Meme Stock Meltdown: 3 Perilous Picks Primed for a Deep Drop
Meme stocks are not what they were back in 2021 when they took the market by storm, crushed Wall Street short-sellers and put hedge fund Melvin Capital out of business. But meme stocks haven’t gone away. Over the past two years, retail investors who keep trying to execute a short squeeze on the shares pushed many of the most popular and best-known meme stocks higher. However, a short squeeze is possible on notorious meme stocks because they remain securities of troubled businesses heavily shorted by professional traders. Investors need to be aware of this fact or risk getting badly burned playing around with these volatile stocks. Just as quickly as their share prices rise, they fall, leaving people with steep losses. Here are three meme stocks to sell before they take a deep drop.
GameStop (GME)
Let’s begin with the king of the meme stocks, GameStop (NYSE:GME). The video game retailer issued its latest financial results in early December, and they were typically bad, sending GME stock down nearly 10% in one trading session. For what was its fiscal third quarter, GameStop reported a loss of one cent per share. That was better than the loss of 8 cents a share analysts expected. However, the company’s revenue came in at $1.08 billion, below forecasts of $1.18 billion.
A deeper look at the numbers reveals some troubling trends. GameStop said its hardware and accessories sales fell to $579 million in fiscal Q3, down from $627 million a year earlier. Software sales were even worse, declining to $321 million from $352 million a year ago. The company also announced its board of directors approved a new investment policy that will allow GameStop to invest in stocks and other investment vehicles, moving away from its core business of selling video games.
The new investment strategy came months after Ryan Cohen transitioned from chair of GameStop’s board to become the company’s new CEO. GME stock fell on news of Cohen’s move into the CEO role and ended 2023 up a paltry 2%, badly trailing the 25% rise of the S&P 500. GameStop’s stock is now down 78% from its meme rally peak in January 2021.
BlackBerry (BB)
GameStop isn’t the only meme stock to announce a new CEO recently. In mid-December, former smartphone giant turned meme security BlackBerry (NYSE:BB) announced the appointment of a new leader. John J. Giamatteo, a long-time company insider, was named BlackBerry’s new CEO and given a mission to turn around the struggling company that is today focused on the Internet of Things (IoT) and cybersecurity technologies. Giamatteo has his work cut out for him.
Within two weeks of Giamatteo’s appointment as CEO, BlackBerry reported its fiscal third-quarter net loss grew by 425% from a year earlier. BlackBerry announced a $21 million net loss compared with a net loss of $4 million in the previous year. The latest loss equaled 5 cents per share and was worse than Wall Street forecasts. Giamatteo canceled a planned spin-off and initial public offering (IPO) of the company’s IoT business unit, but it’s unclear if that will help the struggling tech concern.
BB stock finished 2023 up 7% on the year but is down 80% from its 2021 meme stock high.
Rivian Automotive (RIVN)
Retail investors have had fun pumping and dumping shares of electric vehicle maker Rivian Automotive (NASDAQ:RIVN) since the company went public in November 2021. Seizing on the IPO, retail investors pushed the company’s valuation up above that of Ford Motor (NYSE:F). While the share price has since crashed hard, the Wall Street Bets crowd continues to take periodic interest in RIVN stock, as they did last summer when the share price doubled between June and July, only to crash again.
Interest in RIVN stock persists despite dire news from the company. In October, the automaker warned its sales in Q4 were likely to be lower than forecasted. The company also announced plans to issue $1.5 billion in convertible notes. which is debt that can be converted into stock. The move diluted the current shareholders’ holdings. Plus, Rivian said it is selling its electric trucks at an average loss of $33,000 per vehicle, and it had burned through about half of its $18 billion cash pile with no end in sight.
RIVN stock finished 2023 up 35%. However, the share price is down 82% since its 2021 IPO.
On the date of publication, Joel Baglole 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.
