GameStop Pushes Analysts Away With Rock Star Status

GameStop, which is the engine on the meme stock train, has triggered some more fallout in the investment landscape. Most recently, another Wall Street analyst has jumped ship, pausing coverage on the stock as several others did before him. This time it’s Colin Sebastian, senior research analyst for internet and digital media at Baird.

Sebastian has reportedly placed a hold on his coverage of GameStop. He had a neutral rating on the stock with a USD 25 price target attached compared to the stock’s current price of USD 210. He blamed the fact that the stock has been trading on social media sentiment instead of its financial condition, interfering with his ability to provide a “reasonable” rating on shares.

In addition to the meme stock influence, there has been frustration about a lack of details surrounding GameStop’s transformation to a more digital-friendly platform. The gaming company, which is known for its brick-and-mortar locations, recently tapped Amazon alum, Matt Furlong, as its new CEO.

Sebastian is not the only Wall Street expert to turn their back on the stock, as the field of analysts has been whittled down to a trio of analysts from nine, as Barron’s pointed out. Shares of the gaming retailer might be down 1% today, but they have rallied more than 1,000% year-to-date. GameStop has shaved about 6% from its market cap during the month of June.

Short Interest

Short interest in GameStop stock hovers at USD 1.76 billion, according to Predictive Analytics managing director Ihor Dusaniwsky. He details that there are more than 8 million shares shorted, with close to 15% of short interest compared to the float.

Broker Bluff

Meanwhile, there is some controversy surrounding UK-based trading and investing app Trading 212. Social media is looking for clarity on how the broker is treating GameStop shares.

Based on user documentation on social media, it appears that Trading 212 is now requiring that users with GME shares allow the broker to lend out the shares or face the consequences. According to Charles Payne, who is at the helm of research firm Wall Street Strategies, those consequences seem to include liquidating, or being “restricted to only closing or selling the position.”

GameStop stock appears to be the main target, and users of the platform are crying foul.

AMC Rallies as Moviegoers Return and Meme Stock Disruption Persists

Movies appear to be making a comeback. AMC Entertainment today announced some good news that sent the meme stock soaring by a double-digit percentage at one point. The stock has since retreated slightly but remains one of the top meme-stocks today.

AMC attracted 2 million people to its U.S. theatres in the four-day period leading up to June 27, revisiting pre-pandemic visitation levels. Including international theatres, attendance was 2.5 million moviegoers.

Adam Aron, CEO of AMC, said that both attendance tallies set new records since the movie chain reopened its doors in a post-pandemic world. In particular, “F9: THE FAST SAGA” generated USD 70 million in ticket sales for AMC, and the summer blockbuster season is just kicking off.

AMC Stock Bump

AMC stock has been meandering below and above the USD 60 level all month and is currently within reach of the psychologically important threshold once again. At last check, shares of AMC are up 7% to just below USD 58 after surpassing USD 59 earlier in the session. If movie demand persists, the company has a shot at cleaning up its balance sheet, which is ridden with USD 5.5 billion in long-term debt.

 

Options activity is robust, with 221K contracts traded an hour into the session, close to three-quarters of which are calls with the balance being bearish puts.

Hedge Fund Executive Shuffle

Hedge funds have lost billions of dollars so far this year as retail investors have piled into meme stock names that sophisticated traders were shorting. Melvin Capital is one of the hedge funds that experienced major losses as a result of the run-up in meme stocks. The fund reportedly saw its fund shrink by approximately 45% this year as a result of its exposure to meme stock GameStop.

Melvin Capital was reportedly kept afloat thanks to a USD 2.75 billion capital injection by Point72 Asset Management and Chicago-based Citadel. As fate would have it, Citadel’s deputy global treasurer, Michael Kurlander, has left the firm, according to his LinkedIn profile, as of this month. He is now serving as the CFO at Pagaya, a fintech company with a focus on risk analysis.

While at Citadel, Kurlander was engaged with “risk management financial modeling.” Kurlander’s reasons for switching firms after almost four years at Citadel are unclear, but after the meme stock movement, risk analysis may have taken on a whole new meaning.

Stocks Gear Up for Monday After Record-Setting Performance

Stocks rallied on Friday as investor fears about inflation faded even after the Federal Reserve turned unexpectedly hawkish recently. The S&P 500’s modest gains were enough to send the index to yet another record high, reaching 4,280.70.

Financial stocks helped to catapult the broader market index higher after banks passed the Fed’s stress test with flying colors, giving them the all-clear to distribute dividends and buy back shares once again. May personal consumption expenditures, data that monetary policymakers use to gauge inflation, rose 3.4% YoY, as expected, which helped to tame inflation worries.

