Meme Stocks: What They Are and 5 Top Stocks for March 2024

If you’re an investor looking for a longer-term holding (think years rather than days, weeks, or months), there are some important factors to consider before buying a meme stock. Some business fundamentals and economic trends can go a long way toward balancing out what can be fleeting social media trends or hopes of a short-term short squeeze. Some of the more popular meme stocks, such as AMC and particularly GameStop, continue to have higher stock prices than before the short squeezes in 2021. People learned major investing lessons during the craze, whether investors made money from meme stocks or not. According to the Schwab Q1 Trader Sentiment Survey, 35% of Charles Schwab and TD Ameritrade traders are more aware of their risk tolerance and factor it in before making momentum-based trades after the meme stock frenzy. And 22% are more careful about the sources they use for their investment research; additionally, 15% are more careful about diversifying their portfolios.

On the date of publication, Stavros Tousios 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. On the date of publication, Chris MacDonald 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 member of the hot 2020 IPO stock class, Palantir quickly gained a large investor following after making its public debut. The company builds enterprise big data and AI software that helps organizations update their operations for a digital era.

1. While it is possible to make money with meme stocks, it is an extremely risky venture.
2. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.
3. WallStreetBets users quickly identified other downtrodden stocks with heavy short interest to boost.
4. Memes began to take the form of humorous social media posts and viral videos with the advent of the internet.
5. Meme stocks often have heavier discourse and analysis in discussion threads on websites like Reddit and posts to followers on platforms like X (formerly Twitter) and Facebook.

Meme stocks became all the rage among retail investors during the COVID-19 pandemic. Meme stocks are created when a company’s shares catch fire with individual investors on social media platforms such as Reddit and quickly skyrocket in price. But, as many traditional investors and analysts point out, these viral stocks can be very risky since they rely on high interest from small investors to sustain the stock prices’ liftoff “to the moon.” Simply put, meme stocks skyrocket in price in a short period (often hours or days) because of a sudden surge in interest online or on social media and subsequent buying among small individual investors. These short-term surges can often reverse course just as quickly, though, making meme stocks far more volatile than average stock market moves.

How meme stocks work

Capital gains tax rates are especially high on stocks you held for less than a year. Short selling is when somebody sells shares that they do not own, hoping to buy them back at a lower price. That seller must borrow shares from somebody who is long the stock in order to sell them. As more and more shares are sold short in this way, there are fewer shares left available to borrow. Once a stock becomes hard to borrow, even the most motivated short seller may be unable to do so. A few days later, the former CEO of Chewy.com and investor Ryan Cohen purchased an unknown amount of GME stock, which Gill acknowledged on Twitter (now X).

The new movie “Dumb Money” is about the GameStop craze in 2021 when amateur traders banded together on the social media site Reddit to give professional investors a run for their money. Because a surge in buying activity can send a stock price soaring, there are some benefits to owning meme stocks (and potential meme stocks before they rocket higher). While it is possible to make money with meme stocks, it is an extremely risky venture.

One example is the VanEck Social Sentiment ETF (BUZZ 2.17%), an actively managed portfolio of 75 stocks that rank high in social media conversations. This ETF has an annual expense ratio of 0.75% (meaning it costs $75 per year for every $1,000 invested). GameStop (GME) became a heavily shorted stock due to a decline in foot traffic at malls and dwindling https://www.currency-trading.org/ revenues. The short interest, therefore, had grown to over 100% of the shares outstanding. The case that a short squeeze could be precipitated was then developed and touted on Reddit and other investment forums. In addition, big investors, such as Scion Asset Management’s Michael Burry and Chewy co-founder Ryan Cohen, also took long positions.

Now in year three of the movement, new meme stocks are being created all the time as individual investors look for new ways to beat the stock market. Here are five to do some more digging on (beyond arguably the two most famous meme stocks — video game retailer GameStop (GME 1.73%) and the world’s largest movie theater chain AMC (AMC 1.33%). If you’re excited about investing in meme stocks, but don’t love the risk of holding a singular stock, the Roundhill exchange-traded https://www.investorynews.com/ fund MEME offers investors exposure to 25 meme stocks in one ETF. The SoFi Social 50 ETF (SFYF) and VanEck Social Sentiment ETF (BUZZ) are similar — they track stocks with positive sentiment among traders and social media users, and thus have substantial exposure to meme stocks. When online investors understood the short positions against GameStop, people took it on as a Robin Hood-like adventure (often using the trading app Robinhood to do so).

