What’s a “Meme Stock”? Ranking the Top Meme Stocks to Buy Today
The story of the market is suddenly meme stocks.
- AMC is up 2,322% year to date
- GameStop isn’t far behind, up 1,270%
- And a tiny electronics company named Koss is up 796%
What started with traders on Reddit’s WallStreetBets forum piling into GameStop in January has spread across the market.
Today, “memes” around stocks have driven popularity into a small group of companies seeing astonishing returns. The gains of meme stocks lead to more attention and dedicated communities across not only Reddit, but also sites like YouTube and Twitter.
In turn, this popularity has led to incredible volume… and resulting share price gains. On Wednesday the volume of AMC shares traded exceeded Tesla, Microsoft, and Apple combined.
The rising popularity of meme stocks has—to date—been a boon for retail investors.
According to research and analytics firm Vanda Research, stocks favored by retail investors have trounced the broader market by returning 68% since the start of the pandemic versus 36% for the S&P 500. Supporting research from Société Générale found even stronger news that the diamond hands at Robinhood know what they’re doing: per the investment bank, buying activity on Robinhood significantly picked up in mid-March, meaning these retail investors essentially nailed the bottom of the market drop.
It’s without dispute that memestock traders have had a tremendous run.
That said, you don’t make money looking backward: Meme stock traders have focused on a handful of stocks to make money going forward, but not every one of their picks is destined for long-term success. Below are the meme stocks to avoid and which ones to buy.
AMC Entertainment (NYSE: AMC) – Long-term investors should ignore this stock
Market Cap: $26 billion
Revenue: Decrease of 84%
Admittedly, I can’t look away from the AMC Entertainment stock frenzy… but I worry that I might be watching a train wreck in progress. Shares have exploded more than 2000% this year alone. That’s the kind of return that would have made you a millionaire with a $50,000 investment.
There has been some improvement in the theater’s fortunes. For one thing, the United States is rapidly moving past COVID-19 lockdowns. Although significantly down from 2019’s four-day haul, North American cinemas reported $100 million in ticket sales last weekend, the best performance since the pandemic lockdowns started.
The company has used this newfound stock appreciation to improve its balance sheet (more on this later). Earlier this year the company issued nearly 45 million in shares to take $600 million of convertible debt off its books. Last year the company was facing a significant threat of bankruptcy that now seems off the table in the short run.
Unfortunately, you can overdo a good thing. AMC Entertainment continues to issue shares, which feels like it’s taking advantage of the very investors that are propping up the stock price.
In just the last week it was reported the company placed $231 million in private stock issuance (8 million shares) to hedge fund Mudrick Capital, which sold off the entire position immediately, noting they viewed the shares as overvalued. AMC wasn’t finished, however, announcing it had sold another 11.5 million shares to raise another $590 million. I can’t help but feel AMC is taking advantage of the generosity of investors, but investing isn’t an altruistic endeavor. Hey, at least AMC investors get free popcorn!
In the short run, Mudrick lost out on a significant gain, but in the long run they’re likely right (AMC’s excessive share sales seem to indicate they concur with Mudrick’s assessment).
Theaters have a quintessential “powerful supplier” problem, meaning they are beholden to studios to provide content. The media landscape continues to contract, putting them at the behest of powerful studios that are looking for ways to monetize their content outside of traditional theaters.
In addition to WarnerMedia releasing its entire slate of 2021 movies simultaneously through their HBO Max app, Disney has been experimenting outside of the theater with Nomadland being released on its streaming Hulu service and the recent Cruella release being available on Disney+ for an additional fee.
The theater business is slowly improving, but it’s nowhere near being able to justify these valuation multiples. Investors in AMC Entertainment should treat this as rampant speculation and not fundamental investing. Caveat emptor on this stock!
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BlackBerry (NYSE: BB) – A turnaround stock with long-term catalysts
Market Cap: $9 billion
Revenue: Decrease of 25%
Retail stock investors are onto something with BlackBerry stock. Shares are up approximately 150% year-to-date but it has long-term catalysts that could push the stock much higher. Meme stock investors are looking to the future while many Wall Street analysts continue to look at the company’s past.
