The market is hot right now for meme stocks. Over the last 12 months, we have seen the rise of innumerable novel investment strategies. Whether it is the rise of SPACs, special-purpose acquisition companies, or electric vehicle stocks, it has been unprecedented for the markets. But none of the new investment themes is as astounding as tracking r/WallStreetBets for the latest meme stocks.
It is because meme stock investing is traditional finance turned on its head. For example, the short-interest percent float is now a key factor in investment decisions. For any security that has floated, there will be a certain percentage shorted by short-sellers. This can affect prices by driving up volatility when markets are shaky and causing panic selling as traders buy back their positions at higher losses than they originally incurred.
Usually, a high short ratio was an indicator to stay away. However, now investors are actively hunting for companies that are heavily shorted. Early risk-taking through adopting this approach is leading to massive gains. These stocks are usually from younger investors on popular forums such as Reddit. They go viral and have been featured in many news articles for their large returns over short periods.
As a result, the market price of any given security will not always align with its fundamentals. Nevertheless, this list includes seven names that have exciting business models and happen to be meme stocks. Some might be more familiar to you than others. But all of them have managed to capture the attention of the Reddit crowd.
- BlackBerry (NYSE:BB)
- Tesla (NASDAQ:TSLA)
- Facebook (NASDAQ:FB)
- Progenity (NASDAQ:PROG)
- AMC Entertainment (NYSE:AMC)
- TAL Education (NYSE:TAL)
- DiDi Global (NYSE:DIDI)
Now, let’s dive in and take a closer look at each one.
Meme Stocks: BlackBerry (BB)
BlackBerry is one of the world’s leading cybersecurity companies with solutions for more than 500 million endpoints around the globe. With AI and machine learning, they can deliver innovative products that keep you safe in today’s ever-changing landscape of security threats. That might strike some investors as odd. BlackBerry was once primarily known for its innovative line of phones.
Although it can be hard to believe, BlackBerry was the Apple (NASDAQ:AAPL) of its day. However, the company could not compete, so its cell phone business suffered massive hits. It’s a great example that if you are unwilling to try to improve, push boundaries, especially within this technology market — even when things don’t go as planned or expected, it will ultimately lead to your downfall.
But rather than dwell on the past, BlackBerry charted a new path for itself. John Chen, who took over as CEO from Thorsten Heins back in 2013, changed the focus from corporate mobile communications to security services and software. The move paid immediate dividends. After being in the red for several years, BlackBerry became cash-flow positive again. Since then, it has aggressively expanded in the cybersecurity niche and is doing very well for itself.
The story is very similar to Nokia (NYSE:NOK), another erstwhile cellphone giant, who reinvented itself to become a leading 5G play. Both of these companies are incidentally well-liked by the Reddit crowd.
Tesla (TSLA)
Lately, a lot has been written about Tesla, from its new self-driving features and electric cars, to Elon Musk’s involvement with Space X. But what does this all mean?
Is it time to invest or sell investments before the turmoil further devalues our portfolio towards uncertainty? And is Tesla any different in a sea of meme stocks? The answer lies somewhere between yes and no because there are risks involved, just like every other investment opportunity out there on Wall Street.
Admittedly, TSLA stock has rewarded investors handsomely. Shares have a five-year return of 2019%. Due to this kind of performance, investors keep faith in this one and do not want to part with their position. But not a day goes by when an article doesn’t come out touching upon Tesla and overvaluation. Simply put, several major analysts argue there is no way Tesla’s fundamentals and valuation align. And they have a point.
At this point, shares of the EV giant are trading at a forward price-earnings ratio (P/E) of 115. But the thing is, Tesla is not slowing down. Last year, Tesla delivered 499,550 vehicles, a 36% year-over-year (YOY) jump and just short of its target of roughly 500,000 vehicles. That said, it has already handsomely beat that number this year.
Plus, it is heavily investing in areas like autonomous driving, which will completely revolutionize our world. In turn, all of this combines to make a very strong stock in TSLA.
Meme Stocks: Facebook (FB)
Facebook is one of the most popular social media sites on earth. With more than 2 billion active users per month, it’s no wonder that Facebook has grown into an incredible platform for spreading information and connecting with friends from all over the globe. However, all of this success has not occurred without controversy.
It wasn’t that long ago when Facebook found itself in the eye of the storm after news broke that Cambridge Analytica acquired data from 50 million users without their consent. It is estimated that this incident occurred between 2015 and 2018, which means many people may have had personal details compromised or leaked, including home addresses — not just information about what you post on social media sites, but things like where your relatives live.
Ever since then, Facebook has had to walk a tightrope. However, despite the controversies, Facebook has managed to do very well financially in the last five years, with EPS growing by 39.1% and revenue by 33.5%.
But surprisingly, shares are down 13.8% in the last month. You can chalk that down to two key events.
Facebook, Instagram, and WhatsApp faced an outage earlier this month. It was rare, but highlighted Facebook’s omnipresence in this space. The issue was due to “configuration changes on backbone router,” which caused interruptions in the connection between data centers. It was a double whammy for the social media giant since the incident came just a few days after a data scientist whistleblower, Frances Haugen, has brought forward many important revelations about how Facebook uses your personal information for profit and gain.