Retail investors are also likely to remain keen to pick up on the latest meme stock. Dominated by younger investors, meme stocks are still seen as a way to generate outsized returns in a short period, especially in the face of rising housing costs and inflation in general. But meme stocks also remain very volatile and risky, and retail investors are likely to be the ones to experience the most losses if it all comes crashing down. The YouTube persona Roaring Kitty posted a future viral video laying out the case for why shares of brick-and-mortar video game retailer GameStop Corp. (GME) could soar from $5 to $50 per share in August 2020.

A meme stock refers to the shares of a company that have gained viral popularity due to heightened social sentiment. This social sentiment is usually due to activity online, particularly on social media platforms. These online communities can dedicate heavy research and resources toward a particular stock. Meme stocks often have heavier discourse and analysis in discussion threads on websites like Reddit and posts to followers on platforms like X (formerly Twitter) and Facebook.

Meme Stocks and Short Selling

The good news is that meme stocks come from all nooks and crannies of the stock market, so it’s possible to build a diversified portfolio of holdings that can catch a tailwind from various places. As with other highly volatile investments (such as the related cryptocurrencies movement), there are drawbacks to betting on meme stocks. However, simply writing off all meme stocks as too risky can be a mistake. For the right person, investing in the right meme stock for the right reasons can make a lot of sense.

From there, the number of retail investors buying shares and call options snowballed, driving up the price. The price increase drove out some short sellers early on as it attracted various big-name investors and public https://www.forex-world.net/ figures, such as Elon Musk and venture capitalist Chamath Palihapitiya. Meme stocks have been a boon to investors, day traders, and brokerage platforms but companies have also capitalized on the meme stock phenomenon.

Top meme stocks right now

As the price of the shorted stock rises, the short seller will begin to experience losses. These losses must be covered in a timely fashion, often prompted via margin calls, whereby the broker demands funds to make up for those paper losses. One of the features of meme stocks, especially early on, has been that they tend to be heavily shorted names. This means that there is a lot of short interest in the stock, or that a large proportion of the company’s outstanding shares have been sold short. Indeed, as these became recognized meme stocks, members of r/wallstreetbets and similar outlets began to acknowledge the humor (for the “lulz”) of seeing such legacy companies emerge from the ashes in the stock market.

best-performing meme stocks

These ETFs hold familiar meme stocks such as Gamestop and AMC, and they also hold a few stocks some wouldn’t think to call meme stocks, such as Tesla and Peloton. Meme stocks, however, didn’t truly emerge until the year 2020 via the Reddit forum r/wallstreetbets. Unlike its predecessors and other investing message boards, WallStreetBets became known for its unconventional and often irreverent tone. In this and other forums that have popped up since, users work together to identify target stocks and then promote them, while also putting their own money to work. With the internet, chat rooms and discussion boards devoted to investing and promoting stocks also arose. In the late 1990s and early 2000s, these sites helped promote and drive up the prices of so-called dotcom stocks—a bubble that famously burst with far-reaching economic consequences.

Cons of meme stocks

Typically, larger institutional investors have overlooked these companies due to uncertain fundamentals. As such, those hoping to participate early must closely monitor online discussions for clues about trends. Named after the virality of internet memes found on social media, these stocks saw online communities form around them to boost and hype their prospects, even though meme company fundamentals remained questionable.

With expertise in FX, macros, equity analysis, and investment advisory, Stavros delivers investors strategic guidance and valuable insights. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

Meme stock activity was given a great boost from bored individuals stuck at home during COVID-19 lockdowns combined with zero-commission brokerage apps like Robinhood. The Robinhood app saw overwhelming trading volume in meme stocks at times, causing multiple trade delays, outages, and platform crashes. This led to user outrage along with class action lawsuits as well as regulatory fines and restitution of approximately $70 million. Unlike online pump-and-dump schemes aimed at defrauding unwitting investors, the promotion of meme stocks largely involves buying and holding with the above-mentioned strong hands even after the price spikes. The surge of its stock wasn’t caused by any real changes in its underlying business.