The S&P 500 advanced 2.7% for the week, its biggest weekly gain since early 2021. The Dow Jones Industrial Average also closed in the green, fueled by gains of more than 15% in apparel stock Nike. Meanwhile, the Nasdaq took a slight step backward after feeling pressure from higher bond yields.

In early Sunday evening, stock futures are higher across the board as investors look to keep the rally going and potentially send the S&P 500 to another new peak. This week, all eyes will be on Friday’s employment report, but there are some stocks to keep an eye on in the interim.

Stock Spotlight

Nike might have risen by a double-digit percentage on Friday, but there could be more room for this growth stock to run. Not only did Nike see its quarterly revenue about double YoY, but both the company and Wall Street expect the good times to continue.

UBS analysts said in a report that Nike has not yet reached a top, as the company continues to benefit from a shift in consumer behavior toward healthier habits as well as its own digital push. UBS has a price target of USD 185 on the stock, which closed last week at USD 154.

Other Stocks to Watch

  • GameStop muscled its way into the large-cap scene. As expected, the meme stock was added to the Russell 1000 index after qualifying once its market cap ballooned by billions of dollars YTD.
  • On the earnings front, Bed Bath & Beyond, which has attained meme stock status among retail investors, will report its quarterly earnings on Wednesday.

Look Ahead

On the economic front, there are a handful of indicators to watch out for. On Thursday, the Construction Spending report will be released for May. Also on Thursday, investors will get a read on ISM Manufacturing for June after the index beat estimates in May, climbing to a reading of 61.2.

And finally, on Friday, the employment report for June will be released after the economy added nearly 560K new jobs in May. Wells Fargo predicts that the economy added 750K non-farm payrolls in June, according to a report.

Virgin Galactic Revisits Multi-Month High, Investors Clamor for More

Retail investors on the WallStreetBets Reddit forum want to know if it’s too late to place a bet on Virgin Galactic. Shares of Richard Branson’s space travel company have skyrocketed by a double-digit percentage today to February highs after aviation regulators gave the go-ahead for commercial flights to space. The FAA’s approval comes on the heels of a successful test run last month.

Most investors on Reddit are kicking themselves for not jumping on this meme-stock bandwagon sooner. Others are reassuring one another, however, that there are likely more gains to come as Virgin Galactic begins scheduling flights. The company is planning more test flights for the summer months. After seemingly being stuck at the USD 53 level, shares have suddenly surpassed the USD 54 threshold, rising 34%. Volume is robust, with 199 million shares changing hands compared to an average of 20.4 million.

Race to Space

The expansion of Virgin Galactic’s operator license to include customers thrusts Branson into the center of a billionaire rivalry, with Jeff Bezos and Elon Musk similarly looking to be first-movers into the space tourism market. Bezos is looking to do so with his company, Blue Origin, while Musk is at the helm of SpaceX. All three of them have been investing heavily in their space companies, and the latest development is quite the coup for Branson.

Short Strategy

Virgin Galactic recently achieved meme-stock status due to a target on its back among short-sellers. The stock has short interest of 22.35% of its free float, according to financial analytics firm Ortex.

In recent weeks, short-sellers lost a combined sum of USD 3 billion after placing bets on a trio of meme stocks — AMC Entertainment, GameStop and Virgin Galactic, according to Ortex data. Options activity is high, with more than 930,000 contracts trading today at last check, three-quarters of which are bullish call options while the rest are bearish puts, as per Market Rebellion data.

The million-dollar question that investors want to know is whether Virgin Galactic will continue to rally on Monday. If the call volume in the stock is any indication, traders expect SPCE likely has some more runway for gains in the short-term, at least. The stock certainly has momentum on its side.

Meme Stocks GME, WISH Give Investors Something to Talk About

A couple of meme stocks are trading mixed as investors juggle internet sentiment and good news. Both GameStop and ContextLogic are giving investors something to potentially look forward to. GameStop shares are trading in the red while ContextLogic, a mobile e-commerce company, has most recently flipped green.

For GameStop’s part, it experienced a near doubling of its U.S. seaborne imports of gaming peripherals between March and April of this year compared to the same period in 2020. Imports were reportedly up almost 40% compared to the prior three-month period, all according to data by S&P Global Market Intelligence arm Panjiva cited by Barron’s.

GameStop’s suppliers look mostly to Asia to build the products that the gaming retailer, in turn, buys from them, according to the company’s latest annual report. Rising imports could suggest higher demand now that GameStop is making efforts to make the company relevant again. GameStop shares are down nearly 3% as short-selling ratios and options data continue to drive the price.

