Wall Street is yet to recover from the 2022 mayhem in spite of rallying from July. Year to date, all three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have dropped 6.7%, 9.8% and 16.1%, respectively.
Despite a marginal decline in July, various measures of inflation remained highly elevated. The Fed is set to continue its rigorous interest rate hike strategy from September. Yet a handful of stocks — widely known as meme stocks — skyrocketed recently.
The meme stock frenzy was a notable feature last year. A few meme stocks railed more than 200% in 2021 when the global economy, especially, the U.S. economy, was still to recover from pandemic-led restrictions fully. The craze for meme stocks was not visible in the first half of 2022. However, as U.S. stock markets showed initial signs of bottoming out, the meme stock mania regained momentum.
Meme Stocks Skyrocket
Meme stocks are those gaining massive popularity in a short period of time buoyed by a strong social media platform. This is a typical trading practice in which a few stocks heavily shorted by hedge fund giants were favored by a group of individual investors organized via Reddit’s wallstreetbets forum and similar other social media platforms.
Retail investors take a contra view on these stocks as their prices are at a trough due to heavy shorting. Lump sum buying of these cheap stocks by retail investors raises their share price to a great extent. As prices of these stocks start moving northward, institutional investors, especially hedge funds, start short covering in order to maintain the balance of their portfolios. Consequently, the prices of these stocks skyrocket.
Month to date, meme stocks like AMC Entertainment Holdings Inc. (AMC), GameStop Corp. (GME) and Bed Bath & Beyond Inc. (BBBY) have jumped 66.3%, 16.7% and 218.1%, respectively. AMC Entertainment carries a Zacks Rank #3 (Hold). You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Highly Risky Investment
Investment in meme stocks is highly risky. In fact, these companies do not have stable fundamentals. Most of these stocks have either a negative revenue growth estimate or a negative earnings growth estimate for 2022. Moreover, these stocks are likely to remain unprofitable this year.
These are some of the primary reasons why institutional investors have heavily shorted these stocks. However, taking a contra view of these basic financial features indicates speculation or gambling. The investment value of these stocks in the mid to long-term is practically zero.
Even as a short-term investor, you have to be very careful and may need to settle your position on a daily basis. That means one has to become an intraday trader to gain a good return from these stocks.
A Brief Discussion 5 Meme Stocks
Social media giant
Snap Inc. ( SNAP Quick Quote SNAP - Free Report) , the developer of the Snapchat platform, reported a highly disappointing second-quarter 2022 results. The current Zacks Consensus Estimate for 2022 earnings per share (EPS) growth is negative. Our current projection indicates that the company will incur losses in 2022. The stock carries a Zacks Rank #4 (Sell). Yet the stock price of SNAP has appreciated 23.9% month to date. Leisure tour cruse operator Carnival Corp. & plc ( CCL Quick Quote CCL - Free Report) failed to beat the Zacks Consensus Estimate for EPS and revenues for the seventh straight quarter. The company’s operations were affected by COVID-19 pandemic, inflationary pressures and higher fuel prices. Our current projection i suggests that the company will continue to incur losses in 2022. Further, the earnings estimate for 2022 has declined in the last 30 days, depicting analysts' concern over the stock’s growth potential. The stock carries a Zacks Rank #4. However, the stock price of CCL has advanced 18.3% month to date. Marathon Digital Holdings Inc. ( MARA Quick Quote MARA - Free Report) reported disappointing results for second-quarter 2022 wherein the top and bottom lines came in below the Zacks Consensus Estimate. Following the results, most of the analysts downgraded the stocks and the consensus EPS for 2022 is currently pegged at a loss of $2.06 per share compared with earnings of $0.03 just 7 days ago. The EPS for 2022 is currently estimated to plunge 221.2% year over year. Despite these negatives, the stock price of MARA has climbed 35.9% month to date. The stock carries a Zacks Rank #4. The struggling fitness product developer Peloton Interactive Inc. ( PTON Quick Quote PTON - Free Report) has decided to layoff nearly 800 jobs, raising prices for its Bike+ and Tread machines, and outsourcing functions such as equipment deliveries and customer service. Our current projection indicates that the company to remain a loss-making one in 2022. Further, the earnings estimate for 2022 has declined in the last 30 days, depicting analysts' concern over the stock’s growth potential. The stock carries a Zacks Rank #4. However, the stock price of PTON has jumped 42.6% month to date. Leading worldwide provider of business intelligence software MicroStrategy Inc. ( MSTR Quick Quote MSTR - Free Report) reported a loss of $1.062 billion in the second quarter mostly due to impairment charges of $917 million related to its Bitcoin holdings. Our current projection indicates that the company continue to incur losses in 2022. Further, the earnings estimate for 2022 has declined in the last 30 days, depicting analysts' concern over the stock’s growth potential. Despite headwinds, the stock price of MSTR has surged 22.1% month to date. The stock carries a Zacks Rank #4.
The chart below shows the price performance of five above-mentioned stocks month to date.
Image Source: Zacks Investment Research