Ticker Reports for May 12th
Will the Surge in GameStop Stock Spark a New Meme Craze?
Could the meme craze of 2021 be making a comeback? This question arises after shares of the popular meme stock GameStop (NYSE: GME) have surged 66% month-to-date on no fundamentally changing news. Instead, the move appears to be driven by retail speculation, which has returned in droves as the stock surges higher.
As the market approaches its 52-week high, could the increase in speculation and appetite for risk result in a secondary meme craze? That question remains to be answered; however, with several meme stocks currently soaring higher and possessing significant short interests, the impressive month's gains might not be short-lived.
So, let’s look at some popular meme stocks in the current cycle and unpack their performance along with key factors that might result in a higher potential squeeze—starting with the leader, GameStop.
GameStop Corp.
The meme stock craze of 2021, led by GameStop and AMC Entertainment (NYSE: AMC), saw retail investors from online forums like Reddit's WallStreetBets challenge institutional short-sellers, causing a significant short squeeze and sparking debates on market manipulation and finance democratization. This collective action demonstrated the power of retail investors and changed how we view and engage in the stock market. A similar theme has been emerging in recent weeks.
Shares of GameStop have surged a whopping 66% on the month, leading the current cycle of highly shorted meme stocks that are surging higher. The company possesses an increasingly bearish sentiment, with 19.6% of the float sold short and a consensus sell rating by analysts. As of April 15, while the short interest declined almost 9% over the previous month, close to 59 million shares were sold short, a hefty amount given the stock's average trading volume of just 5.4 million shares.
AMC Entertainment Holdings Inc.
Shares of AMC, a once leader alongside GME during the meme craze in 2021, have yet to catch a bid and squeeze higher during the current cycle. Instead, shares of the company have fallen over 50% in the year as serial dilution has overwhelmed the price action and fundamentals.
That negative performance is reflected in the sentiment, which is overwhelmingly bearish. Based on five analyst ratings, AMC has a strong sell rating and on-the-rise short interest. As of April 15, the short interest rose 20% over the previous month to 19.3%.
Carvana Co.
Shares of Carvana (NYSE: CVNA), a favorite among meme stock traders, have staged an impressive turnaround on the year thanks to changing fundamentals and a surging stock price helped by the ever-present unusually high short interest.
The stock has rocketed over 120% higher this year. It recently surged to new 52-week highs after reporting revenue and EPS beats for the year's first quarter. Since then, the stock has spent several weeks consolidating near its 52-week high, setting up for a potential squeeze higher. Short interest remains elevated, with 14.15% of the float sold short, a 2% decline over the previous month.
Trump Media & Technology Group Corp.
Given its nature, Trump Media & Technology Group (NASDAQ: DJT) is quickly becoming a prime candidate for a meme stock. The $7.4 billion company, which develops a social media platform known as Truth Social, was founded in 2021 and is based in Florida.
Volatility is no stranger to the stock, which has an extreme post-merger range of a high of $66.22 and a low of $22.84 set in April. However, since making that low, the stock has caught a bid and rebounded sharply, now up almost 60% over the previous month and fresh from breaking out of a consolidation. According to Nasdaq, the short interest is at 5.3 million shares as of April 30, an increase of almost 1 million from the previous settlement date of April 15.
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3 Stocks Nancy Pelosi Has Been Buying
When U.S. government officials decide to take on a view for a particular stock, Main Street investors could benefit by trying to figure out where and why these people decide to invest. Today, there is a clear technology sector preference on the part of California representative Nancy Pelosi.
Pelosi is now part of the ‘insider trading’ scandal after making a hefty profit on her Nvidia Co. (NASDAQ: NVDA) trades earlier this year. According to records, the government official made around $500,000 on her Nvidia trade, doubling her annual salary. While some may critique her potential access to privileged information, most miss out on the big picture.
Her other – most recent – interests in stocks like Alphabet Inc. (NASDAQ: GOOGL), the Walt Disney Co. (NYSE: DIS), and even Palo Alto Networks Inc. (NASDAQ: PANW) all have a similar trend behind them. Knowing where today’s value remains in the global economy, Pelosi has chosen these stocks.
The Beat of The Economic Drum
Will Pelosi be right again in her latest bets? Only time will tell; one thing investors can probably guess, though, is that she’s not far off the right track.
As the U.S. economy faces a steep divide this year, with the technology and manufacturing sectors diverging from their typical relationship, her stock picks could see a fundamental backing this cycle.
After contracting for more than 15 consecutive months, the ISM manufacturing PMI index left the spotlight for the ISM services PMI index instead. Services have expanded steadily since 2020, with only one contracting month in April 2024.
Because artificial intelligence, and the chips and semiconductors behind it, will be a focal point for governments and consumers this year, the Federal Reserve (the Fed) may help the cycle along.
The Fed could spark a new bull cycle in services stocks like Pelosi’s picks by proposing interest rate cuts later this year. One thing is certain, however, that her reasoning goes beyond this simple economic fact.
Google’s A.I. Race, At Great Prices
Sure, shares of Alphabet have risen to all-time highs recently, but the stock’s forward P/E suggests that new ceilings could be coming in soon.
Trading at a forward P/E valuation of 21.8x places Google at a 27% discount to its recent 30.0x forward P/E multiple in 2021. Analysts think the stock could see earnings per share (EPS) growth of 14% this year, pushing the envelope to expand this forward P/E to where it once was.
