The Hottest Meme Stocks to Add to Your Portfolio

Meme stocks aren’t just for edgy Reddit investors. Total newbies to the stock market and seasoned investors alike could benefit from learning more about this trendy—and risky—investment strategy.

Until relatively recently, investing was the domain of professional bankers, traders, and analysts. However, thanks to the creation of low-cost, easy-to-use apps, it’s become possible for anyone to buy and sell stocks from their smartphones.

Meme Stocks
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The result has opened the doors for amateurs to have a real-world influence on the stock market—and even the fate of the companies that are traded on it. The Reddit community r/wallstreetbets is the epicenter of meme stock activity, with 12.4 million members sharing tips and celebrating wins. But what are meme stocks—and how can you incorporate them into your investment strategy?

What Are Meme Stocks?

Meme stocks are a new phenomenon in the world of investing—and one that threatens to disrupt many time-honored stock market strategies. The concept has only been around since 2020, coinciding with the time period when many people were forced to stay home and find alternative sources of income. They can be unpredictable and highly risky, so proceed with caution if you decide to dip your toe into these uncharted waters.

Amateur investors study the market and zero in on stocks that they believe are being undervalued or even shorted. Usually, these stocks are tied to companies that have a certain nostalgia factor, such as AMC movie theaters or GameStop video game stores. Meme stock traders share information on Reddit as well as social media to send stock prices skyrocketing.

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It’s important to note that meme stocks, although controversial, aren’t breaking any laws or rules—although some established traders are skeptical and concerned about the influence of this movement on the market. As Investopedia explains, “Unlike online pump-and-dump schemes aimed at defrauding unwitting investors, the promotion of meme stocks largely involves buying and holding … even after the price spikes.”

Although the tone on r/wallstreetbets is irreverent, don’t be quick to write these investors off as a joke. They’re making a palpable impact on the market, and between meme stocks and cryptocurrency, they seem determined to turn our current financial systems upside down. The question remains… should you try buying meme stocks for your own portfolio?

Read More: Virtual Coins, Real Property: Crypto and Real Estate

How Risky Are Meme Stocks?

By their nature, meme stocks are risky. They’re driven by emotion as individual investors champion certain companies, and that enthusiasm may not be backed by sound financial strategy. Any investment carries inherent risk, but meme stocks are particularly volatile.

For some investors who buy and sell at the right time, meme stocks can be a goldmine. Others prefer to buy and hold—those who have so-called “diamond hands” and are determined to ride out the highs and lows of the meme stock roller coaster. Holding steady during downturns is something of a badge of honor in the meme stock and crypto communities.

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Some analysts believe that there’s a hidden dark side to meme stocks. Because they are driven by social media, it’s possible that bots can artificially whip up enthusiasm about particular stocks. Jared Dillian, a trading analyst, believes that’s the case for Bed Bath & Beyond (BBBY).

“I have a strong suspicion that it’s not Reddit users who are powering these stocks higher. I think it’s hedge funds. The Redditors are pretty much out of ammo at this point, having burned through the government’s stimulus checks long ago and suffering big losses more recently,” Dillian writes for the Washington Post.

“So, the meme-stock trade today isn’t really r/wallstreetbets versus big bad hedge funds, it’s big bad hedge funds versus big bad hedge funds. Those Reddit users who are still around are simply along for the ride.”

There’s a secondary risk for investing this way. Many meme stock traders use the Robinhood app, but they found out the hard way that there are downsides to buying and selling stocks on a phone. According to a class-action suit filed against the company, “Robinhood suspended — but later resumed — buys of GME stock and others following the assets rising exponentially, putting the trading platform in the middle of a fight between retail investors and large hedge funds shorting stocks” in January of 2021.

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The company was also hit with a $30 million penalty over “significant failures in the areas of Bank Secrecy Act/Anti-Money Laundering obligations,” per the New York Department of Financial Services. CEO Vlad Tenev announced plans to lay off 23% of the company’s staff. Despite this—or perhaps because of the company’s struggles—Robinhood (traded as HOOD) has become something of a meme stock itself, with shares increasing in value by more than 26% in recent weeks.

