In two weeks, Wall Street will cross the finish line and wrap up what'll likely go down as another successful year. Through Dec. 13, the broad-based S&P 500 was higher by 24%. That more than doubles up its average annual total return, which includes dividend payouts, of 11% since 1980.
But for some stocks, a 24% gain this year would be peanuts. Thanks to retail investors rocking the boat like never before, a trio of highly popular stocks skyrocketed well over 400% in 2021. Had investors put $200,000 to work in this trio at the beginning of the year, they'd be sitting on $1 million or more, as of Dec. 13.
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AMC Entertainment: $2,192,460 (up 996.23%)
Not surprisingly, the stock that impassioned retail investors have rallied around the most this year, movie theater chain AMC Entertainment (AMC -3.25%), is the top performer. A $200,000 investment has almost gained 1,000% and would be worth just shy of $2.2 million. However, keep in mind that this is down almost 70% from AMC's intra-day share price peak in early June.
The single biggest driver for AMC has been the prospect of a short squeeze. This is a very short-term event where short-sellers (people betting on the price of a security to fall) feel trapped in their position and scurry for the exit all at once. Since short-sellers must buy shares to exit their positions, it can cause a quick parabolic move in the shares of a stock. Retail investors have been calling for a massive short squeeze in AMC on social media boards for months.
The retail crowd that's piled into AMC is also counting on a rebound for the movie theater industry. Aside from simply enjoying going to the movies, these folks are expecting new releases to propel AMC's sales higher, and for the pandemic to eventually give way to packed theaters.
But in spite of these big gains, AMC is still the same disaster it was when the year began. Despite CEO Adam Aron's best efforts to raise capital -- Aron and the board sold as many shares as they could without investors' approval -- the company has burned through $714.5 million in cash in nine months, through Sept. 30, and is still sitting on $5.45 billion in debt and over $5 billion in lease liabilities. It also has $376 million in deferred rent that needs to be paid.
What's more, AMC has lost almost all of its bargaining power with the major studios. Striking deals with studios for 30 to 45 days of exclusivity is a significant drop-off from the 75- to 90-day theatrical exclusivity agreements that were commonplace prior to the pandemic.
With inflation-adjusted movie theater box office gross revenue shrinking for nearly two decades, I simply don't see how this stock provides a happy ending for anyone other than short-sellers.
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GameStop: $1,453,080 (up 626.54%)
Even though AMC has become the face of the retail movement, it was gaming and accessories company GameStop (GME 7.58%) that was the first love of retail investors. A $200,000 investment in GameStop would have grown to a cool $1.45 million, as of Dec. 13.
Similar to AMC, the key catalyst for GameStop was the company's exceptionally high short interest, which at one point topped 100%. With so many shares to cover, the retail crowd was able to effect a short squeeze unlike anything we'd ever seen before. In just a few days, shares of GameStop ran from about $20 to nearly $500.
Although GameStop's shareholders are also expecting another short squeeze to push shares higher, they, too, believe in the company's turnaround strategy. GameStop is investing heavily in digital gaming initiatives and cutting costs where it can, and will likely look to forge partnerships to broaden its sales channels.
Unfortunately, GameStop is a bit of a mess. To be clear, GameStop has a healthy net cash position, and digital gaming is a growing industry. Whereas AMC has a very real chance of filing for chapter 11 bankruptcy protection in the coming years, GameStop won't be going bankrupt. But this doesn't mean the business is in tip-top shape.
GameStop waited far too long to shift its focus to digital gaming and has been busy shuttering underperforming brick-and-mortar stores ever since. A steady decline in physical retail sales could weigh on growth in e-commerce revenue for years to come. Until management lays out a well-defined game plan, there's no reason to trust GameStop at a triple-digit share price.
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Cassava Sciences: $1,315,240 (up 557.62%)
The third ultra-popular stock that turned $200,000 into well over $1 million in 2021 is clinical-stage biotech stock Cassava Sciences (SAVA 0.93%). If you had the luck, stomach, and wherewithal to put $200,000 to work in Cassava's stock at the closing bell on Dec. 31, 2020, you'd have more than $1.3 million, as of Dec. 13.
There are two reasons behind Cassava's massive outperformance of the broader market this year. First, in early February, the company reported encouraging data from an open-label study of leading drug candidate simufilam, which is being examined as a treatment for Alzheimer's disease. This interim analysis data demonstrated improvements in cognition and behavior scores after six months, with no noted severe safety issues.
Second, Cassava Sciences is a fairly heavily short-sold stock. This means (you guessed it!) retail investors have piled into it, along with AMC, GameStop, and a handful of other heavily short-sold stocks, in the hope of a moonshot short squeeze.
But in keeping with the theme of this list, Cassava has the look of a stock worth avoiding. The company has faced allegations of manipulating its trial data. Keep in mind that some of the allegations have originated from sources that hold a short position in Cassava Sciences. Nevertheless, the company did confirm in November that certain federal agencies are investigating its practices.
The other concern is that Alzheimer's disease drugs have an extremely poor track record in clinical trials. With the exception of Biogen getting the controversial green light for Aduhelm, virtually all Alzheimer's candidates fail in late-stage trials.
As with AMC and GameStop, Cassava Sciences is a stock to avoid.