Yes, BlackBerry lost its smartphone leadership to Apple and Alphabet’s Android. That’s old news and has no bearing on the company’s path forward. CEO John Chen has repositioned the company to focus on enterprise cybersecurity and autonomous vehicles. Chen is the right man for this job, previously cementing his reputation as a turnaround specialist with Sybase.
For those unfamiliar with the story, Chen took the reins of the database management company in 1998 when analysts predicted it had only a 30% chance of survival. Chen restored profitability quickly and led the company to an acquisition 12 years later for more than six times the value it was when Chen initially took over (yes, this used to be considered a massive return).
Chen’s focus has been to leverage BlackBerry’s reputation for privacy into a broader suite of cybersecurity software and services rebranded Spark. This pivot is certainly better than relying on handset revenue, but faces significant competition from cybersecurity companies like Fortinet and CrowdStrike. Yet spending on cybersecurity continues to explode, which should enable Spark to grow revenue even without being a market leader.
More likely, meme stock traders have focused on Chen’s efforts in the automobile markets. This year, both Ford and General Motors warned the low supply of chips was threatening vehicle production numbers. While this might seem far-fetched, it makes sense when you consider cars are now computing devices on wheels with more driver assistance systems and mobile entertainment systems. Simply put, cars are now essentially mobile computers.
That’s where BlackBerry’s QNX operating system comes into play. QNX software is in nearly 200 million vehicles worldwide and should see a significant increase in usage and embedded use cases as self-driving technology moves more forcefully into the mainstream.
Chen is not resting on his laurels until that day and has been aggressive with locking in new partnerships, the highest profile being the deal with Amazon Web Services for its IVY automotive platform. BlackBerry isn’t out of the woods yet, but certainly has a strategy for long-term viability.
Palantir Technologies (NYSE: PLTR) – The best meme stock for long-term investors
Market Cap: $44 billion
Revenue growth: 49%
Palantir lacks many of the characteristics that define meme stocks. Unlike BlackBerry phones and AMC movie nights, Palantir isn’t a part of the culture of yesteryear that motivates many millennial traders.
Additionally, Palantir’s product is not highly desired like a brand new Tesla Model S or the newest edition of the iPhone. In fact, many retail investors have no idea what Palantir does and that’s just the way Palantir likes it.
At a high level, the secretive company provides data integration and predictive analytics software. Palantir’s software was initially designed for governments, with a focus on U.S. defense and intelligence agencies, before offering solutions for the private sector. In fact, it’s heavily reported (although unconfirmed by the U.S. government—shocker) that it was Palantir’s software that played a critical role in the capture of Osama bin Laden.
Palantir’s status as a meme stock has slipped in recent months on account of it not keeping up with the daily gains that stocks like BlackBerry, AMC, and GameStop have provided investors. In fact, Palantir stock is roughly flat on the year as meme stock traders focus on other opportunities. Despite that, ignoring Palantir is a rare error for meme stock traders because Palantir has the best potential over the next decade.
First, Palantir remains in growth mode. Unlike other meme stocks that find themselves in challenged industries or needing to execute turnaround plans, Palantir finds itself in a true growth industry. Despite concerns about government surveillance, this industry will continue to grow as threat detection grows.
At the same time, Palantir is increasingly finding itself without competition for its key Palantir Gotham product. Companies like Alphabet’s Google and Amazon are curtailing efforts to provide services to the defense and law enforcement industries due to negative perceptions from their employees. Reports that facial recognition software and other predictive analytics have improperly identified innocent people, many minorities, have led to less enthusiasm in those companies.
While the effectiveness of these methods is subject to robust debate, these companies are essentially conceding the entire market to Palantir. The longer Palantir can continue to operate unimpeded as the largest operator in this space, the more network and lock-in effects will lead to barriers to entry.
Palantir continues to have a long runway for growth. For one thing, sales cycles tend to be initially longer with government entities but are considered “sticky” with opportunities to increase revenue when renegotiating deals. This land-and-expand strategy becomes easier when you have a track record with the government.
Additionally, Palantir’s Foundry software is catching on among American businesses in a major way, with U.S. commercial revenue growing 72% year-on-year in the first quarter. Meme stock investors might be turned off by the fact that Palantir hasn’t “mooned” like AMC or BlackBerry, but it’s likely this stock will be the best-performing meme stock over the next decade.
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