McCreath: Safer bet to gamble in Las Vegas than invest in meme stocks
Another batch of names has been added to the meme-stock frenzy as retail traders latched on to their latest favorites Wednesday.
Prison operator GEO Group Inc. soared 38 per cent and Clean Energy Fuels Corp. jumped 32 per cent, supplanting names like ContextLogic Inc. and Clover Health Investments Corp. that had led the charge higher on Tuesday. In Europe, Air Berlin jumped 138 per cent after surging 54 per cent the day before. Meanwhile, shares of fast-food restaurant chain Wendy’s Inc. reversed gains from Tuesday after both Northcoast and Stifel downgraded the stock to hold-equivalent recommendations from buy.
Trading in so-called meme stocks took off this week, with chatter building on WallStreetBets and other social media platforms on the potential for short squeezes as investors in the forums rallying against short sellers.
Speculative frenzy among the Reddit-favorite names has been especially pronounced as a broader stock market hasn’t gone anywhere for most of the past month. While shares of AMC Entertainment Holdings Inc. and Workhorse Group Inc. have jumped at least 80 per cent in June, the Russell 3000 Index has advanced less than 1 per cent.
“The meme stock craze is a liquidity phenomenon,” said Matt Maley, chief market strategist for Miller Tabak + Co. “This is far from just something that the Reddit traders are playing in. There are a lot of momentum-based hedge funds (with algos) that have a lot of money pushing these things around.”
Options volume has picked up amid the recent exuberance in some meme stocks. Daily single stock option volume increased to about US$383 billion in the past week, Barclays analyst Maneesh Deshpande said in a note.
“One of the surprising dynamics in the past week has been the steepening of single stock skew (in the rest of the universe) as the retail options activity picked up and demand for upside calls on meme stocks increased,” Deshpande said in the report.
On Wednesday, U.S. Securities and Exchange Commission Chairman Gary Gensler called for the agency to undertake a review of the stock market’s structure, including so-called best execution requirements. This comes after the SEC said earlier this week that it’s scrutinizing markets for signs of manipulation as meme stocks continue to surge.
GameStop Corp., which reported first-quarter earnings after market, whipsawed in the extended session after saying it plans to file with regulators to sell up to 5 million shares of common stock in an “at-the-market” offering. The company also announced that it had hired Amazon.com Inc. executives Matt Furlong and Mike Recupero to be chief executive office and chief financial officer, respectively
Earlier, at the video-game retailer’s annual meeting, newly-elected chairman Ryan Cohen gave a shoutout to the retail traders that have been fueling the stock’s rally. “We’re fortunate to have such a special group of investors holding the company’s shares,” he said. Shares of the video-game retailer have surged more than 1,500 per cent this year.
Wendy’s was downgraded to hold from buy at Stifel, which said the stock’s valuation now fully reflects the growth it had been assuming to reach its target price of US$25. Analyst Chris O’Cull said in a note that he’s still “constructive toward the company’s fundamental outlook.”
Other stocks that were big gainers today and have high short interest as a percentage of float, according to IHS Markit Ltd.:
- Atomera Inc, with 12 per cent in short interest, has gained 19 per cent Wednesday
- Cleveland-Cliffs Inc. surged 15 per cent and has short interest of 23 per cent
- Clovis Oncology Inc. has short interest of 34 per cent and increased 11 per cent today
- Inovio Pharmaceuticals Inc. jumped 17 per cent Wednesday and has a short interest of 26 per cent
- Invesco Mortgage Capital Inc. increased 18 per cent Wednesday and has a short interest of 12 per cent
- Root Inc., with 14 per cent in short interest, has gained 19 per cent Wednesday
- Triterras Inc. rallied 16 per cent and has a short interest of 12 per cent
- World Wrestling Entertainment Inc. added 11 per cent and has a short interest of 23 per cent
- Ziopharm Oncology Inc. has short interest of 14 per cent and climbed 12 per cent