The appetite for meme stocks that swept Wall Street in early 2021 may have lost its steam but the phenomenon is still alive and kicking. The likes ofAMC(NYSE:AMC) andGameStop(NYSE:GME) became the poster children for the meme phenomenon – one which was driven by retail investors.
This social-media-driven buying was well supported by discount brokerages, which offer the convenience of trading from anywhere on a mobile phone and allow zero-commission trades. For investors, meme stocks provided an option to splurge the disposable income they accumulated due to limited spending avenues during the pandemic.
Social media discussion areas such as the “WallStreetBets” Reddit forum served as places for rallying investors around stocks considered underdogs. This led to mass and concerted buying in these once-obscure but popular stocks, as evident in huge volumes traded.
In response, the U.S. Securities and Exchange Commission released a 30-second video earlier this year to explain theperils of investing in meme stocks, clamped down on trading apps that facilitated meme stock trading and said in June it ismonitoring volatility in some meme stocksto find out if there has been any misconduct.
Despite all that, it appears that the phenomenon isn’t going away anytime soon. A case in point is the strong run-up seen in cosmetics companyRevlon(NYSE:REV) last month. Followingrumors of bankruptcy filing,the stock gained roughly 300% in about six sessions in June.
I would recommend exercising the utmost caution when deciding to commit your funds to meme stocks — they hold the allure of quick gains but invariably carry lots of risk.
Nio (NIO)
Nio(NYSE:NIO) qualifies as a meme stock due to its wide retail following. The stock hasn’t been able to capitalize much on this retail pull though, especially after it retreated from its all-time high of $66.99 reached in January 2021.
The Chineseelectric vehiclemaker had a very ordinary 2021 amid company-specific production issues and a lack of new model launch. Nio’s frenzied retail following was touting 2022 as the turnaround year. Then the Covid-19 lockdown in China poured cold water on the hopes.
With Covid abating and Nio successfully launching two of the three production models planned for the year, sentiment should begin to turn around. The valuation is an added incentive to buy into the stock.
A recent short report raised questions about the credibility of the company and its financials but Nio hasstrongly refutedthe claims. The stock has now become a show-me story. The company has to execute on its production plans to capitalize on the still-vibrant EV demand both in China and in the overseas market it has set foot on.
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