Meme stocks were popularized when a flurry of retail investors eschewed traditional fundamentals to invest in a company that had the potential to “stick it” to the hedge funds. It started on Reddit’s WallStreetBets subreddit, a 10-million-strong community of self-proclaimed apes who banded together to take down the hedge funds.
The trend ignited a trading frenzy. Organized groups of retail traders collectively could act like a hedge fund by moving share prices and squeezing the legacy firms on their shorted positions. It’s a tactic reportedly used by wealthy portfolio managers to combat each other at the expense of the general public.
It’s easy to dismiss these stocks are flashes in the pan but are any of these meme stocks worth investing in?
Besides simple day trading, some of these companies are showing promise, especially since they have been revived by the retail traders. Although once seen as dead investments, the meme stock revolution is breathing new life into companies that would’ve been otherwise ignored.
1. AMC Entertainment
For the past 20 years, analysts predicted the internet would destroy brick-and-mortar retailers like AMC and GameStop Corp (NYSE:GME). As their fundamentals deteriorated, hedge funds shorted them ever more aggressively.
But going to the movies is a cultural experience that Apes in the subreddit community weren’t keen to let disappear to oblivion without a fight.
AMC and other theaters faced extinction as production studios like Walt Disney Co (NYSE:DIS) and Warner Bros released major blockbusters like Mulan and Space Jam: A New Legacy on streaming services.
The success of theatrical-exclusive movies like Free Guy and Shang-Chi led studios to realize the value of theatrical releases. Now Disney and others are back to the theaters, and that’s breathing new life into theater chains. It’s an experiential destination that we still embrace as a society.
AMC was the first meme stock to fully embrace its retail trader investment base. The company added a stockholders section to its investor relations site that caters specifically to its retail base while up-selling its membership program AMC Stubs.
Not only is the movie theater not headed for the graveyard where Blockbuster Video and Hollywood Video are buried, but it’s reinventing the investment model. By marketing to consumer moviegoers as investors, AMC forged strong partnerships that blur the lines between crowdfunding and traditional investing.
This is a real-life Cinderella story that has already proven to be stronger than analysts initially thought.
2. Meme ETFs
While Cathie Wood and ARK Invest get all the media attention for her themed ETF picks, Roundhill Investments has some of the most interesting sector ETFs on the market. From esports and sports betting to streaming services to the metaverse, it’s focused on a different future than Wood.
Its latest innovation is the MEME ETF, which will track the performance of the Solactive Roundhill Meme Stock Index. This hopes to give investors a way to invest in whatever the online forums like Reddit and Discord are focused on, like GameStop and AMC.
And it’s not the only one – The VanEck Vectors Social Sentiment ETF (BUZZ) and FOMO ETF from Tuttle Capital Management both have similar goals. Of course, they’re going after the most talked-about investments on social media, so it won’t be limited to just the “YOLO bets” made on these forums.
Major enterprises like Alphabet (GOOG) and Facebook (FB) are also heavily discussed, so they can end up in the portfolio too. That likely makes these indices safer than investing directly in just the handful of meme stocks that are red hot in the forums.
Of course, they still underperformed the S&P 500 to date.
3. Virgin Galactic
Virgin Galactic Holdings Inc (NYSE:SPCE) has had a wild ride over its lifetime. Founded by famed billionaire Richard Branson, the company is in a tight race to prove and popularize the concept of commercial space flights for civilians.
While neither Elon Musk’s SpaceX nor Jeff Bezos’s Blue Origin are investable, Virgin Galactic is gaining steam among online communities who believe the future of humanity lies beyond orbit.
Since going public in late October 2019, the SPCE share price varied widely from $15 to $60 at any given moment. That volatility is perfect for day traders, so if you’re willing to overlook it and hold for the long run, there’s potentially plenty of upside.
It may be slow to rocket to the moon, but one ticket aboard the company’s rocket costs $450,000. The company has over $550 million in cash and equivalents, mostly from a July ATM stock offering that raised $500 million in gross proceeds.
Still, it’s operating at a net loss of nearly $100 per quarter, so its runway to launch is narrowing. Investors should keep this in mind before buying into the hype.
By the end of February, CEO Vlad Tenev was testifying in front of Congress (and the rest of the world was watching online) over the battle between hedge funds and retail traders.
All the regulatory and public heat delayed the company’s IPO, but it finally went public by the summer. Because it’s one of the most popular apps used by retail investors, the nearly $40 billion company itself has a lot of buzz around it.
Some retail traders feel burned by the way Robinhood reacted to the trading frenzy and migrated to competitors like M1 Capital, Public, and Webull.
Still, with over 20 million monthly active users and $102 billion in assets under custody, Robinhood is a serious player in the modern fintech industry.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.