Short-Term Trade or Long-Term Play

As an early meme stock, GameStop’s stock has been acting more like a short-term trade than a long-term investment based on any fundamentals. But The company is using the spotlight as a springboard to keep the momentum going even after the meme movement fades.

In recent days, GameStop issued 5 million shares at about USD 225 per share. It was only two years ago that the gaming retailer was buying back its own shares at around USD 5 per share, which is a reflection of retail investor influence.

Wishful Thinking

ContextLogic, which recently reached meme-stock status, is reopening its offices in San Francisco for employees in the Bay area to return if they choose. ContextLogic, which has 1,100 employees, is giving its staff a choice of whether they’d like to continue working remotely, return to the office or a combination of the two.

The company, whose stock has rallied 25% in the past week, also revealed that it will be adding more than 650 jobs in more than a dozen countries this year to keep up with its growth. The latest hires will be on top of a 25% increase in its staff year-to-date. Individual investors are targeting the USD 14-16 range for the stock, which is currently trading at just under USD 14 per share.

GameStop Investors Flex Their Muscles amid Shuttered Hedge Fund

Reddit investors pack a powerful punch, just ask hedge fund managers. London-based White Square Capital is shuttering its operations after losses it suffered early in the year from popular meme stock GameStop, according to a report in the Financial Times, citing people close to the situation. White Square, which was founded by Florian Kronawitter, an alum of Paulson & Co, was reportedly short GME.

White Square was among the hedge funds to bet against GameStop just about the time that the WallStreetBets revolution was taking hold. The hedge fund got caught in the crosshairs, reportedly experiencing a double-digit percentage decline from the bet and derailing its assets under management (AUM), which at their prime were USD 440 million.

‘Long/Short Model Challenged’

Not only have retail investors succeeded in outtrading hedge fund managers, but they have managed to compromise one of the tried and true strategies — equity long/short. Kronawitter reportedly stated:

“The decision to close down is related to thinking the equity long-short model is challenged.”

The FT source suggests that meme-stock investors were not to blame for White Square’s demise. Meanwhile, White Square’s pain isn’t translating to GameStop’s gain, at least not today, with shares currently trading lower by about 1%. Year-to-date, however, the stock has rallied more than 1,100%.

Bad Timing

January 2021 was a painful month for short-sellers in GameStop stock. In the month, GME shares suddenly skyrocketed from USD 17 to almost USD 500 at the height of the mania, as retail investors on the WallStreetBets Reddit forum banded together and blindsided short-sellers.

Their strategy worked, as retail investors’ profits skyrocketed at the expense of short-selling traders. The target list of highly shorted stocks has since expanded to include movie chain AMC Entertainment, antiquated (but trying to stay relevant) mobile device maker BlackBerry and others. White Square investors will be getting their money back as the sun sets on the firm’s flagship fund.

Risk On

GameStop’s short volume ratio is currently 23%, compared to a lesser 21% for meme stock cousin AMC Entertainment. according to Fintel data. Meanwhile, the volatility in the equity markets is expected to persist for the foreseeable future.

Investors have money to burn, after depositing USD 18.5 trillion into bank accounts in Q1 2021 compared to USD 15.8 trillion in the prior-year period. And with such meager returns from savings accounts, equities — including risky meme stocks — remain a compelling option for consumers hunting returns.

Why GameStop Stock Failed To Settle Above $225 Today

GameStop Gains Ground After Company Completes “At-The-Market” Equity Offering Program

Shares of GameStop gained upside momentum after the company announced that it had completed its “at-the-market” equity offering program.

On June 9, the company announced that it would sell up to 5 million shares of its common stock through an at-the-market offering. The stock has immediately found itself under pressure and moved from the $300 level towards the $200 level.

As it turns out, GameStop actively sold its shares and has already completed the program. The company stated that its gross proceeds from the “at-the-market” program totaled $1.126 billion, so GameStop sold its shares at an average price of $225.2 per share.

GameStop stated that the proceeds from the offering will be used for general corporate purposes and investment in growth initiatives.

What’s Next For GameStop Stock?

GameStop stock moved higher after the announcement about the end of the “at-the-market” equity offering program as traders bet that selling pressure will decrease, and the stock will be ready to gain upside momentum.

However, I’d note that the stock has already pulled back from recent highs which were close to GameStop’s average selling price in the “at-the-market” equity offering program. The key risk for GameStop bulls is that market participants will view the $225 level as a “ceiling” since the company has readily sold its shares at this price.

I’d also note that analyst earnings estimates for GameStop have improved in recent weeks. Currently, analysts expect that GameStop will report a loss of $0.31 per share this year. In the next year, the company is projected to report a profit of $0.15 per share.

