Stock Market

With the at-the-market sale of 5 million shares of GameStop (NYSE:GME) stock on June 22, GameStop now has 76.8 million shares outstanding for a market capitalization of $14.8 billion. 

Photo of the Gamestop (GME) logo On a Mobile Phone.

Source: Shutterstock / mundissima

The last time I wrote about GameStop in late May, I continued to be amazed by GME stock’s resilience.

Since then, it’s lost 21% of its value and trades under $200, although it has regained some of its losses since mid-July. 

I continue to look to GameStop’s investor relations page for any information about its so-called transformation by e-commerce god, Ryan Cohen. But, unfortunately, all you’ll find is a July 6 press release about the company signing a lease for a 530,000 square foot distribution warehouse in Reno, Nevada. 

Before that, you’ve got the June announcement of its Q1 2021 results and the announcement of CEO Matt Furlong to its board.

So naturally, Furlong’s an Amazon (NASDAQ:AMZN) disciple. So, of course, you have to have these types to attract investors. 

Loop Capital Markets analyst Anthony Chukumba recently made an excellent point about GameStop’s obsession with hiring Amazon executives.

“The doctor’s prescription doesn’t match the disease,” Chukumba told Yahoo Finance’s Brian Sozzi. “Amazon is a great e-commerce retailer, there is no question about that. But GameStop’s primary problem is that more and more gamers are downloading video games.”

He went on to say that a better website isn’t a solution.

“It’s like going to the doctor and saying doctor, I have got stage four lung cancer and he gives you a prescription for erectile dysfunction,” he said. “It just doesn’t make a whole [lot] of sense.”

Like the analyst, I am absolutely not sold on Ryan Cohen’s vision of the future. 

In fact, any of these three equal-sized alternatives are better options over the long haul than GME.

GME Stock Alternatives

My first alternative to GameStop is RH (NYSE:RH), or Restoration Hardware as it’s commonly known. It currently has a market cap of $13.9 billion. 

The specialty retailer of luxury furniture and home furnishings has gotten off to a strong start in 2021. On May 7, it opened RH Dallas, a 70,000 square foot retail experience that includes a rooftop bar and restaurant, along with the finest in furniture and design.

As for Q1 2021, it finished the quarter with $860.8 million in sales and a pre-tax profit of $174.5 million for a 20.3% operating margin.

For all of 2021, RH expects sales to increase between 25% and 30%, higher than the company’s original guidance of 17.5% growth at the midpoint.

As for operating profits, it expects a margin of at least 23.5% in 2021. 

There’s a reason Warren Buffett owns $1.2 billion of its stock. 

Consider Smucker

If you’ve held JM Smucker (NYSE:SJM) for the past decade, you have not gotten rich. While the entire U.S. market generated an annualized total return of 14.7%, SJM could only muster 7.4%, or roughly half. 

The company has some terrific brands, including Folgers, Jif, Smuckers, Robin Hood, Meow Mix, and Milk-Bone. However, it’s had a difficult time convincing investors it’s got long-term growth potential.

In recent times, it’s been reducing its overhead costs while making Smucker’s a more consumer-centric business. That includes building a robust e-commerce business. In 2021, online sales accounted for 12% of its revenue.  

In its Q4 2021 conference call in early June, CEO Mark Smucker said that 55% of its brands are taking market share compared to just 26% 18 months ago. In addition, it’s now taken market share in six straight quarters. 

It continues to look for acquisitions in its three operating segments: Pet food, coffee, and snacks. 

In 2021, it generated $1.26 billion in free cash flow, $150 million above its latest projection. More importantly, it has an attractive FCF margin of 15.8%. By comparison, GameStop’s is 1.7%

Another Alternative

I find it hard to believe that a capital allocator as historically strong as Loews (NYSE:L) has a market cap that’s less than GameStop at $14.3 billion. 

At the moment, Loews only has a controlling stake in one public company. That would be CNA Financial (NYSE:CNA). It owns 89.5% of the property and casualty insurer. The company’s three other operating businesses are Boardwalk Pipelines (100% ownership), Loews Hotels (100%), and Altium Packaging (53%). 

In March, Loews sold 47% of the packaging company to GIC, Singapore’s sovereign wealth fund, for a pre-tax gain of $490 million. Bringing in the financial partner will help it scale Altium that much faster. It’s a no-brainer. 

In addition to those four businesses, it has $1.3 billion in net cash. Because it controls a significant portion of CNA’s stock, CNA trades at a discount to its property and casualty peers. 

A sum-of-the-parts valuation suggests L stock is worth more than $14.3 billion. It might not have Ryan Cohen leading the charge, but it remains an attractive investment for risk-averse investors. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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