Like a missing dog, meme stocks have been lost but not forgotten in recent months. The collection of oft irrationally charged tickers have largely fallen out of favor in the market with most traders having (for now) moved on the next big thing. For a novelty act that loudly dominated the headlines earlier this year, meme stocks have quietly slid to more reason prices and valuations.
AMC Entertainment, for example, has shed more than two thirds of its market cap since its early June spectacle. Even the newly launched Roundhill Meme ETF has struggled to attract traders having finished lower in each of its first five trading days.
Fortunately, for meme lovers, a turnaround may be near. That’s because with two weeks left in the year, tax loss selling pressure exerted by bandwagon traders that jumped into volatile meme plays on the way down will soon subside. A flip of the calendar to January 2022 could be all it takes for social media driven meme plays to come back in style. Here are three that are worth buying before the New Year’s celebration unfolds.
What is Driving GameStop’s Stock Price?
Almost a year removed from skyrocketing as high as $483, GameStop (NYSE:GME) is trading around $143. There have been several flare-ups along the way, but the king of all meme stocks has trended decidedly lower since June.
The inevitable reckoning has come in the wake of back to back quarterly reports that fell well short of expectations. Last quarter, the world’s biggest video game retailer posted a much wider than forecast loss due to elevated expenses related to its transformation to a technology business. GameStop has closed 449 stores since last Halloween as part of a dramatic shift to e-commerce.
The ugly headline numbers and lack of clear guidance have really hurt GameStop stock, but there have been some encouraging silver linings. Sales continued to trend higher in the most recent quarter led by a 62% jump in hardware and accessories sales. Expansion into collectibles, toys, non-fungible tokens (NFTs), and blockchain are also reasons to be excited about GameStop’s growth prospects.
For now, GameStop appears to be back to trading on fundamentals with transformation developments playing a key role. As costs associated with the new strategy diminish, top line growth could lend way to a return to profitability—and a return of fundamentalists and meme traders alike.
Will DraftKings Stock Recover?
Draft Kings (NASDAQ:DKNG) stock is at risk of recording its first four month losing streak since taking the market by storm in its early SPAC days. The good news, however, is that the daily fantasy sports leader’s recent woes have been largely tied to temporary pandemic headwinds. Rising regulatory pressures have also weighed on the stock but these too are likely to be short-lived.
Draft Kings’ long-term growth opportunity is still intact as is its leadership position. The North American online sports betting and iGaming markets combined are an estimated $67 billion opportunity and are expected to grow rapidly over the next few years as more states and jurisdictions enact favorable legislation. DraftKings is the leading player in this space with a presence in more states than any other competitor and market share gains that are padding its advantage. At maturity, management forecasts it will generate $5 billion to $7.3 billion in North American revenue.
Analysts don’t expect Draft Kings to turn a profit until 2023 which means the stock will have another year of finding favor with meme stock traders who tend to prefer money-losing businesses. More importantly, the company’s growth story is still in the early innings and its stock likely to recover as profitability gets closer.
What are BlackBerry’s Key Markets?
After handing momentum traders some massive gains in January, BlackBerry (NYSE:BB) stock is back to where it all started below $10 per share. The former mobile device maker has gone full speed ahead with its focus on the cyber security and Internet-of-Things (IoT) markets. But absent meme trader support the stock has gone in the opposite direction.
While a broad-based January 2022 meme stock rally could spark a fast rebound, Blackberry should start to get more support from institutional investors. Rising demand for software and services tied to two fast-growing tech markets has analysts predicting 10% sales growth and 55% EPS growth in fiscal 2023. Note: Blackberry has already completed two quarters in fiscal 2022 so signs of improvement may be only a couple quarters away.
BlackBerry’s anticipated return to profitability will largely depend on momentum in the cyber security business which accounts for roughly two-thirds of revenue. Recent product launches like Gateway and Optics 3.0 along with a pipeline of other security products hold the potential to produce big earnings beats such as those that kickstarted the meme rally last year. An improved chip shortage situation should help put the IoT automotive business into overdrive led by the market leading QNX software.
Lately, BlackBerry has been linked to the meme stock trade due to its high-volume spikes. Another meme-fueled rally is possible, but absent this, the stock should soon start to move higher given its exposure to two of the hottest areas in tech.
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