Meme stocks got their names from the ubiquitous images you find on social media. These stocks became popular in 2020 when many people became investors, as they had time on their hands and stimulus cash to spend. The circumstances created a whole category of meme stocks that were big on community, but light on fundamentals. That’s changed in recent years. And not all meme stocks lack potential. But there are several meme stocks to avoid.
Anytime you talk about meme stocks, you should prepare to do battle. The very nature of these stocks means that investors hold these stocks with diamond hands with certainty their stocks will go to the moon. That’s tongue-in-cheek. It’s also the language of the meme stock community.
I’m sure many of these investors won’t be happy to see one or more of their holdings on this list of meme stocks to avoid. And if you’re looking at these stocks as trades, you might have some luck. But as part of a long-term investment strategy, you’ll have better options.
AMC Entertainment (AMC)
It’s almost too easy to include AMC Entertainment (NYSE:AMC) on a list of meme stocks to avoid. But AMC wouldn’t be a meme stock if it didn’t have its true believers. And in April 2024, those investors drove AMC stock up about 10% in a day when there was no news other than chief executive officer, Adam Aron’s statement that bankruptcy seemed inconceivable.
But less than two weeks later, and a week before AMC is scheduled to report earnings, the stock gave up about half those gains. Indications are for a year-over-year miss on the top line.
However, the real story is on the bottom line. Although the company’s operating loss is expected to be significantly better than the prior year, that doesn’t mean the company will report positive earnings. And we’re getting to the “if not now, when” part of the proceedings.
One opportunity the company may embark on takes the form of a proposal it has received to renegotiate its debt maturities, set to expire in 2026. That would help shore up the balance sheet.
However, floating such a proposal is evidence that bankruptcy may not be as inconceivable as the company claims. That could be why analysts have a consensus Sell rating on AMC stock and why it’s best not to get stuck in a long position.
FuboTV (FUBO)
Next on this list of meme stocks to avoid is fuboTV (NYSE:FUBO). The company has a good idea with its streaming platform that focuses on live sports. Apple (NASDAQ:AAPL) is using some of its boatload of cash to position AppleTV in the live sports market. Even Netflix (NASDAQ:NFLX) signed an agreement with the WWE as a first step in delivering live sports to its vast audience.
However, in describing the opportunity, I’m also describing the problem. This is a crowded, competitive space, and fuboTV has little that makes it stand out.
By way of full disclosure, I did bite on fuboTV for a while. I believed in the company’s sports-forward platform and saw its planned integration with a sportsbook as a unique selling proposition. But the company has walked back plans for the sportsbook, making fuboTV blend in rather than stand out. It’s not a bad company, but it’s hard to see a path to meaningful profitability.
Virgin Galactic (SPCE)
Virgin Galactic (NYSE:SPCE) is in the business of space tourism. But, according to one short seller, that term is loosely defined. An analyst from Kerrisdale Capital described Virgin Galactic’s travel as being similar to “a souped-up roller coaster.” That was in 2021.
To its credit, the company conducted some successful flights. Its top line reflects the impact of those flights. Still, the growth is steady, but not spectacular. However, a recent incident may have the company grounded indefinitely. That is coming when the company is still not close to profitability. Plus, the founder, Sir Richard Branson, has said he’s not planning to put any more money into the company.
That puts the company in the difficult position of trying to raise cash in a market where interest rates won’t be accommodating. It’s a tall order, and even if the company can raise capital, it’s not clear there will be enough demand to turn a profit.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
