuable than all the stocks in the Russell 2000 combined.

The 6.6% annualized total return on small stocks over the past 10 years trails large-company performance by 7.3 percentage points, says DeSanctis. (All figures include dividends.)

That's the widest gap going back to 1935.

As always, my team and I are scouring the market for undiscovered or unloved gems. When we find them, our subscribers at Stansberry's Investment Advisory will be the first to know. (You can learn how to become one by clicking here.)

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.

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