Meme Actions Strike Back. Those forgotten stocks, which in 2020 and 2021 were catapulted by the interest of thousands of small retail investors, have once again registered strong increases in the last month. This has aroused the misgivings of some analysts, who consider it a symptom that the stock market is running too much, oblivious to the risk of recession.
If in the first stage of the meme actions its main symbol was the video game chain gamestopthis time the new star is Bed Bath & Beyond, an American company that has stores where furniture and household products are sold. During the month of August, its shares have appreciated by 360%, going from 5 to 23 dollars.
The stocks gained momentum this week when Gamestop chairman Ryan Cohen’s venture capital firm RC Ventures invested in Bed Bath & Beyond. This move swept in a legion of retailers, who are closely following in Cohen’s footsteps. Last Friday the shares rose 23%, on Monday they added 24%, on Tuesday 29%, on Wednesday more than 20%… the stock meme fever was back.
This name is due to internet memes, jokes that are shared by millions of users on social networks, and which also began to be shared by users of various forums specialized in the Stock Market, such as WallstreetsBets on the Reddit platform.
What do these types of companies have in common?
- Retailers. The concept of meme actions is very generic. It encompasses from giants like Tesla to almost forgotten companies like Nokia. One of the common points is that they have armies of small retail investors who defend a specific stock tooth and nail, and who are not afraid to stand up to the big bear funds on Wall Street.
- Controversy. In almost all cases, these are companies whose future profit forecasts are highly debatable. For some (the bears), the share price does not justify earnings that will end up being less than what the market expects. For insiders, these are companies that can do much better than the big funds expect.
- shorts. Because of the way they invest, bearish managers can lose much more money than they have put in to bet against a stock. Foreros know that if a security’s price spikes, they will inflict severe losses on bears. And they take advantage of that weakness.
Such an exacerbated movement in a small value causes brilliant winners and resounding losers. Among the first, highlights college student Jake Freeman, 20. This young mathematician has made $110 million by investing in Bed Bath & Beyond stock. It must also be said that he was not just any student. Freeman invested $25 million in the firm, with money raised from friends and family. The young man has been betting on the stock market for years with his uncle, a former director of a large pharmaceutical company.
On the opposite side, Those who have suffered the most from the sharp rise in Bed Bath & Beyond are the investment firms that held short bets on the company. These types of investors use financial instruments to be able to make money when a stock falls. The bathroom furniture chain was one of those that accumulated the most money from short bets. Its incredible revaluation has generated losses worth 2,100 million dollars (about 2,070 million euros) for these bearish managers. The script is exactly the same as the one lived with Gamestop a year and a half ago.
On that occasion, in addition to Gamestop, investors on internet forums also bet and revived stocks such as the AMC cinema chain or the mobile manufacturer Blackberry. Bearish investors have not only been baited by Bed Bath & Beyond. They also have 18% of AMC and 23% of Gamestop, and they are already suffering from the increases.
After a few months of euphoria, the change in the sign of monetary policy, with rate hikes to contain inflation, has hit the stock markets very hard. Most of the meme actions went very badly. However, and in parallel to the rebound of the main indices, in the last month there have been several values in this profile that have registered strong increases. AMC soars more than 30%, Tesla more than 25%, Blackberry 16% and Nokia 11%.
One of the latest companies to become a meme is the Hong Kong financial AMTD Digital. In the first days of August its price multiplied by 30. The movement was so extreme and its capitalization so small that even the most experienced bear investors are afraid to enter the value.
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