At the current stock price of about $212, the stock is trading at 1413 forward P/E. While the company’s valuation remains disconnected from reality, GameStop’s near-term dynamics will depend on whether the stock will be able to get above the key $225 level. If the stock fails to settle above this level in the upcoming trading sessions, it may find itself under more pressure.

For a look at all of today’s economic events, check out our economic calendar.

GameStop Raises More Than $1 Billion in Latest Share Offer

The company, whose shares are up more than 960% this year, was the spark in January for a battle casting hedge fund short-sellers against a pack of small-time investors organizing online.

It remains one of the hottest and most visible “meme stocks” and was up nearly 9% in premarket trading on Tuesday.

The company, like others of the social-media hyped stocks that have lit up Wall Street since January, has sold millions of dollars in new stock on the back of what institutional players say are speculative share moves unjustified by their businesses.

Cinema operator AMC Entertainment, another meme play, completed two share issues in three days earlier this month, while Torchlight Energy on Monday upsized its own share sale to $250 million.

GameStop said it would use the net proceeds from the offering, which adds to $551 million it raised in late April, for general corporate purposes as well as for investing in growth initiatives.

The company is trying to pivot to e-commerce and recently hired a former Amazon official as its new chief executive officer to steer it through the transition.

Its shares dipped sharply when it announced the share offer earlier this month and have fallen another 10% since, even after Tuesday’s initial moves.

White Square Capital, a London-based hedge fund that suffered losses betting against GameStop during the first meme stock rally in January, is shutting down, the Financial Times reported on Tuesday.

(Reporting by Eva Mathews and Sagarika Jaisinghani in Bengaluru; Editing by Anil D’Silva and Patrick Graham)

GameStop Flounders but Long-Term Catalysts Remain Intact

GameStop has deepened its technology-fueled strategy as it looks to revive its outdated brand. The gaming retailer has named Amazon alum Matt Furlong, who it recently tapped as CEO, to its board of directors, with immediate effect.

GameStop is looking to harness Furlong’s experience at the e-commerce giant, including his former roles as technical advisor and head of Amazon’s North American consumer segment. He also spearheaded Amazon’s Aussie business “during a period of substantial growth,” according to Furlong’s LinkedIn profile.

Low Volume, Low Conviction

The stock is taking it on the chin in the short term, with shares down more than 6% today. The company’s new digital push, however, could have long-term benefits for the fundamentals as well as the stock price. Trading volume in the stock is lower than usual, with 3.7 million shares changing hands vs. an average of nearly 10 million. Summer trading might have gotten a jump start this year.

GameStop continues to capture the attention of the WallStreetBets crowd. They have made GME one of their most talked-about names today, surpassed by fellow meme stocks BlackBerry, AMC Entertainment and Clean Energy.

GameStop in Your 401(K)?

Meme stocks are starting to pop up in exchange-traded funds, which are popular investment vehicles in retirement schemes such as 401(K) plans. According to a recent report in The Wall Street Journal, investment firms behind actively managed ETFs are jumping on the meme-stock bandwagon in hopes of capturing some of the windfall fueled by retail investors. A couple of these funds include:

  • Qraft AI-Enhanced US Next Value ETF
  • The US Small-Cap Adaptive Multi-Factor ETF by Principal Financial Group

Considering that these funds are actively managed, the portfolio managers are hoping to use their stock-picking skills coupled with technology to ride the meme stock wave before it comes crashing down.

For its part, Qraft uses AI to help time its investments, and it targets value stocks. Meme stock leaders GameStop and AMC recently made their way onto the algorithm’s leading 100 stocks for the month. Principal Financial, meanwhile, takes a quantitative approach, involving more human intervention. GameStop is currently the biggest holding in Principal’s small-cap ETF.

If GameStop succeeds in looking more like Amazon than a brick-and-mortar retailer, shares might not skip a beat when the meme stock craze is eventually over.

GameStop Names CEO Matt Furlong to Board

Furlong was named GameStop‘s CEO earlier this month, succeeding George Sherman who, the company said, also retired from the board.

Furlong oversaw a small but growing part of Amazon’s business as the country head for Australia, a role his LinkedIn profile said he assumed in May 2019.

GameStop has become one of the hottest and most visible “meme stocks” followed on social media after its meteoric rise in a Reddit-driven retail short squeeze that caught Wall Street off guard in January.

Top shareholder Ryan Cohen, who was made Gamestop’s chief technology office earlier in March, is driving the company’s transition into e-commerce and has been responsible for the shakeup in its top management.

