2023 is off to an explosive start, as meme stocks are skyrocketing, and retail investors are all scrambling to try, and have a go at the action. The thrilling and volatile meme-fueled, retail-focused trading that defined the market in 2021 and 2022, is back with a vengeance.

Just take a quick look at this week’s stocks, and you’ll find that the usual suspects are causing a stir in the markets, along with some newcomers. It’s a high-stakes game, as investors risk it all for a chance at big gains in this thrilling market mania.

This is in stark contrast to our last week’s list of “Safe Dividend Stocks”!

I Think the First Thing We Should Talk About is “What is a Meme Stock?”

A meme stock is a stock that becomes popular among internet users, often as a result of social media and online forums. The popularity of the stock is driven by memes, viral videos, and other forms of online content that promote the stock, rather than by traditional financial analysis. Meme stocks may experience sudden and significant price fluctuations, and are considered highly speculative investments.

If the stock market can be compared to a steam engine, with its steady and consistent movement, then meme stocks, and cryptocurrencies for that matter, can be thought of as the relief valve that whistles when excitement and optimism are high. This is evident in the eye-popping price jumps that we are currently seeing.

Though this meme mania is not typically driven by macroeconomic factors, it’s worth noting that there are some real indicators that suggest optimism is back on the menu.

Economic data suggests that inflation is moderating, and the U.S. economy is slowing enough for the Federal Reserve to consider a downshift in its monetary policy. This is positive news, and the key catalyst, that is fueling the gains seen in the wider stock market to start the year.

However, more than anything else, it could also be that retail investors who stepped away from the stock market last year are now returning, eager to participate in the market again. 2022 was a difficult one for the stock market, in fact, it was the worst year since 2008.

And for this week, let’s have a bit of fun, and take a look at the meme stocks that are causing the internet to go bonkers, and making internet investors take crazy chances to potentially hit the jackpot.

This list is definitely not a recommendation to buy, but mostly just to understand what the craze is all about and let you decide for yourself. And so, let the memes begin!

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Bed Bath & Beyond Inc

The stock that is leading this year’s resurgence of meme stocks is Bed Bath & Beyond Inc. BBBY, which issued a statement near the start of the year, saying that “there is substantial doubt about the Company’s ability to continue as a going concern,” has seen its stock price rise by as much as 400%!

Who wouldn’t want to join in at the fun?

Although the share price for Bed Bath & Beyond has since calmed down after spiking, retail investors were behind this frenzy.

Despite the company’s gloomy prediction, speculation is rife on Reddit’s r/WallStreetBets group and other sites, that Bed Bath & Beyond will avoid bankruptcy.

And with short interest in the company hovering at around 50%, compared to an average of 5% in other companies, a somewhat concerted effort among these online groups caused a massive short squeeze, forcing short sellers to cover their bets, which led to the massive spike that just happened.

Despite the massive increase in its stock price, BBBY has maintained a negative outlook. The company announced plans to close an additional 62 stores, bringing the total number of closures to 120, when combined with those announced in September.

And in a recent earnings report, the company stated that its sales dropped by 33% in the fourth quarter of last year compared to the previous year, and it had only $153 million in cash at the end of the holiday season.

But hey, when did bad fundamental reports deter these internet ‘degens’, from pushing this stock back to the sky?

GameStop Corporation

If there ever was a ‘Meme-Stock Hall of Fame’, GameStop will surely be inducted on the first ballot!

In early 2021, the huge increase in the shares of GameStop, which rose by 1,600%, brought attention to meme stocks, and the role of retail investors, who were coordinating in forums such as Reddit’s WallStreetBets, in driving many of these rallies.

Historically, GameStop’s stock exhibited a negative beta, meaning that it had an inverse relationship with market movements. However, in recent times, GME has shifted and now has a positive beta of 2, indicating that GameStop shares are following the ups and downs of the S&P 500 with twice the intensity.

The latest moves in meme stocks are believed to be driven by signs of easing inflation, which some investors believe may lead the Federal Reserve to end its rate increases earlier than anticipated, the same reasons that are helping the broader markets perform better this year.

Additionally, there is a high demand for GameStop’s stock, and other meme stocks for that matter, among short sellers. On average, during 2022, around 22% of GameStop’s stock float was shorted. The cost to borrow GME is also relatively high, averaging around 18%, making it an expensive stock to borrow.

And according to some estimates, there is approximately $1.01 billion worth of GameStop shares tied up in short trades. When there is a significant amount of short sellers’ cash at stake, it increases the likelihood of a short squeeze, which is likely what occurred early this year.

And as we progress further into 2023, never bet against these meme stocks. Just as Gamestop has shown time and again, to never underestimate the retail investors, or the ‘degens’, as they like to be called.

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Honorable Mentions

Following a week of dizzying share price jolts for meme stocks led by BBBY and GME, many other stocks tried to gain their share of the spotlight. Stocks with crowded shorts can be subjected to explosive moves, up or down.

Silvergate Capital just experienced a significant fluctuation in its stock price, following its earnings report last January 17, and as of writing, retail investors are still fighting with the shorters.

Carvana, an auto retailer, is also being closely watched, as more traders short the stock due to its struggles in the current market. SmileDirectClub and Newegg Commerce both experienced large jumps in stock prices last week, possibly due to short squeezes.

Other stocks that are popular among short traders include Beyond Meat, Beauty Health, Vertex Energy, Allogene Therapeutics, Bed, Bath & Beyond, Upstart Holdings, Marathon Digital, and Weber.

These stocks can be short-squeezed at any moment, so watch out.

Be mindful to take note of price actions for these stocks in the coming weeks, because any observations you make, can be valuable tools in your trading arsenal, and in your investing journey.

Key Musings From This Year’s Meme-Stock Resurgence

As previously stated, the buy thesis for meme stocks is based on the potential for manipulation and short interest, rather than the company’s financial performance.

However, it is important to remember that a company’s financial performance ultimately determines the value of its stock in the long term.

Economist John Maynard Keynes famously said, “Markets can stay irrational longer than you can stay solvent.” This means that even if a stock’s value is not supported by its fundamentals, it can still be artificially inflated for a while.

Melvin Capital found this out when they shorted shares of GameStop, losing a huge amount of money with their short GME position, despite the market remaining irrational for a period of time.

Throughout history, there are instances of market frenzies that lack any real basis. Examples include the Tulip Mania of the 17th century, the dot-com bubble of the early 2000s, and more recently, the current meme-stock craze.

One must always remember, that those investors who maintain a clear strategy and proper risk management, tend to fare better. It’s important to avoid getting caught up in the hype, and instead focus on stocks with a solid foundation, and positive price performance.

And ultimately, if you want to make it in the stock market, you gotta have a plan and a helmet. Because let’s face it, the market is like a rollercoaster – sometimes you’re at the top, other times, you’re crying in the bathroom.

But don’t worry, as long as you avoid the hype and stick to stocks with a solid foundation and positive price performance, you can proudly say to your friends that you didn’t lose money, following some random stranger from the internet!

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