The Securities & Exchange Commission just debunked virtually all the grand conspiracies surrounding internet chatrooms' favorite meme stocks of early 2021. Its 44-page report found no evidence of collusion or naked shorting. The report concluded that the price surges of meme stocks like AMC Entertainment were more the results of investor euphoria, and less driven by the mother of all short squeezes.
What may not be so clear amid all the hoopla and negativity surrounding many of those questionable companies is that not all meme stocks are headed for the dustbin of history. Some of these companies actually have quite bright futures.
Not everything is a conspiracy
While the Reddit crowd still likes to talk about how hedge funds are undermining the small retail investor, the regulator said it was largely typical market forces at play. That's not to say some of that stuff didn't occur, but it was not as widespread as portrayed.
Still, the SEC did say that more investigation was needed into one of the Reddit crowd's biggest bugaboos -- dark pools -- to determine the impact they have and whether greater transparency is needed on short-selling activity.
Investors, though, may want to look more closely at the following three companies, because despite the negativity that persists regarding their businesses, they have good chances of subverting expectations and enjoying profitable futures.
Bed Bath & Beyond
Home goods retailer Bed Bath & Beyond (BBBY -0.39%) disappointed the market last month with a fiscal second-quarter earnings report that was weaker than expected; management attributed that in part due to the sharp Delta-variant surge in COVID-19 cases keeping wary shoppers away from its stores.
Comparable store sales fell by 1% for the period, and net sales plunged by 26%. Although the quarter started off strong, CEO and President Mark Tritton said things fell off during what is usually a key period for the chain. "In August, the final and largest month of our second fiscal period, traffic slowed significantly and, therefore, sales did not materialize as we had anticipated," he told analysts.
Yet it's worth noting that a good chunk of those lost sales resulted from Bed Bath & Beyond exiting most of its non-core businesses, in line with its new strategy of more narrowly focusing on those concepts in its wheelhouse. It sold its Cost Plus Warehouse and Christmas Tree Shop chains over the past year, but retained buybuy Baby and Harmon Face Values, along with its namesake stores, of course.
While it has some $1.1 billion in long-term debt on its balance sheet, it also has $1 billion in cash equivalents and short-term investments available to it. It does have another $1.6 billion in operating leases, but its lease payments run to just a few hundred million dollars a year, well within the company's capabilities to pay, particularly as it begins generating free cash flow again.
Because it has invested heavily in its e-commerce platform and its supply chain, its new narrower focus should allow it to return to its pre-eminent position atop the home goods industry.
One of the original meme stocks and a major focus of the SEC's investigation in potential trading irregularities, GameStop (GME 12.59%) is at once one of the most promising companies and also one of the riskiest.
Chairman Ryan Cohen is attempting to engineer an audacious turnaround, taking a retailer heavily invested in its brick-and-mortar footprint and transforming it into an asset-lite operation that's geared more toward being a consumer-facing online business.
He's already cleaned house in the C-suite, bringing in a carload of executives from Amazon and Alphabet, betting on their digital expertise to help him prevent GameStop from becoming obsolete as more gaming moves online.
It's starting off its attempted transformation into the "Amazon of gaming " on the right foot, having used the trading frenzy earlier this year to raise enough cash to pay off all of its debt. The pandemic also proved GameStop retains plenty of mindshare with the gaming public; the stampede for games during the COVID-19 lockdown periods last year showed that people still consider it the go-to place for games and hardware.
A loyal cadre of investors has kept GameStop's stock elevated far above where it was a year ago, and probably where it should be based on the current status of its business, but if Cohen and company can pull it off, the video game retailer's future will be bright indeed.
For hydrogen fuel cell developer Plug Power (PLUG 4.13%), the point where its business will achieve critical mass always seems to be around the next corner, and investors end up disappointed. Yet there are reasons to be hopeful.
Plug Power handily exceeded its second-quarter guidance for gross billings with $126.3 million coming in -- up 74% from the year-ago period. It shipped 3,666 GenDrive material fuel cell products as well as 16 hydrogen infrastructure systems, though its financial performance was still hindered by the pandemic and related issues, as well as its transition away from an industrial gas supplier that was hiking prices "egregiously." Although that was a setback, it should position Plug Power for more stability.
Still, the fuel cell maker has a years-long string of losses and has repeatedly resorted to dilutive share offerings to keep going. As we saw with GameStop, issuing new stock isn't itself terrible if the proceeds are put to good purpose, but more often than not, Plug Power's secondary offerings have simply been to keep the lights on.
With that said, and recognizing the risk of additional stock offerings in the future, hydrogen fuel cells are a viable way to power all manner of vehicles and equipment. Plug Power sees a future for its tech that goes well beyond hydrogen-powered forklifts, and it's also a bigger, better company than it has been. That should help it navigate a path to better returns. Rich isn't fawning over doomed stocks here, pointing out downsides and risks as well as high valuations.