‘This is a late-cycle dynamic’

Trading popular meme stocks such as Bed Bath & Beyond, GameStop, AMC, and Blackberry during their latest resurgence has a lot in common with putting a quarter in a slot machine, strategists warn.

“It’s speculation, absolutely,” Matt Miskin, John Hancock co-chief investment strategist, said on Yahoo Finance Live (video above) about the latest meme moves. “We want to find high-quality income for clients. That’s what we are honing in on instead of speculating in the gambling part of the markets.”

Miskin attributed the latest frenzied meme stock action to traders speculating on the path ahead of markets and Federal Reserve rate hikes.

“This is a late-cycle dynamic,” Miskin explained. “This is a sentiment indicator in our view. The fact that people are willing to throw capital around, trade like this, gamble like this — this is not usually something you see when the Fed is done raising rates. In our view, that means unfortunately the Fed will keep raising rates.”

There’s one meme stock, in particular, that depicts the madness of the current moment.

Shares of retailer Bed Bath & Beyond — which is on the brink of potential financial chaos — have exploded 386% so far in August as retail investors rally around the meme stock. Bed Bath & Beyond stock skyrocketed more than 70% in intraday trading on Tuesday amid a massive short squeeze.

BBBY stock finished Tuesday’s volatile session up 31%, and the stock rose another 18% as of 1:37 p.m. ET on Wednesday.

The insane gains for Bed Bath & Bath & Beyond appear to have been triggered by a couple of red meat items for the enthusiastic meme stock community, led by redditors on the r/wallstreetbets message board.

First, GameStop Chairman Ryan Cohen purchased out-of-the-money call options on 1.6 million shares of Bed Bath & Beyond stock with strike prices between $60 and $80, according to a new regulatory filing released Monday.

In other words, Cohen — who attacked Bed Bath & Beyond earlier this year — is betting the stock will break through $60 and he will make a ton of money.

Second, the meme community is once again rallying together to counter institutional forces that hold opposing views on the stock and the underlying business.

On Monday, Yahoo Finance reported on signs of financial stress at Bed Bath & Beyond locations in New York, which was met with feedback from BBBY fans.

And on Tuesday, B. Riley slashed its rating on the stock to Sell, citing the stock’s bewildering valuation.

MIAMI, FLORIDA - JUNE 29: A Bed Bath & Beyond store is seen on June 29, 2022 in Miami, Florida. Bed Bath & Beyond Inc. fired its CEO Mark Tritton as shares of the company are down more than 55% this year and nearly 80% over the last 12 months. (Photo by Joe Raedle/Getty Images)

A Bed Bath & Beyond store is seen on June 29, 2022, in Miami, Florida. (Photo by Joe Raedle/Getty Images)

Backing from redditors aside, all is not well fundamentally at Bed Bath & Beyond.

After a failed push in 2021 and most of 2022 to stock stores with private label goods, close stores, and fire workers, Bed Bath & Beyond ended its most recent quarter with a little more than $100 million in cash, tanking sales, weak store traffic, and a badly damaged brand.

There is currently an interim CEO running the business, which came about after the retailer booted former Target exec Mark Tritton, and now pros on the Street are awaiting a cash raise by the retailer ahead of the all-important holiday shopping season.

Meanwhile, other meme stocks have caught a bid recently: So far in August, as of Tuesday’s close, AMC shares are up 73%, GameStop has tacked on 25%, and BlackBerry is up 15%.

In any case, Miskin’s peers generally agree: It’s buyer beware in these volatile names even if they have a positive development like a Bed Bath & Beyond raising cash.

“I don’t think stocks like that need a narrative in itself because it’s like a game,” Steen Jakobsen, chief investment officer at Saxo Bank, told Yahoo Finance Live. “For an allocator like me, I don’t even spend more than two minutes a day concerning myself with the meme stocks and the like.”

“But let me stress,” Jakobsen added, “this is entirely speculative. You can just as well go to the casino and put all your money on black.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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Source: https://finance.yahoo.com/news/investing-meme-stocks-still-speculation-180850495.html