3 meme stocks that might be worth buying

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Meme stocks hit the mainstream earlier in 2021 when the aggressive buying of stocks and options led to gamma compression and the subsequent collapse of GameStop (NYSE: GME) Stock. What distinguishes memes stocks from regular investments is that memes stocks tend to depend on viral buzz or community interest, rather than fundamentals or business prospects, to drive their stock price higher. .

This somewhat dubious basis raises a key question: Could a stockpile of memes really be worth buying for the company? We asked three successful investors to pick a meme stock that they thought might be worth buying. They selected the NextGen AI US Sentiment Leaders Index (NYSEMKT: BUZZ), Virgin Galactic Holdings (NYSE: SPCE), and UWM Holdings (NYSE: UWMC). Read on to find out why and decide for yourself if you think they are worth owning.

Image source: Getty Images

Take advantage of the buzz while minimizing the risks

Barbara Eisner Bayer (NextGen AI US Sentiment Leaders Index): As someone nearing retirement, I don’t like the idea of ​​investing in “trendy” or “trendy” stocks. So investing in a stock of memes is definitely not in my back alley. On the other hand, I like big opportunities, and stocks even offer that. But in order to reduce the risk of picking just one stock, I would prefer to invest in a same exchange traded fund.

Not only does an ETF minimize my risk, because it holds a basket individual actions, but I don’t have to decide for myself which companies I think will be most successful. Via the ETF, I will own a small portion of many different companies, so if just one meme stores it won’t have a huge impact on the overall value of my investment.

The good news is that there is an ETF that covers stocks even. It is called NextGen AI US Sentiment Leaders Index and is managed by Van Eck Associates Corporation. It debuted in public markets on March 4 with the aim of following the hot stocks that are all the rage on social media. The index it uses is up 52.69% over the last 12 months, against 33.1% for the S&P 500.

Most ETFs buy an index and hold the companies listed there until there are changes in the index itself. But this is not your ordinary ETF. According to ETF officials: “[We] use AI to monitor 15 million online posts per month to determine which stocks have the most positive investor sentiment. Next, we rank the top 75 stocks each month for inclusion in the BUZZ NextGen AI US Sentiment Leaders Index. “

While the stocks in this ETF must have a lot of social media mentions to be included, you won’t find some of the craziest Reddit stocks because management requires companies to have a minimum market cap of $ 5 billion, and a lot of those stocks don’t qualify. However, you’ll find familiar stocks in their top 75, like You’re here, Square, Amazon, and Twitter.

By owning many of these more established companies, the ETF has a bit more stability.

While I am stepping away from individual stocks of memes, in general, I will definitely consider adding BUZZ to the growth portion of my portfolio to take advantage of the stock buzz on the internet.

Make room in your portfolio

Eric Volkman (Galactic Virgo): For a stock of fun memes that could also provide payload in the future, I’d take a flyer – almost literally – on Virgin Galactic.

As the name suggests, Virgin Galactic is a space tourism company, one of the few that has the means, technology and personnel to transport paying passengers to the afterlife (the other two in view of the Currently, SpaceX by Elon Musk and Blue Origin by Amazon founder Jeff Bezos are not publicly traded).

As this is an extremely small market to say the least, Virgin Galactic has generated great interest and demand for its services. This appears to have given him the opportunity to significantly increase the price of tickets, to $ 450,000 per seat. About 600 people have reserved space, so to speak, at the old level of $ 200,000 to $ 250,000 each on future Virgin Galactic flights.

Other than a handful of test flights (one of which took founding father Richard Branson), the company has yet to transport anyone to space. Spacecraft are expensive to build and maintain, of course, and skilled astronauts and engineers aren’t exactly low-paid employees. So, Virgin Galactic is a real red inkjet on the end result. In its last quarter alone, it posted a net loss of $ 94 million, and it wasn’t even its biggest quarterly shortfall.

That said, the company does generate revenue here and there through activities such as engineering services and the delivery of payloads to external entities. Meanwhile, he has a big pile of money to spend (nearly $ 565 million, at the end of that quarter). And since it’s very effective at raising capital through frequent issuance of new stocks, there’s more where it comes from.

Ultimately, Virgin Galactic’s vision is that its “space ports” will dot the globe, with potential astronauts flocking to them on expensive (albeit brief) trips to space.

And the company clearly intends to do more than just sell them an expensive seat for a space cruise. Earlier this year he hired alumni Walt disney imagine Joe Rohde to be his “experienced architect” to make the several pre-flight days unique and memorable for clients. This is a wise and potentially value-added decision on the part of the company; While competition is not endemic in this scarce industry, it is there, and after the start of commercial space flights, ticket prices should start to feel the pull of gravity.

I should note that both as a startup company and as a meme action, Virgin Galactic can be extremely volatile and therefore risky. But catching stocks on a downtrend could really pay off; space travel is an exciting activity that pushes the boundaries. As such, it should attract an avid clientele for many years to come once commercial flights begin in earnest.

Can a Profitable Business Really Be Memes Stock?

Chuck Saletta (UWM Holdings): Browsing through the WallStreetBets subreddit as I watched the GameStop saga unfold, I came across some remarkably thoughtful analysis on mortgage maker UWM Holdings. While the company went public through a special purpose acquisition company in January, the company has been around since the mid-1980s and is in fact making a profit.

Better yet, UWM Holdings pays a dividend of $ 0.10 per quarter, and a full year of that dividend has already been covered by the $ 0.55 of basic earnings per Class A share the company has generated over the years. first six months of 2021. It’s something remarkably real about the cash being generated and paid out by a company that has so many followers on the Ground Zero site for so many stocks of memes.

Still, at recent market prices, that $ 0.40 dividend translates into a pretty high return of almost 5.4%, which might start to explain where the value of memes comes in for the business. After all, as a mortgage lender, its operations are tied to the health of the housing market, and there is reason to believe that this particular market may see signs of trouble.

In addition to this business risk, the company has a complicated capital structure, including the possibility of very significant dilution if the share price rises. Between outstanding warrants with an exercise price of $ 11.50 and private, high voting, non-economic Class D shares which may begin to convert to public Class A shares when the thresholds of prices between $ 13 and $ 19 are reached, there are legitimate risk factors. lower its actions.

Yet between the risk of diluting the capital structure and the operational risk of the mortgage market lies a real business that generates real value and pays much of that value to its shareholders. While researching the company, I found a story compelling enough that I was willing to invest some of my own money, but not so much that I expected it to “explode on the moon.” just like a meme.

Indeed, in part due to the risk of dilution, I sold call options at a price of $ 11 against much of my position. As a result, if the price goes up to the point where dilution starts to become an issue, I’ll probably be back on the sidelines most of the time, re-evaluating it against the new reality. Until then, a return above 5% is nothing to sneeze at, and if my shares are not canceled by these options, I could potentially sell another round as the existing shares near expiration.

Is it worth it? Be the judge

Any business with a meme-like following runs the risk that if the attention of the crowd shifts, their actions suffer. Yet if there is a strong enough company behind that stock, its shareholders can ultimately be successful in the long term, no matter what the market does in the short term. When it comes to putting your own money at risk, it’s up to you whether you think our investors have made a strong enough case for you to consider investing in these memes stocks. Not every store of memes will fly into space, but you might find one that’s actually worth your hard-earned money.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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