Should Meme Stocks Be On Your List Of Stocks To Buy?

TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

Wondering what meme stocks are? You're probably not alone. You've likely heard about the term when listening in on CNBC's daily coverage of the stock market. I'll be the first to say that this whole "meme" trend isn't a new thing. But to the average trader or newbie investor in the stock market this year, this might be a "groundbreaking" phenomenon that completely changed how they approach stocks. The thought that a company's stock should reflect its share price has been thrown out the window and we've seen clear examples of this.

GameStock (GME) stock is trading over $200 and even reached highs over $480 earlier in the year. What justified the PPS going up so much besides unbridled hype? What about Koss Corp. (KOSS)? The company didn't change the way people buy or listen to radios so what would make investors buy it all the way up to $127.45 a share? The stock was trading under $1 not that long ago. Or why in the world would any "smart investor" choose to put their money into a bankrupt company like Hertz (HTZGQ) at the risk of losing their entire investment if and when the company emerges from bankruptcy?

These are all great questions and ones that any "normal" investor would ask. I'm sorry to say that the answer isn't as easy to give especially right now. That is if you're looking for a fundamental basis for it. The long and short is that thanks to a newfound gambling mentality that took shape last year - evidently in light of a lack of gambling entirely - new traders flocked to one of the few places still open that they could make money with: the stock market. Furthermore, the gaming mentality of the cryptocurrency market has also added some fuel to the fire.

I can't tell you how many times I've seen people on message boards say they "bet" on a stock going "to the moon." This is usually something we see from new traders looking to buy penny stocks. But this mentality has spilled over into more than just cheap stocks under $5. Evidently GameStop stock, Palantir (PLTR), Peloton (PTON), and even Beyond Meat (BYND) this week have all gotten the lovely Reddit-based boost.

Reddit Stocks Are Still At Top Of Mind

Are all meme stocks considered "Reddit stocks"? At this point, the term has been thrown around everywhere on social media. Whether you're talking about stocks/penny stocks on Reddit, Twitter, StockTwits, Facebook, or even YouTube, you're likely to find people talking about myriad meme stocks. While the hype is a great propulsion mechanism, if you're one of those trading these, it's also important to understand how momentum can be sustained if or when the hype dies down. In the case of stocks like Chico's FAS (CHS), Nokia (NOK), Trivago (TRVG), Cronos Group (CRON), and other meme-ish stocks, they've also got tailwinds persisting from the reopening trade. One of the big points of focus for "smart money" bets began with the notion that these stocks could benefit the most from economies restarting and boy has this trend sparked rallies for individual stocks.

Sometimes it pays to take a step back and look at broader trends. We know that meme stocks will be a "thing" moving forward. But the better bet might be with stocks in industries that will likely see a surge of inflows during the summer months ahead. Travel stocks, for instance, could be some to watch even if Reddit isn't discussing them right now. Your airliners line American Airlines (AAL), Delta (DAL), JetBlue (JBLU), and Southwest (LUV) are a few that come to mind. You've also got cruise ships beginning to come back online right now. Carnival (CCL), Norwegian (NCLH), and Royal Caribbean (RCL) are names that could be a focus. Then you've got ground transportation with rental car companies like Avis Budget (CAR), Hertz, and HyreCar (HYRE) all showing signs of life heading into mid-year.

Let's also not forget names like Booking Holdings (BKNG) and Expedia (EXPE). You've also got energy companies that could benefit in the short term due to a boom in energy usage for everything ranging from travel to a boom in manufacturing. While I'm sure we see plenty of volatility along the way, "meme stocks," the reopening trade, and other trends are likely to emerge and evolve before 2022.

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