There are perhaps 5 major secular growth stories that are set to define the next 5-10 years in growth equity investing: EVs, Space commercialization, Edge computing, AI, and NFTs.
During recent market action, investors and money managers have been adjusting to the idea that interest rates are headed higher over the near and intermediate term. One consequence of that shift is a reduction in leverage involved in growth stocks relative to value stocks based on the increase in the relative value of current money. Ie, leverage is chasing current earnings in premium to future earnings.
But the important factor isn’t the absolute value of interest rates. It’s the rate of change of interest rates. In other words, as rates reach a new level and stabilize, which may already be happening, one can expect a shift back from value to growth, where long-term returns should be necessarily higher.
One of the most intriguing groups as this process takes hold, we believe, will be stocks with strong exposure to the non-fungible token (NFT) theme.
With that in mind, we take a look at a few of the most interesting names in the space, including Mudrick Capital Acquisition CorporatinII (NASDAQ:MUDS), Hollywall Entertainment Inc (OTCMKTS:HWAL), and Leaf Group Ltd (NYSE:LEAF).
Mudrick Capital Acquisition CorporatinII (NASDAQ:MUDS) is actually the Topps Company, Inc., a global leader in sports and entertainment collectibles and confections following an acquisition (still in process) through a SPAC deal announced earlier this year.
According to the company, Michael D. Eisner, former CEO of Disney, will remain Chairman of Topps, and his firm The Tornante Company, which purchased Topps in 2007, will roll 100% of its equity into new public company created through business combination with Mudrick Capital Acquisition Corporation II.
MUDS recently updated progress and added details to the picture, noting that the transaction includes a PIPE of $250 million at $10.15 per share led by Mudrick Capital and leading institutional investors including GAMCO Investors and Wells Capital Management.
As noted in its release, across its Sports & Entertainment and Confections businesses, Topps has built diversified product portfolios featuring leading global iconic brands. The release also noted that significant growth in its industry-leading e-commerce and digital (apps) platforms positions Topps to further expand with Blockchain/NFT (Non-Fungible Token) initiatives.
MUDS has been all over the map in its early trading, launching from the $10 level all the way up to nearly $19, and then back down to support at the 50-day MA around $12.50.
The SPAC deal that was made values the combined company at $1.3 billion, or 12.5x 2021 projected adjusted EBITDA.
Hollywall Entertainment Inc (OTCMKTS:HWAL) is a diversified player with active commercial interests in multiple fast-growing industries and ties to major themes including 5g infrastructure, internet-of-things, and proprietary high-value entertainment assets.
In a recent company communication, HWAL was described as a company with a portfolio of operating subsidiaries spanning various industries, including infrastructure development, 5G and telecommunications, broadcasting, education, media, and entertainment.
However, for our purposes today, the real topic is HWAL’s music rights portfolio, which was recently valued at nearly $150 million. This basket of legends includes the rights to manufacture and distribute over 17,500 master recordings performed by such legends as Ray Charles, Ella Fitzgerald, The Jackson 5, Frank Sinatra, Dolly Parton, Elvis Presley, Tony Bennett, The Bee Gees, Chicago, Platters, George Gershwin, Marvin Gaye, James Brown, Nat King Cole, John Lee Hooker, Willie Nelson, Rod Stewart, Hall and Oates, James Taylor, Etta James, Aretha Franklin and many other multiple platinum selling acts.
Hollywall Music Library has been preserved for over 20 years and contains some of the rarest and most coveted unpublished recordings from countless Legendary Music Recording Artists. The company is now taking this further and developing a one-of-a-kind, state of the art, digital distribution and verification system- designed to maximize customer delivery, quality control, and revenues for artists, writers, content developers, copyright owners and shareholders.
Hollywall Entertainment shares have pulled back to key support in the $2/share area, where the stock has found stable buying interest to give it support over the past two months. That forms a potentially important technical basing pattern that could be triggered by an upside breakout if momentum in the NFT theme re-emerges.
Leaf Group Ltd (NYSE:LEAF) trumpets itself as a diversified consumer internet company that builds enduring, creator-driven brands that reach passionate audiences in large and growing lifestyle categories, including fitness and wellness (Well+Good, Livestrong.com and MyPlate App), and home, art and design (Saatchi Art, Society6 and Hunker).
More to the point, LEAF is an ideal avenue to driving value through the NFT process if the company is able to execute on that idea over coming periods.
LEAF recently announced that its Well+Good, a leading wellness brand known for its journalistic approach and commitment to creating inclusive content accessible to all, announced it has been named a winner in the Digiday Content Marketing Awards in the “Best Activation Pivot” category for its “Wellness Daycation” program. The Digiday Content Marketing Awards recognize the companies and campaigns using content to modernize media and marketing.
“Although the journey looked different than originally planned, we’re happy we could work with our partners at American Express to still provide one day for people to focus on their own wellness without the stress of traveling during the pandemic,” said Jody Rones, Senior Vice President, Brand Partnerships at Leaf Group. “The team did an amazing job pivoting from an in-person event with a large footprint to a virtual experience that left attendees feeling refreshed and relaxed. We’re honored that Digiday recognized the valuable program that the team was able to offer, despite the challenges of the past year.”
Even in light of this news, LEAF hasn’t really done much of anything over the past week, with shares logging no net movement over that period.
Leaf Group generated sales of $65M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 2.7% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($67.2M against $50.6M).