With meme stocks, meme culture has finally hit Wall Street. What’s a meme stock? In short, a stock, popular with millennial-aged retail traders, that trades more on hype than its underlying fundamentals.
This hype could be generated on Reddit’s WallStreetBets forum. It could also come from social media platforms like Twitter (NYSE:TWTR), or StockTwits.
Meme stocks, sometimes playfully referred to as stonks, can be a self-fulfilling prophecy. Early movers buy in, and start touting them online. Others, buying out of FOMO, dive in, in order to avoid missing a “can’t-miss” opportunity. We saw this in action with GameStop (NYSE:GME). Those who got in first saw rapid gains. And, as its epic rise made headlines across the globe, those late to the party hopped along for the ride.
But, hopping on the bandwagon can be a risky move for retail investors. In an email to InvestorPlace, Chester Spatt, the Pamela R. and Kenneth B. Dunn professor of finance at Carnegie Mellon’s Tepper School of Business, responded to a question about investing in situations like GameStop. He said, “I would encourage retail investors not to play in these short squeezes because the risks are extremely high. Buy-hold investing in broad diversified portfolios produces the largest lifetime returns.“
It may be fun to dabble in meme stocks. But, don’t consider it a surefire path to investing profits. Keep this in mind before diving into these nine meme stocks:
- Churchill Capital IV (NYSE:CCIV)
- Express (NYSE:EXPR)
- Jaguar Health (NASDAQ:JAGX)
- Koss Corporation (NASDAQ:KOSS)
- Naked Brand (NASDAQ:NAKD)
- Nokia (NYSE:NOK)
- Palantir (NYSE:PLTR)
- Sundial Growers (NASDAQ:SNDL)
- Zomedica (NYSEAMERICAN:ZOM)
Meme Stocks: Churchill Capital IV (CCIV)
There are plenty of SPAC (special purpose acquisition company) stocks that could be considered meme stocks. But, CCIV stock is one that’s recently surged in popularity among retail investors.
Why? Because of this blank-check company’s possible acquisition of electric vehicle (EV) startup Lucid Motors. The luxury EV maker is seen by some as a name that could eventually give industry leader Tesla (NASDAQ:TSLA) a run for its money. However, while deal talk has sent this SPAC up more than three-fold from its offering price, this headline-making rumored deal is anything but set in stone.
With the company receiving heavy investment from Saudi sovereign wealth fund PIF (Public Investment Fund), it may delay going public. Something to keep in mind before buying CCIV stock at today’s prices (around $32 per share).
If the deal doesn’t happen in the next quarter or two, expect investors to get skittish. Shares in Churchill Capital could crater if what’s now expected doesn’t fully pan out. Keep it on your radar, but hold off rushing into it unless it falls back to more reasonable prices.
GameStop’s short-squeeze rally may have been epic. But, the performance of EXPR stock during last month’s madness was fairly impressive as well. At the start of 2021, investors had little confidence in this mall-based retailer, hit hard by the novel coronavirus pandemic.
But, thanks to its moderate short interest, and its status as a meme stock among Reddit traders, shares went on an epic roller coaster ride starting on Jan 22. Shares zoomed from around $1 per share to nearly $14 per share, before pulling back to today’s prices.
Now that the fun’s largely over for stonks like this one, is there opportunity here at $2.85 per share? I wouldn’t count on it. As InvestorPlace’s Ian Cooper wrote Feb. 3, analysts like Wedbush’s Jen Redding have pointed out there’s little to support its current inflated price. Continuing to burn through cash, and expecting lower-than-expected gross margins, chances are Express stock will continue to head back to $1 per share, as nothing material has changed about its prospects.
Overall, analysts aren’t expecting a rapid recovery in fiscal 2022 (year ending April 2022). Sales are projected to come in $1.66 billion, still below its pre-pandemic high-water mark. Losses of around 62 cents per share are expected as well. Given the fundamentals fail to match up with today’s valuation, EXPR stock is a prime example of a meme stock to avoid.
Jaguar Health (JAGX)
For the most part, Reddit traders are bidding up meme stocks, focusing little on fundamentals, prospects or valuation. But, in the case of Jaguar Health stock, they may be barking up the right tree. The biotech company owns the patent on crofelemer (marketed as Mytesi). This drug primarily treats chronic diarrhea in HIV/AIDS patients on antiretroviral therapy.
However, this treatment could also find a market among those suffering from long-haul Covid-19 (Covid-19 symptoms that last beyond a few weeks). With medical experts saying long-haul Covid could be a health crisis post-pandemic, Jaguar may have a massive opportunity here.
Speculators online took this possibility, and ran with it. Shares have zoomed from 40 cents per share to $3 per share since December. With the company still in its early stages, you can’t use its current fundamentals to justify its share price. But, it may only take moderately positive developments regarding its pandemic-related catalyst to send shares even higher from here.
Unlike some of the other names listed here, shares took off weeks before the short-squeeze saga, and have pulled back since. While other stonks may continue to pull back, many may jump back into this play, as Covid-19 continues to wreck havoc across the globe.
Koss Corporation (KOSS)
Before making headlines a few weeks back, Koss was an under-the-radar microcap stock. A small maker of headphones and related equipment, the family-controlled company had little to show besides consistently lackluster financial results.
But, thanks to its low share price, and major market (Nasdaq) listing, it became one of the many names Reddit traders took to the moon. Trading for around $3 per share in mid-January, shares topped $64 per share by month’s end.
