Meme stocks in 2024: Opportunity or risk?

Investing in stock markets


IMPORTANT POINTS:

  • Meme stocks are speculative and volatile assets, attractive to risk-inclined retail investors.
  • Beyond Meat, GameStop, and Lucid are notable examples of meme stocks with varying returns in 2023.
  • Despite recent stock price rises, investing in these companies remains risky due to weak fundamentals and volatile markets.

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In 2021, meme stocks generated euphoria on social media and investor forums, and although the frenzy subsided, these speculative assets continue being a hot topic.

Primarily attractive to risk-inclined retail investors, meme stocks are volatile, growth-focused assets that tend to perform better in a low-rate environment. With the Federal Reserve planning rate cuts next year, investors are hoping for a more favorable environment for riskier stocks.

Three notable meme stocks currently making headlines, examining the potential they hold for investors in the year ahead.

Beyond Meat (BYND)

After several months of decline, plant-based meat maker Beyond Meat finally gave investors reasons to cheer.

In the last month, the stock is up more than 41%, hitting a three-month high of over $10.

The resurgence came after investors welcomed news of layoffs and new cost cuts in the company’s third-quarter earnings report. Additionally, the stock capitalized on broad market gains amid easing macroeconomic pressures.

Although the company missed revenue expectations, it announced plans to reduce the workforce by 19% and prioritize gross margin growth and cash generation.

However, despite the subsequent rise in share price, there is still little evidence that Beyond Meat is disrupting the highly competitive food industry. Furthermore, the company remains unprofitable, and with such fundamentals, investors would do well to stay on the sidelines for now.

GameStop (GME)

One of the highlights of the 2021 meme stock craze was the rise of GameStop (GME). During that period, the stock experienced a meteoric rise, reaching an all-time high of around $483 after a so-called short squeeze.

But that was almost three years ago. While GME continues to grab headlines as a meme stock, there’s not much to like about the retailer from an investing standpoint.

GME shares are up 30%, a rally fueled ahead of the company’s recently released quarterly results, as Traders once again showed their appetite for high-risk bets.

However, the financial report confirmed that GameStop still lacks positive fundamentals, with third-quarter revenue missing Wall Street estimates.

One of the few positive aspects that investors liked was the company’s change in its investment strategy. Notably, GameStop said it will begin investing in stocks, moving away from its previous strategy of buying government securities.

Lucid (LCID)

By almost every measure, 2023 has been a disappointing year for luxury electric vehicle maker Lucid (LCID) and its investors.

Company shares are down more than 20% so far this year due to poor production numbers and a cash burn significant.

Following its third quarter report, the company lowered its vehicle production guidance for the second time in less than a month to around 10,000 units by 2023. It’s the numbers behind the financial headwinds that are causing headaches for investors, with Lucid losing nearly $340,000 for every EV it makes in 2023, according to Bloomberg Intelligence.

As a result of these challenges, the Nasdaq exchange group announced that it would exclude LCID from the Nasdaq-100 index as part of its annual rebalancing . The stock took another hit earlier this week after its chief financial officer, Sherry House, left the company to “pursue other opportunities.”

Despite these headwinds, Lucid is up more than 17% in the last month. Most of the gains came this week amid generally strong sessions for US stocks buoyed by the Fed’s dovish turn.

The company recently presented Gravity, its first electric SUV, adding to its existing line, which until then included the Lucid Air as the only EV available.