Meme stocks in 2021: Ride the wave or steer clear?
With meme stocks continuing to rise in popularity, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, advises on how best to follow this growing trend, as well as the top stocks to watch in 2021.
The term “meme stock” is becoming increasingly apparent amongst investment circles, as social media’s widespread influence continues to grow and certain trends are having a significant impact on the stock market. For clarity, when we talk about meme stocks, we do not mean stocks that have surged in popularity due to the company’s performance, but rather due to news sentiment trends and hype on social media.
But how much are meme stocks really moving the markets?
In January 2021, GameStop rallied by an impressive 1,600%, which resulted in XRT gaining around 37% per month – a record for a normally stable exchange-traded fund (ETF). Before the ETF got rebalanced, GME’s weight was about 20%, while other companies usually have 1%. Essentially, the coronavirus pandemic caused the retail trading to surge, as brokers started offering commission-free trading, with retail traders now accounting for about 35% of the market volume, up from 20% before the pandemic.
One should remember, however, that meme stocks are just about speculation, so it would not be wise to allocate large amounts for such transactions. These stocks can often be volatile due to high expectations that come from hype and information noise. These investments are also made without any fundamental research into the company’s performance. On top of this, in the long term, it is the fundamentals that matter, so after a short squeeze rally prices can easily decline as quickly as they went up.
That being said, while there are undoubtedly risks to consider when following news sentiment trends, meme stocks can have a lot to offer if they are played wisely. Investors must therefore ensure they are riding the meme stock wave carefully, not blindly, and are doing their research before choosing to invest.
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- Arcimoto (FUV) manufactures three-wheeled electric vehicles (EVs) that are positioned as affordable. The company is planning to intensify its marketing efforts during the rest of the year to introduce its products to potential new customers.
- Atomera (ATOM) is a semiconductor material and technology licensing company that created Mears Silicon Technology (MST), a technology that can improve productivity, as per the management’s claims. The company’s earnings increased by 545% YoY to reach $400,000 in Q1 2021, up from $62,000 in the same quarter last year.
- Clovis (CLVS) is a cancer clinic based in Boulder, Colorado that focuses on cancer drugs worldwide and is targeting development programs to treat specific subgroups of cancer populations. Its flagship product is called Rubraca. The company’s cash and cash equivalents at the end of Q1 were at $190,900,000.
- Torchlight is a fast growing oil and gas exploration and production company. It is primarily focused on acquiring and developing highly profitable domestic oil fields. The company is currently working in Texas.
- Palantir (PLTR) creates software that focuses on big data analytics. The company recently announced it had been selected by the Federal Aviation Administration (FAA) to provide a data analysis tool that would help advance the administration’s safety modernisation goals.
- Clover Health (CLOV) positions itself as the next generation, medicare advantage, insurance company. The company primarily operates through its flagship Clover Assistant platform, offering affordable and easy healthcare plans for seniors. Clover recently announced it is going to expand its Clover Home Care program. Furthermore, it recently reported record earnings of over $200,000,000.
- Ocugen (OCGN) is a biopharmaceutical company that develops transformative treatments for rare eye conditions. Its revolutionary gene modifier therapy platform can, for instance, treat multiple retinal diseases with a single drug. The company is also developing a vaccine against coronavirus, which is called Covaxin.
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- Root, Inc. (ROOT) offers personal car insurance services directly to US consumers. The management team relies heavily on telematics or control data to validate policies and address complaints. The company announced its Q1 results in early May, with the total income amounting to $68,600,000, and the gross profit amounting to $6,000,000, up $23,000,000 compared to the previous year. In the coming quarters, the management team will be focusing on increasing revenue per customer through product expansion, lower acquisition costs and more accurate mark-ups based on individual risks.
- PubMatic (PUBM) provides a cloud infrastructure platform for digital advertising that enables real-time ad transactions. The company was founded in 2006, and operates in 14 offices and 8 datacentres across the globe. PubMatic released its Q1 report on the 13th of May, with its earnings amounting to $43,600,000, which is 54% more than last year. Meanwhile, the net profit came at $4,900,000, which is up 444% compared to 2020.
- LifeMD (LFMD) is a telemedicine company that offers products and services for patients. The telemedicine platform provides virtual access to treatment from licensed providers. Prescription drugs and over-the-counter products are also delivered directly to patients’ homes. LifeMD’s total earnings in Q1 2021 amounted to $18,200,000, up 323% compared to Q1 2020. The company also forecasts earnings growth at 168%.