Social media can be a beautiful thing, providing a platform for everyday individuals to express their opinions on a range of subjects. At the same time, a more dubious element to online communities exists. One phenomenon that has caused serious divisions among those on Wall Street is the rise of meme stocks.
Driven by platforms such as Reddit, the movement gained mainstream attention — many would call it notoriety — through its short-squeeze tactics. Essentially, the original meme stocks represent the ultimate contrarian trade, betting on companies that market professionals are betting against. With enough coordinated pressure, it’s possible for bearishly targeted securities to rise (often dramatically) in value, forcing short traders to cover their positions.
Of course, the very act of covering creates upward momentum in the underlying equity unit, which facilitates massive profitability for the bulls and devastating losses for the bears. Initially, the ethos behind meme stocks aligned with an understandable and empathetic objective: getting payback from the hedge fund managers that nearly imploded the global economy in 2008, causing untold pain on Main Street without repercussions.
But later, meme stocks took on an Animal Farm twist — yes, George Orwell did write other books besides Nineteen Eighty-Four. When meme traders piled into private prisons simply on the basis that they featured high short interest, it certainly appeared that the moral directive transitioned into capitalistic rationality, the very ethos that drives hedge funds.
So yes, there’s plenty about meme stocks that either don’t make sense or sound downright contradictory. However, we shouldn’t throw the baby out with the bathwater. Some meme stocks might perform well over the long run because they’re tied to viable businesses. That social media loves them is an added bonus.
Here’s my choices for seven meme stocks to pay attention to:
- General Motors (NYSE:GM)
- Amazon (NASDAQ:AMZN)
- Sandstorm Gold (NYSE:SAND)
- Robinhood (NASDAQ:HOOD)
- Taiwan Semiconductor (NYSE:TSM)
- Quad (NYSE:QUAD)
- Forward Industries (NASDAQ:FORD)
For full transparency, I selected my ideas from the list of meme stocks which, appropriately enough, memestocks.org provides on its website. Keep in mind that while I believe these businesses would have strong upside potential irrespective of the meme-trade phenomenon, the unprecedented nature of this movement could impose unforeseen volatility risks.
Meme Stocks to Watch: General Motors (GM)
To be completely blunt, I didn’t expect too many meme traders to be interested in General Motors. Unlike some other high-profile meme stocks, I didn’t come across any stories of hedge funds ganging up on GM stock. As of the latest read (Aug. 13), the iconic American automaker features a short percentage of float of only 1.6%.
I look at it this way — GM stock is so boring that no one would even think about shorting it. So, why the interest in shares among the social media crowd?
I think it’s safe to say that the automaker’s leadership team really lit a fire under the seats of everyone throughout the organization. A prime example is the development of the eighth-generation Corvette, which caused the entire automotive community to stand up and take notice. If it weren’t for the devastating impact of Covid-19, Chevrolet dealers would be churning out $60,000 mid-engine supercars.
More importantly, GM signaled its commitment to the electrification of transportation. With the upcoming all-electric Hummer SUV, GM will allow their customers to have their eco-friendly cake and eat it too.
A longtime favorite among investors — whether you follow meme stocks or traditional equity picks — Amazon proves that in some cases, we’re not all that different. Sure, I don’t think AMZN stock is going to light up the leaderboard in terms of outright performance anytime soon. However, with so many relevant business units underneath its tentacles, Amazon is basically too big to fail.
A perfect example of Amazon’s dominant posture is how the company has performed during the ongoing pandemic. Since the fall of 2018 till just before the global health crisis, AMZN stock posted disappointing returns. Following a brief dip into the doldrums of March 2020, however, shares have pinged new record highs. Regular economic dynamics couldn’t get AMZN out of its funk. Instead, it took a global catastrophe for Amazon to realize its true potential.
Moving forward, there’s a case to be made that shares could undergo a correction. With so many people ready to reclaim their lives, online shopping could take a hit. Then again, habits can form between 18 days to 254 days, which neatly fits into how long we’ve endured the new normal. Given this cynical backdrop, AMZN is one of the meme stocks to consider.
Meme Stocks to Watch: Sandstorm Gold (SAND)
As I’ve stated in many articles for InvestorPlace, I think there’s a place for a modest amount of precious metals in your portfolio. While I don’t want to get into a fatalistic discussion, the financial engineering that global central banks engage in can’t be great for long-term stability. Thus, if the fearmongers are correct, you’ll want to have some exposure to hard assets.