As the short-lived irrational exuberance for meme stocks faded, KOSS stock sold off substantially. Yet, at around $17 per share, it’s still overpriced at today’s prices. With the company in a slow-and-steady decline, there’s no justification for the stock’s current price-to-earnings (P/E) ratio of 190.5x.
Based on recent insider selling, the Koss family agrees. Cashing out to the tune of $44 million, they’ve taken the money and ran. If you own it now, you should follow suit. Prices are only going to head lower from here. And, if you don’t own it yet? Avoid it at all costs. In the long term, the company is likely worth only a fraction of what it trades for today.
Meme Stocks: Naked Brand (NAKD)
It’s not been just meme stock madness that’s moved the needle for NAKD stock. Big changes at the company also excited investors about this struggling apparel retailer’s future.
As our own Matt McCall wrote Feb. 1, Naked Brand is getting out of the brick-and-mortar business, and becoming a purely an e-commerce company. But, while its good its jettisoning this unprofitable business unit, the current market capitalization of the company ($81 million) more than captures the potential value of its online retail unit.
Generating just $54.7 million in sales in the past year, Naked has a ways to go before it scales into a major player in this space. Its raised $50 million via a direct offering. But, with this equity raise came heavy dilution. This could minimize the amount of long-term gains (if any) investors eventually see.
NAKD stock has pulled back some from the trading frenzy it saw a few weeks back. But, still overvalued relative to its prospects, this remains more of a stock to gamble on than to invest in. And, for long-term success, going with the latter strategy is the best move.
“Also-ran” telecom equipment giant Nokia has been stuck in neutral for quite some time. The U.S. Government gave it an indirect boost in their attempts to control the rise of China’s Huawei. But, rivals like Ericsson (NASDAQ:ERIC) have scooped up much of this benefit, as they’ve left Nokia far behind when it comes to lucrative 5G contracts.
But, due to its name recognition, combined with its high short interest, NOK stock saw a big spike during the events of last month. Shares went from around $4 per share to prices topping $6.50 per share. Since then, shares are now back to prior price levels.
Following this pullback, does this stock have a shot of rebounding again? It’s debatable. The company reported an earnings beat when it released results on Feb. 4. But, CEO Pekka Lundmark remarked that the coming year would be another challenging one for Nokia.
Subsequent quarters could surprise, sending NOK stock back toward its recent highs. However, this remains a “wait-and-see” opportunity. Consider it a buy if shares continue to sell-off from here.
EV and other green wave plays have been the meme stocks that have gained the most from political changes. But, big data play PLTR stock has benefited from politics as well. Why? With its many ties with the Biden administration, many see the next four years as golden ones for the company.
This view isn’t entirely off the mark. Palantir wants to diversify further into the commercial sector. But, for now, its federal government book of business remains its bread-and-butter.
On the other hand, the Biden-bodes-well-for-Palantir thesis may be more than priced-into shares. Trading for 44.5x estimated 2021 sales, and 311.3x estimated 2021 earnings, even given its projected rate of growth this seems excessive. Trading divorced of its fundamentals, shares could tumble.
How could this happen? If the company falls short of growth projections, it’s meme stock status could take a hit. Those who jumped in at prices above $30 per share could panic sell, sending this back to near where it traded at the the time of its direct offering (around $10 per share). There may be more runway for PLTR stock from here, but keep in mind these concerns before buying.
Sundial Growers (SNDL)
Stronger pot stocks like Canopy Growth (NASDAQ:CGC) may be better ways to play the legalization trend. But, as the most well-known marijuana penny stock that trades on a major exchange, meme stock traders can’t get enough of SNDL stock.
Granted, while its overpriced at $1.30 per share, there may be some substance to its turnaround story. Replacing its debt with equity, this second-tier Canadian cannabis company has more breathing room as it shifts from the low-margin wholesale, to the high-margin retail pot business.
Also, shares could go parabolic once again if the U.S. Congress fast-tracks full-on legalization of marijuana on the federal level. Add in its potential as either an acquirer, or acquiree, and I concede its not just irrational euphoria that’s sent this penny stock from under $1 per share to today’s prices.
Yet, things could easily turn on a dime for Sundial Growers. If the next quarterly results show its turnaround is anything but in motion, those who bought it on the headlines (or forum posts) may quickly head for the exits. A potential reverse stock-split could minimize its volatility, making it less of a high-risk, high-return trading opportunity.
Meme Stocks: Zomedica (ZOM)
With its veterinary diagnostic product Truforma, early-stage biotech company Zomedica could finally have its day in the sun. The issue is that investors have already priced-in the upside from this and other products in the pipeline. And then some.
Up more than 30-fold from where it traded last fall, ZOM stock is way overvalued at today’s prices (around $2.50 per share). Since it’s still at the pre-revenue stage, it’s tough to use traditional valuation metrics on it.
However, given it’s years away from hitting significant sales numbers, the company’s market capitalization today (nearly $2 billion) makes little sense. But, as many retail investors, late to the party, could continue to jump into this stock out of FOMO, shares could continue to rally toward higher price levels.
ZOM stock could remain a highly profitable trading opportunity in the near term. Yet, with little but hype supporting it, shares could fall massively if (or when) the current narrative on the company changes course. As the easy money’s clearly been made here, the best move now is to steer clear.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.