More than that, according to price targets, analysts at J.P. Morgan Chase & Co. think Google stock could rally up to $200 a share. The stock must jump by 18.3% from where it trades today to prove these projections right.
After creating the Gemini ecosystem, it is easy for investors to see how Google’s access to almost all of the world’s consumer data can be used through its artificial intelligence arm. Pelosi is onto something here but added one last piece to this A.I. puzzle.
Palo Alto Networks: The New Economy’s Police Force
Right after buying between $500,000 and $1 million worth of Alphabet stock, Pelosi added a range of $100,000 to $250,000 to her Palo Alto Networks shopping list.
Knowing that, as the global economy becomes more digitized by the day, cybersecurity stocks will play a more critical role in keeping business – and personal consumer – data secured, Pelosi saw just the right fit in Palo Alto.
Palo Alto stock became a potential buy target after retracing to 80% of its 52-week high. Understanding how vital cybersecurity will become shortly, analysts at KeyCorp boosted Palo Alto’s price targets to $355 a share, or 19.4% above today’s trading price.
Expecting 17% EPS growth this year and backed by a famous congresswoman investor, Palo Alto’s bears started to retreat in the past month. The stock’s short interest declined by 6.6% during April, 8.0% during March, and 4.8% during February.
Disney Stock is Arguably the Easiest Pick
Maybe not the easiest trade to copy, but potentially the easiest pick. As Disney's financials show net income margins contracting to near all-time lows, investors can bet on the business' margins returning to normal once their heavy investments into streaming start to pay off.
With rising market share over competitors like Netflix Inc. (NASDAQ: NFLX) and analysts expecting 18.5% EPS growth from this $194 billion behemoth, it’s easier to see where Pelosi spotted a double-digit upside.
Analysts at J.P. Morgan Chase & Co. see a price target of up to $140 a share for Disney stock, calling for a 32.4% upside from today’s prices.
Having another $500,000 to $1 million position in the stock gives investors the confidence to consider Disney. One thing to remember is that the stock has yet to reinstate its former dividend yield, which stands at only 0.8% today.
As the company’s free cash flow (operating cash flow minus capital expenditures) recovers, bigger dividend payouts may follow, helping the stock return to its former $203 a share high of 2021.
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Will the Biotech Sector Shift From Lagger to Leader?
The biotech sector and its popular ETF, the iShares Biotechnology ETF (NASDAQ: IBB), have lagged the overall market during the year, with its shares slightly red. However, in recent weeks, the sector has enjoyed a significant rally after bouncing off its uptrend support and now consolidating near several major Simple Moving Averages (SMA).
The recent rally in the biotech sector comes at a time of rising investor optimism and speculation in the short term. The overall market and critical sectors, like technology and finance, trade in the upper portion of their 52-week range after experiencing a significant selloff just weeks ago.
So, if the newfound support can sustain itself and the rally in the overall market lasts, might the biotech sector shift from lagger to leader for the remainder of the year, or at the least in the short term? If that is to happen, an investor armed with a bullish biotech bias might benefit from gaining exposure to some of the ETF’s top holdings with notable recent and higher timeframe strength.
So, let’s take a closer look at the sector and three industry-leading biotech stocks displaying notable strength in the sector.
In Focus: The Biotech Sector
The iShares Nasdaq Biotechnology ETF is an exchange-traded fund that aims to replicate the price and yield outcomes of the NASDAQ Biotechnology Index. This index includes biotechnology and pharmaceutical companies listed on NASDAQ that meet specific industry and eligibility criteria set by NASDAQ.
While the biotech sector ETF is negative by nearly 2% on the year, it has rebounded impressively in recent weeks. It is now consolidating in a tight range between converging moving averages. In the near term, if the ETF can break above its one-week range, with $134 acting as resistance, a push toward resistance near $138 might be the subsequent consolidation and target zone.
If a short-term breakout and further price stabilization are to occur, then biotech stocks that have outperformed on the year might continue to do so. Let’s look at three stocks that have displayed relative strength in the sector in the year.
3 Biotech Stocks Leading the Way
Regeneron Pharmaceuticals, Inc.
The IBB’s second-largest holding is Regeneron (NASDAQ: REGN), with an impressive weighting of 8.22%. On the year, the $105 billion pharmaceutical giant has led the sector notably with its almost 10% gain. And with REGN just 3.4% away from its 52-week high, continued strength in the sector might nudge the stock to new heights. Conversely, a move high in REGN could result in upward momentum for the sector. Analysts favor REGN, with a moderate buy rating based on twenty analyst ratings and a price target predicting almost 2% upside.
Moderna, Inc.
Shares of Moderna (NASDAQ: MRNA) have significantly outperformed the sector and market year-to-date, up over 22%. From a technical analysis perspective, the stock doesn’t appear to be slowing down. MRNA is in a firm uptrend and trying to break out of a short-term consolidation with clear momentum to the upside. Although the sentiment is leaning toward the bears, with a considerable short interest and recent insider selling, should the overall sector continue its move higher, MRNA could continue to outperform, given its recent momentum.
Vertex Pharmaceuticals, Inc.
Vertex Pharmaceuticals (NASDAQ: VRTX) is the third-largest holding of the sector ETF, with an 8.06% weighting, making it an influential sector stock. VRTX has slightly outperformed the sector with its almost 3% gain this year. The stock has held an impressive uptrend for several consecutive years and is now just 7% away from its 52-week high. Having recently broken its short-term bullish consolidation, a move toward the high $430s shouldn’t be ruled out.
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