The popular meme stocks also can be the most fraught. For example, a series of actions taken by billionaire investor Ryan Cohen last week contributed to the collapse of most popular meme stocks over the last few trading days.
Cohen’s company, RC Ventures, disclosed on Monday, Aug. 16 that “it had purchased call options on 1.67 million shares of Bed, Bath & Beyond (NASDAQ:BBBY),” driving up the stock’s value. Then, just three days later, the firm disclosed that it had sold all of its bullish positions in BBBY stock.
In the wake of Cohen’s action, the subsequent tanking of BBBY stock, and the woes being experienced by AMC (NYSE:AMC), the mini meme-stock rally from late July ended.
Following those events, I expect the vast majority of meme stocks to meaningfully underperform the stock market. As a result, I urge investors to sell most meme stocks at this point.
With that said, here are my recommendations on Reddit’s three most popular meme stocks.
| BBBY | Bed, Bath & Beyond | $10.36 |
| AMC | AMC | $9.58 |
| GME | GameStop | $32.50 |
Bed, Bath & Beyond (BBBY)
Investors should sell BBBY stock. In recent days, signs have been mounting that the retailer will soon suffer an ominous fate.
First of all, Cohen had three “allies” on its board. So his decision to abruptly exit all of his bullish bets on the retailer may seem to speak volumes about its financial situation and overall outlook. And, of course, the message that Cohen’s actions sent are very bearish for BBBY stock.
The retailer recently hired a law firm whose lawyers are known as “restructuring experts.”
I don’t know a great deal about financial restructuring and bankruptcy, but the move sounds like a precursor to issuing a great deal more stock and/or piling on more debt with very high interest rates and very strict covenants.
That debt, in turn, could easily push the firm into bankruptcy. Bed, Bath & Beyond could decide to declare bankruptcy pretty soon.
Meanwhile, Telsey Advisory Group recently stated that the shares could fall to $3 and wrote that the company suffers from a “weak financial position,” “poor execution,” and a “lack of clear strategy.”
AMC (AMC)
AMC competitor Cineworld, recently warned that it could seek bankruptcy protection.
Meanwhile, CNBC reported that the U.S. box office remains well below its pre-pandemic levels.
Short seller Jim Chanos is saying that AMC’s new, preferred stock (NYSE:APE) is “the same” as AMC stock. So it seems to me that the preferred stock was, in reality, issued by the company as another outlet to raise funds in the future.
Chanos is shorting AMC stock.
Indeed, according to Wedbush analyst Alicia Reese AMC is pre-authorized to issue up to 4.5 billion additional preferred shares of APE to raise cash.
Reese, who’s fairly bullish on the company’s business and the firm’s medium-term outlook, recently slashed her price target to $2 from $4 and kept an “underperform” rating on the name.
GameStop (GME)
Cohen is chairman of GameStop (NYSE:GME) and the largest shareholder in the name. So the maneuver he executed with BBBY stock has made me very bearish on GME stock.
I would not be too surprised if Cohen eventually executes a similar head fake with GME stock. He could easily find a way to drive the shares up and then suddenly sell his entire stake, causing all of GameStop’s “meme premium,” if you will, to be erased.
GME stock is trading at 1.7 times its trailing sales, well above the valuations of other, much more profitable retailers, such as Nordstrom (NYSE:JWN), whose trailing P/S ratio is 0.24 and Best Buy (NYSE:BBY), which has a trailing P/S ratio of 0.37.
While I still think that GME stock has potential, given the combination of my lack of trust in Cohen and the name’s high valuation, I urge investors to sell the shares.
On the date of publication, Larry Ramer did not hold (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.