Market Health

Why Every Company Wants to Be a “Meme Stock”

You can hate “meme stocks” all you want.

We can argue until we’re blue in the face that they’re part of a great disconnect between fundamentals and finance.

And that they’re the beginning of the end.

But the truth is, every company wants to be a meme stock.

And every investor wants to have these stocks in their portfolio.

It’s the trend reshaping the markets and investor influence.

It Didn’t Start With a “BANG”

Before there was BlackBerry (NYSE: BB)…

Before there was AMC Entertainment Holdings (NYSE: AMC)…

And even before there was Nokia (NYSE: NOK) or GameStop (NYSE: GME), there were the “original” meme stocks (which I’ll get to in a moment).

Now, the above four make up the notorious “BANG” stocks.

They are the current foundation of the meme phenomenon and receive a majority of the press. It’s practically obligatory that every financial news program must check in on how AMC, GameStop and Bitcoin are doing.

And there’s no denying their performances. Year to date, the BANG stocks have obliterated the broader markets.

YTD Return of the BANG

The worst performer of these four is Nokia, up roughly 42% year to date. Keep in mind that the S&P 500 Index has gained a “mere” 12.4% this year.

Of course, the BANG stocks are only the beginning of the meme stock universe…

There’s also Bed Bath & Beyond (Nasdaq: BBBY), Koss Corp. (Nasdaq: KOSS), MicroVision (Nasdaq: MVIS) and Tilray (Nasdaq: TLRY) – as well as the cryptocurrency Dogecoin.

There’s no catchy acronym for these. (I’ll call them “the Others.”) But their performances are equally as strong as those of the BANG stocks.

YTD Return of The Others

The laggard is Bed Bath & Beyond, which is still up 70% so far in 2021.

And even the stock that got this entire trend started has delivered big. It also showed companies how they can use the vaunted “meme stock” label in their favor.

This Is When It All Changed

If it’s not too painful, think back to May 2020. One controversial company was dominating financial news: Hertz Global Holdings (OTC: HTZGQ).

The pandemic was a devastating blow to the car rental company. And on May 22, 2020, Hertz declared bankruptcy.

GIF

For some, it was a sad end for an icon. The company began with a dozen Ford Model T’s in 1918 and a seemingly silly idea of renting them. But it thrived.

Hertz survived the Great Depression, World War II and countless recessions. But it was no match for COVID-19. Its business imploded as quarantine measures around the globe went into effect.

Then, those “degenerates” in the Reddit group WallStreetBets spied an opportunity. They believed the company’s assets made it more valuable than its share price. And they triggered an influx into Hertz shares on Robinhood. Shares spiked from $0.41 on May 26 to a peak of $6.25 by June 8.

HTZ Shares May 26 to June 8, 2020

That’s a 1,424% gain… not over the course of years but over a mere 13 days.

Analysts and the financial media shook their heads at the madness. It was viewed as dangerously foolish.

But the seal was broken.

This not only opened the eyes of Reddit users to the glorious possibilities of quick riches but also showed Hertz executives that this was its salvation. And to that end, the company unveiled a $1 billion share sale plan to take advantage of the mania and help pay down its debts.

Here’s where the story gets even more interesting… The Reddit users were right!

Yes, Hertz shares did fall back from those lofty 2020 levels for a bit. But in May 2021, Hertz accepted a $6 billion bid to exit Chapter 11 protection, which will pay holders close to $8 per share!

It also set the stage for how meme stock mania can change a company’s fortune.

Cashing Out and Cashing In

From May 21, 2021, to June 2, 2021, AMC shares shot up 388% from $12.08 to $62.55. And shares briefly eclipsed $70.

The movie theater chain took advantage of this opportunity and announced it would complete an 11.55 million share at-the-market (ATM) equity offering the following open. It netted $587.4 million at an average price of $50.85 per share.

But here’s the deal… That was the second ATM offering in May. On May 13, AMC sold 43 million shares for $428 million.

And in total, the theater chain has raised $1.246 billion in the second quarter. Plus, it plans to ask shareholders for the authority to issue another 25 million shares.

Additionally, GameStop conducted a 3.5 million share ATM offering in April that netted the company $551 million.

And back in February 2021, the Koss family pocketed $31 million selling shares of the company – which had been valued at a mere $26 million before the Reddit-fueled surge.

These nine stocks and one cryptocurrency have made many investors rich. It doesn’t matter whether you think they’re worthless, hate them or will never invest in them.

No one cares if you think their valuations are insane (because they are) or that the investment thesis is flawed (it is).

“Meme stocks” are making everyone from Main Street to Wall Street to C-suites rich.

The trend will help fund growth long after the bubble has popped. And every company right now is hoping it’ll be next.

Here’s to high returns,

Matthew

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