And that mentality also extends to precious metal miners like Sandstorm Gold, one of the most popular meme stocks of its category. In my view, I believe metals-based assets make sense based on the fear trade, that the underpinnings of the economy are not nearly as robust as advertised. Understandably, though, inflation fears have inspired meme traders to buy into SAND stock.
Except there’s one problem with this particular trade — SAND has been among the ugliest meme stocks, shedding almost 13% of market value over the trailing month. Could inflation fears be overhyped?
Possibly, although again, I’m keying into the fear trade component. For SAND specifically, far more reliable mining stocks exist. Nevertheless, I wouldn’t be opposed to throwing some speculation funds in here to trade with the meme folks.
The platform that started it all, trading app provider Robinhood initially garnered tremendous interest soon after the Covid-19 pandemic dramatically changed our lives. Suddenly, millions of white-collar workers found themselves operating remotely, which meant more time for stock trading. Well, they ought to be working but you know how that goes.
Indeed, the Wall Street Journal opined back in July of last year that everybody had become a day trader. “Bored, isolated and out of work amid the pandemic, millions of Americans are chasing stock-market glory–and bragging about it online.” That bragging, by the way, almost always seemed to be a screen capture from the Robinhood app.
However, the crisis hasn’t exclusively been a tailwind for HOOD. Back when the first meme stocks gained serious momentum, Robinhood caught flack from all angles when it appeared that the company deliberately imposed roadblocks on popular securities. In fact, the circumstance got so out of hand that angry customers showed up at Robinhood’s headquarters to demand an explanation.
Still, Robinhood carries significant cachet, in no small part to its gamified interface. Over the long run, HOOD might do well.
Meme Stocks to Watch: Taiwan Semiconductor (TSM)
Though not quite as popular as some of the other meme stocks on this list — at least as of this writing — Taiwan Semiconductor nevertheless attracted its fair share of social media-based traders and for good reason. Due to the ongoing semiconductor crisis, anything related to computer chip production has soared in demand since the beginning of this year.
To be fair, an argument exists that the supply chain disruption argument is overplayed in that we may have passed peak supply concerns already. Some experts believe that the shortage problem will fade by the end of this year for most products. However, it’s also fair to point out that this circumstance is difficult to predict — just look at how many experts weighed in on the Covid-19 crisis.
As well, there’s no real consensus on when this problem will go away. Even assuming the shortages will see resolution by end of 2021, analysts claim that the holistic recovery process will “require almost all of 2022 for this chip supply to make its way through the supply chain to end-users.”
As the world’s largest dedicated semiconductor foundry, TSM could still offer upside, especially if the experts are wrong about their optimism.
A commercial printing company based in Sussex, Wisconsin, Quad has really transitioned to become a global marketing technology partner, facilitating strong return on investment for its clients through data-driven solutions. What distinguishes Quad from the competition is that the company is essentially a one-stop shop. From gaining consumer insights to creative services to print, media and digital engagement, Quad helps its enterprise clients expand their business footprint.
To be fair, some components of the marketing industry took a hit because of the unprecedented impact of the Covid-19 crisis. After all, with millions of people stuck working at home, certain print-based campaigns didn’t make much sense. Yet if one looks at the declining personal saving rate relative to its blistering April 2020 high, it seems the consumer is ready to spend.
Factor in the retail revenge concept — or the phenomenon where people who were denied consumer-related experiences last year are ready to make up for lost time this year — and you have an intriguing case for QUAD stock. If you believe in the economic recovery narrative, this might be one of the meme stocks to check out.
Meme Stocks to Watch: Forward Industries (FORD)
Billed as a “global design, manufacturing, sourcing and distribution group,” Forward Industries wholly owns two global product design and development subsidiaries, which are Intelligent Product Solutions and Kablooe Design. Featuring a wide range of smart technology solutions, ranging from Internet of Things to soft goods and even smart lighting and furniture products, Forward assists its enterprise-level clients to upgrade their offerings to meet rising consumer expectations.
And when I say Forward Industries has a wide range, I mean it. I’ve yet to find a company that has a diverse clientele like Forward, which includes telecommunications firms like Verizon (NYSE:VZ), pharmaceutical entities like Roche (OTCMKTS:RHHBY) and even privately held firearms manufacturer Sig Sauer. If you can find the common motif in these businesses, let me know.
What is clear is that Forward levers significant relevance, which is probably why many participants of meme stocks have clamored onto its shares. But if you truly want to know what I think, I’m going to bet that it’s because the equity unit appears to be forming a bullish pennant chart pattern, a development that initially started in the March doldrums of last year.
If you’re a big proponent of technical analysis, you might want to give Forward Industries a long look.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.