Nevertheless, considering the size and scale of the enterprise, it is only a matter of time before FB stock makes a comeback.
Progenity (PROG)
Progenity is a California-based biotechnology company that has been developing and commercializing molecular testing products since 2003. Proteins or molecules made up of our bodies cells, are being looked at to see how they can affect diseases like Alzheimer’s disease.
The team uses genomics (which studies individual genes), epigenetics (which looks at gene expression), and proteomics(the study analyzing organisms from tissue composition right down the levels of their metabolites) as a part of its manufacturing process. The company’s innovative suite of molecular testing products and investigational ingestible devices is designed to provide precise diagnostics and sampling solutions for doctors.
Progenity wants to make healthcare more accurate and personal. Their vision of the company aims for a world where patients are diagnosed with localized diseases that can be treated effectively through targeted therapies from start to finish within our body’s system instead of being labeled “incurable” before treatment even begins. Since the company operates in an innovative niche, it is important to be patient with this one.
It isn’t surprising to find PROG in a list of meme stocks. After all, the Reddit crowd highly values biotech plays with a novel focus. But it does not have the trademark attributes of meme stocks. So, you can treat it as a growth play.
Meme Stocks: AMC Entertainment (AMC)
AMC Entertainment has been around since 1968. Although the company is an iconic name in the U.S., it has struggled recently because of the rise of streaming services. Entertainment companies are pivoting towards the space rapidly, and revenues are also flowing in the same direction. But no one could have predicted the destruction movie theatre chains would face due to the pandemic.
Nonetheless, Reddit came to the rescue and the rest, as we say, is financial history. Shares skyrocketed and the movie theater giant shored up its balance sheet through massive equity issuances. However, we also see certain other positive catalysts that bode well if you are an AMC stock bull.
The latest quarterly results for AMC were excellent and signal a return to greener pastures. For the second quarter, AMC reported a net loss of $344 million (a loss of 71 cents per share) from its previous year’s losses of $561.2 million. Meanwhile, revenue came in at $444.7 million, which exceeded analysts’ expectations and sent its share prices up as well.
Additionally, AMC’s CEO Adam Aron is optimistic about the company’s future. He says that if box office revenue reaches at least $5.2 billion in America, then AMC could post positive cash flow by the fourth quarter.
On that note, this month we saw the new Marvel Venom movie, and Daniel Craig’s return as James Bond result in the record-breaking box office. Attendance at cinemas around America was higher than ever, with AMC reporting record revenues for foodservice and beverages alone. Marvel’s Shang-Chi and the Legend of the Ten Rings already signaled that the worst could be behind us. But the latest releases confirm that we are well and truly on the way to recovery. Meme stocks will come and go. But this is a be-all and end-all enterprise in the space.
TAL Education (TAL)
Chinese stocks have been a hot commodity for years. The consensus is that they will continue going up as long as the economy remains strong and no major disruptions occur in customs practices between China and other countries around the Asia Pacific region where most of these investments stem from (like Vietnam). With an average yield rate over 10% already established among those who own them – some people believe investing now could be even more profitable than before.
However, some might be skeptical because of the China-U.S. trade war. Every week we get a new headline about this ongoing trade conflict. But you have to judge every stock on its merits. That is why by every measure, TAL Education is an outstanding company to have in your portfolio. As the Chinese middle class continues to grow at an exponential pace, demand for high-quality education will increase. TAL Education was created to meet the need of providing quality programs at affordable rates.
For the fiscal year ended February 28, 2021, the company reported net revenues of $4,495.8 million. It is a 37.3% YOY jump from the year-ago figure of $3,273.3 million in 2020. The non-GAAP loss was $233.3 million, compared to the non-GAAP income of $255.4 million in the comparable period last year. The reason for that is down to in-person tutoring suffering because of the pandemic. On the bright side, the online business did well. Looking ahead, the company expects total net revenues within a range of $1,302.2 million to $1,320.5 million for the first quarter of the fiscal year 2022, representing an increase of 43% to 45% YOY.
Meme Stocks: DiDi Global (DIDI)
Didi provides app-based transportation services such as taxis, private car-hailing, social ridesharing, or bike-sharing on-demand delivery services. The company is often referred to as China’s version of Uber (NYSE:UBER). It is the leading player in the Chinese ride-hailing industry, with roughly 62.8 million monthly active users as of May 2021. In 2020, Didi Chuxing managed aggregate revenues of roughly 142 billion yuan globally, the bulk of it coming from China.
Until a few months ago, it looked like nothing could go wrong with DiDi. But unfortunately, things went wrong when the company went public since its initial public offering in New York. China is known to have substantial oversight on the overseas operations of its local enterprises. The Chinese government directed app stores to exclude 25 of Didi’s other apps, including registering new drivers. However, it is unknown how this will affect their business in China as they are currently banned from signing up new customers. At the same time, regulators carry out a data security investigation that has not been completed yet.
Naturally, investors should watch this space. However, as we saw with the Alibaba episode earlier, there is every chance the company and the authorities will come to a settlement. Therefore, the advantage of getting in at the current price multiples is that you are getting this stock very cheap.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.