By Philip van Doorn
The world of meme stocks is changing every day as traders communicating through Reddit’s WallStreetBets channel and other social media set their sights on new targets for short squeezes or find other downtrodden companies to bid up in price.
After last week’s look at financial results and projections for the four BANG stocks and four other meme companies, what follows is the same treatment for six more.
(The BANG stocks are BlackBerry Ltd. /zigman2/quotes/202784246/composite BB -0.98% , AMC Entertainment Holdings Inc /zigman2/quotes/200235402/composite AMC +8.07% , Nokia Corp. /zigman2/quotes/207421390/composite NOK +1.48% and GameStop Corp. /zigman2/quotes/203755179/composite GME +0.86% .)
Short squeezes and meme stocks
Traders looking to group together on social media to make quick killings by pushing up share prices of companies at early stages or those going through difficult times have been setting up short squeezes.
Professional investors have traditionally short-sold shares of companies they believe will perform worse than most other investors or analysts expect. Shorting means borrowing a company’s shares and selling them immediately, in the hope of buying them back at a lower price, returning them to the lender and pocketing the difference. If you simply buy a stock hoping it will go up, all you risk is the money you invest. You might get wiped out. But if you short a stock, your risk potential is unlimited. You never know how high the price might rise if you have gotten the trade wrong.
“Covering” a short position is when you buy back the shares to return them to the investor who lent them to you. You are hoping to cover at a lower price than you sold the shares for, to make a profit.
To have a short position, you need to have a margin account with a broker — an account that lets you borrow to invest or trade. Because of the risk in taking a short position, if the share price goes against you (higher), your broker will keep increasing its collateral requirements. If you run out of cash as the price keeps rising, you will be forced to cover at a loss. That type of action among a large group of short-sellers pushes the price higher in a spiral — a short squeeze.
Six more meme stocks
The action changes daily. On June 9, for example, shares of Clover Health Investments Corp. /zigman2/quotes/217322673/composite CLOV +1.30% fell 24% after rising 86% the day before. The stock is 36.6% sold short, according to FactSet.
Here are the six additional meme stocks, following our initial group of eight , sorted by market capitalization as of the close on June 9:
Palantir Technologies Inc. /zigman2/quotes/221054928/composite PLTR +0.55% provides a software platform used by government defense and intelligence agencies. It is the largest company on the list by market cap, but not by revenue, as you can see below. A year-to-date chart of its price performance shows how wild the meme-stock action can be:
Palantir’s stock was up 3% for 2021 through June 9, but its market cap had increased by 26% because the company had been raising cash by selling additional shares to investors. The company’s following as a meme stock seems to spring more from its growth prospects than from short interest, which peaked at 8.5% of shares available for sale, according to FactSet.
Wendy’s Co. /zigman2/quotes/204070192/composite WEN +0.35% is another meme stock whose addition to the group may be a bit confusing, as the stock isn’t heavily shorted and the company is stable. Thornton McEnery dug into the action on June 8, which may have included confusion over Wendy’s ticker symbol , when the stock rose 26%.
ContextLogic Inc. /zigman2/quotes/223233051/composite WISH +0.60% is one of two stocks on the new list that have fallen this year. The mobile e-commerce company’s stock opened below its initial public offering price on Dec. 16. Tonya Garcia described the company and its large user base before the IPO.
Keeping the group in the same order, here are levels of short interest as percentages of available shares and in dollars:
FactSet’s data on short positions as a percentage of shares outstanding is updated twice a month. The data was updated overnight between June 9 and 10. The second update takes place around the 25th day of the month.
Clover is the most heavily shorted stock on the list. Brad Lamensdorf, CEO of ActiveAlts in Westport, Conn., who runs long and short investment strategies, said previously that a short percentage “over 30% to 40% is outrageously high.” (Lamensdorf co-manages the AdvisorShares Ranger Equity Bear ETF /zigman2/quotes/210556377/composite HDGE +0.58% , which is meant to be used as a hedging tool.)