Read More: The Shocking Net Worth of Robinhood’s Vlad Tenev

The Hottest Meme Stocks in 2022

Now that you know what meme stocks are and understand the inherent risk in these social media-driven investments, you can decide for yourself if you want to include them in your portfolio. These are the hottest meme stocks that have impacted the market in the last two years.

Keep in mind that meme stocks are always changing. If you want to stay on the cutting edge of this movement, you should consider joining the r/wallstreetbets community or following social media influencers covering meme stocks.

Bed Bath & Beyond

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The hottest meme stock at the time of this writing is Bed Bath & Beyond. Yes, you read that right—the struggling retailer of household goods has become the latest company to find itself swept up in the fervor of amateur investors on r/wallstreetbets. Bed Bath & Beyond, which trades as BBBY, saw the value of its shares spike by 67 percent this week, from just under $9 to more than $28.  

The company’s journey to meme stock status started in March when Ryan Cohen—who founded online pet supply store Chewy.com and then swooped in as the new chairman of GameStop—wrote an open letter about Bed Bath & Beyond. Cohen owns a 9.8% stake in the company, but he lamented its operational plan. This sparked immediate interest from the r/wallstreetbets community.

Currently, it appears that BBBY might be headed for a short squeeze.

GameStop

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The first-ever meme stock to make headlines was GameStop, a brick-and-mortar video game retailer that had been struggling even before the pandemic. By mid-2020, it seemed almost inevitable that the company would be forced to find a buyer or go bankrupt. Hedge funds, scenting blood in the water, made moves to secure short positions—a deeply risky move involving borrowing securities poised to fall in value. When the drop happens, the trader buys shares at a lower price to replace the borrowed ones, allowing the trader to pocket the profit.

GameStop shares did not fall as predicted, thanks to the rallying cry on Reddit and other social media platforms. In fact, they jumped from around $5 a share to $500 over several months. This created a “short squeeze” that left those hedge funds in a bad position. The sense that this was a “David and Goliath” story inspired even more amateur investors to jump on the meme stock train.

Although GameStop stock has since stabilized, it’s still bolstered by meme stock investors’ interest.

AMC Entertainment

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Following the success of the GameStop short squeeze, Reddit investors set their sights on AMC Entertainment Holdings Inc. Movie theaters were one of the sectors hit hardest by the pandemic, but AMC was already in trouble. In January of last year, individual investors bolstered the share prices of the failing company, in part out of nostalgia for watching movies in a theater rather than streaming them at home.

On the verge of bankruptcy, AMC suddenly found itself with enough money to pay off debts, add more theaters to the brand, and upgrade existing theaters. Financial experts praised CEO Adam Aron’s skillful and swift action after the unexpected windfall. “Of all the meme stocks, AMC seems to be the smartest firm to take advantage and recognize the opportunity there,” Eric Wold, senior analyst at B. Riley Securities, told CNBC.

Although AMC stocks have cooled off considerably since then, Redditors haven’t forgotten about the company they saved from defeat. It seems that whenever a new meme stock reaches headline status, several previous stocks rally. That’s certainly the case for both GameStop and AMC, which saw their shares shoot up this week, along with Bed Bath & Beyond.

AMTD Digital

One of the meme stocks that’s currently surging in share price is AMTD Digital. The Hong Kong-based company is hardly a household name, but after its IPO last month, its shares went up 21,000%. That’s not a typo—after being offered at $7.80 initially, a share will now cost $1679 and counting.

The financial services startup, which trades as HKD, is just as baffled by the sudden interest in the company as the rest of the financial world. “To our knowledge, there are no material circumstances, events nor other matters relating to our company’s business and operating activities since the IPO date,” the company said in a statement Tuesday.

The flurry of interest in AMTD Digital could continue to snowball—or it could drop off, dragging share prices with it. It’s almost impossible to predict what will happen with meme stocks, which is what makes these investments a high risk/high reward proposition for individual investors.

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