We're now more than 14 months removed for the initial surge in GameStop (GME 1.07%), AMC Entertainment Holdings (AMC 8.22%), and the rest of the meme stocks. You might have noticed that they're starting to show signs of life.
I've noticed. I have a column I write over the weekend, singling out three stocks to avoid for the week ahead. I've fared pretty well since late last year, beating the market with my bearish prognostications in 18 of the past 23 weeks.
I have been getting crushed lately, though. I singled out AMC last week, and the leading multiplex operator soared 28% over those five trading days. I decided to double down on meme stocks by singling out AMC and GameStop this week. The two names skyrocketed on Monday, up 45% and 25%, respectively. They've gone on to give back roughly half of those heady gains by Wednesday, but it's clear that meme stocks still have some bite behind the bark.
Image source: Getty Images.
Meme stocks aren't dead
Zoom out a bit and you see pedestrian returns for meme stocks in 2022. GameStop is a little higher this year; AMC is a little lower. However, zoom out a bit more and you see two stocks that are still sharply higher since the start of 2021 despite correcting sharply from the all-time highs hit in the first half of last year. Can't you say the same thing about the high-octane growth stocks that peaked in either February or November of last year?
The Nasdaq Composite (NASDAQINDEX: ^IXIC) is also rallying in recent weeks, but it's still trading lower in 2022. Its nearly 8% year-to-date decline heading into the final trading day of the quarter isn't far from AMC's 6% slide. Twinsies separated at birth?
Meme-stock bears will argue that I'm missing the point. GameStop and AMC aren't growth stocks. The video game retailer's business peaked a decade ago. The multiplex industry saw the number of movie tickets sold top off in this country at nearly 1.6 billion two decades ago. Online groups just gathered around fading business with thin floats and large short positions. It was just a matter of bringing in carnival barkers.
It's the retro charm that crowned GameStop and AMC as the prom king and queen. Can you imagine how crazy the trading would be in Blockbuster shares if it were still around today?
The problem is that growth stocks are starting to emerge from the throwback ashes. CEO Adam Aron of AMC has embraced the youthful persona of many of its novice retail investors with the same splash of swagger. It might look odd from the outside, like Steve Buscemi's Lenny Wosniak in 30 Rock trying to pass as a high schooler ("How do you do, fellow kids?") in a sting operation.
It's clicking on the inside. The multiplex industry's struggles continue, but AMC has used its popularity with millions of youthful retail investors to help jump-start the reinvention process. Do you really think that GameStop and AMC would both have a shot to succeed in the noisy but booming non-fungible token marketplace if it weren't for their status as meme stocks?
Both original business models are toast. You'll never get 1.6 billion people into U.S. movie theaters in a single year again. The high-margin business model of trading-in used games and gear for store credit will fade into perpetuity. However, both companies are making sure that they will grab larger slices of the shrinking pies -- and along the way carve out a chance to grow again with new business models.
Meme stocks peaking last year and rallying again in recent weeks alongside traditional growth stocks might seem insulting to both sides. Each camp was expecting a disconnect in its favor, but beyond a disparity in the volatility, that's not happening. Meme stocks are behaving a lot like growth stocks, and it's time to own up to that unfathomable reality.
