Is the Meme Stock Craze Making a Comeback?
The meme-stock mania seems to be regaining ground. Pandemic darlings such as Bed, Bath & Beyond, GameStop and AMC all soared on Aug. 8 following increased chatter on some social media threads.
Shares of Bed, Bath & Beyond closed up 40%, shares of GameStop closed up 9% and shares of AMC closed up 8% on Aug. 8.
Bed, Bath & Beyond was the most mentioned stock on Reddit’s WallStreetBets board on Aug. 8, according to Quiver Quantitative, and it was still at the first spot on the morning of Aug. 9.
One WallStreetBets user, TheDude0007, who is “the guy who 10X’d a $45K YOLO in BBBY,” explains his analysis on why he believes “this run is just beginning” — something he calls the “Ryan Cohen Effect.”
“My inbox has been going absolutely insane, with people asking what my decision making process was and taking such a large position in a seemingly dying equity,” he wrote. He essentially explains that he has been closely following Cohen’s moves.
In March, GameStop chair and Chewy co-founder Cohen revealed his company, RC Ventures, held a 9.8% share of Bed Bath & Beyond. Cohen penned a letter to Bed Bath & Beyond’s board at that time, advising several necessary and significant operational changes — including a potential full sale of the company.
“I am, and have been HEAVILY invested in Ryan Cohen. As an investor, I do not invest in companies with the conviction in which I invest in people. This theory of mine started with Steve Jobs / AAPL , back when I was 18 and the first iPhone came out, continued with Elon Musk in Tesla before they even had the first consumer vehicle on the road, and now Ryan Cohen, as he is tactically fighting to dismantle the forces of Wall Street that blatantly f** the little guy,” TheDude0007 wrote in the thread.
Peter Cohan, an associate professor of management practice at Babson College and author of “Goliath Strikes Back,” told GOBankingRates that the return of meme stock trading “tells me that we have turned the corner — investors are now looking for an excuse to buy.”
“This means that heavily shorted stocks — like BBBY and AMC — are attractive to the WSB crowd. By borrowing money to buy shares, they can drive up the prices. To limit losses, short sellers will close out their positions — buying to repay the stock they borrowed when they initiated their short positions. Such short squeezes drive up the price, ignite fear of missing out and draw in more individual traders hoping not to miss out on the fun,” he said.
Cohan added, however, that the bad news is that over the long run, there is little reason for optimism about the prospects for these companies.
“For example, BBBY has huge problems — a weak cash position, shrinking sales, poor merchandising and antiquated systems. There is nothing that has happened to make its shares worth 40% more than they were last week. One more bad headline about BBBY could send its shares plunging back down — closer to their true value — which is around $2 according to a Bank of America analyst,” he said.
Other experts, including Hayden Hughes, CEO of crypto social trading platform Alpha Impact, are warning retail investors, noting the meteoric rise and fall of AMTD over the past week, which led many retail investors to “get FOMO” and look to get back in the market.
AMTD soared 3,000% over the past week, according to CNN, which said it became “the latest obsession of traders on the popular Reddit forum WallStreetBets, helping its stock shoot up 21,000% since its IPO less than a month ago.” The stock is down 72% in the past five days, however.
“These stocks tend to outperform the market on the way up but cut the same direction on the downside,” Hughes said. “To the extent that the broader market continues to move up, meme stocks may benefit, but investors should take caution given that these stocks tend to underperform on the way down, too.”
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