(Reporting by Eva Mathews in Bengaluru; Editing by Anil D’Silva)

Retail Investors WISH on a Star, Stock Rises amid Bold Call Volume

The WallStreetBets bunch has set their sights on a stock called ContextLogic, with a ticker symbol WISH. ContextLogic is an e-commerce marketplace that matches buyers with sellers. The stock touched on USD 12.10 in today’s trading, and while it has retreated from its highs of the day, shares remain higher by about 3.5%. Retail investors are behind this run after WISH captured their attention.

Short Interest & Bold Call Volume

The thing about ContextLogic, however, is that the short interest is unclear. While the major names on their list including GameStop and AMC Entertainment each have a double-digit percentage short interest, increasing the chances for a short squeeze, ContextLogic’s a gray area. The numbers being bandied about are in a wide range, with the high end in the 30% area and the low end at a mere 6%.

Traders are laser-focused on unusually high upside call volume in WISH. The USD 12.50 and USD 14 calls expiring on June 18 are among the most popular contracts. There is a great deal of volatility in the stock. Volume is heavier than usual at 111 million shares vs. an average of 27.7 million.

 

Source: TradingView

Single-Stock Open Interest Off the Charts

The Fed certainly put a damper on the stock market with its inflation and interest rate remarks. The selling has spilled over into some major meme stock names, including GameStop. Shares of GME are headed into the weekend lower by about 2%. The company had some actual news for investors to trade on today.

GameStop is reportedly restocking the PS5 on its shelves, but the product is reserved for the gaming company’s loyalty customers who are PowerUp Rewards members. The restock is first-come, first-serve for members and it is unclear whether or not GameStop will open up the restock to the general public.

On the trading front, there could be more volatility ahead. According to a Goldman Sachs report cited by Reuters, some USD 818 billion in “single-stock equity options” is set to expire today. The surge in options demand has been a consequence of the retail investor push into meme stocks including GameStop and AMC Entertainment. Open interest in single stock options is reportedly hovering at January highs of close to USD 3 trillion based on the notional value, Goldman analysts say.

Investors Brace for Annual Russell Index Rebalancing with Pandemic Imprint

On the last Friday every June, FTSE Russell refreshes the components in its range of indexes, such as the Russell 2000 index of small-cap stocks and Russell 1000 index of large-cap names. Together they make up the Russell 3000 index. There are also style indexes such as the Russell 1000 growth and Russell 2000 value.

It is often the heaviest trading volume day of the year, as investors and fund managers scramble to buy or sell shares to dozens or even hundreds of companies to reflect changes in indexes. Many this year will be watching “meme stocks” like GameStop or AMC Entertainment whose value soared. Companies that went public through mergers with a Specialty Purpose Acquisition Company (SPAC) will also be on the radar.

As of the end of 2020, about $10.6 trillion in investor assets was benchmarked to Russell’s U.S. indexes, according to FTSE Russell.

While FTSE Russell has occasionally tweaked its rules for inclusion in its indexes, such as allowing companies with multiple share classes to remain in or be permitted for inclusion, this year’s reconstitution has no methodology changes.

“Our policy team obviously regularly talks to the market participants and our committees and there were no new rules identified that were needed,” said Catherine Yoshimoto, FTSE Russell Director of Product Management.

Market capitalization for the Russell 3000 index vaulted from $31.4 trillion in 2020 to $47.7 trillion as of Russell’s “rank day” on May 7, 2021.

Stock market volatility took the index on a wild ride in the past two years. In early 2020, stocks sold off when the pandemic hit but then rebounded late in the first quarter to remain about flat from the previous year. This year the market cap for the index surged as stocks have rebounded along with vaccine distribution and a reduction in pandemic-induced lockdowns.

“It’s more assets, more appreciation, you’ve got some stocks that have gotten bigger weight changes so they are going to see more trading volume because there is jumping around, so this is a bigger trade this year than it has been in previous years” said Steve DeSanctis, equity strategist at Jefferies in New York.

The market cap breakpoint Russell uses to determine inclusion in the large-cap Russell 1000 or the small cap 2000 also increased to $5.2 billion in 2021 from $3 billion in 2020.

Perhaps no group of stocks exemplified the pandemic trading environment more than the so-called “meme stocks” such as GameStop and AMC Entertainment.

Shares for those companies had languished and even been shorted by many institutional investors due to poor fundamentals. They took off like a rocket as retail investors using commission-free trading services looked for places to invest government stimulus checks.

The market cap of AMC, for instance, stood at $4.3 billion on the May 7 rank day, but has surged to over $30 billion by June 17, well above the top end of the market cap band for the Russell 2000 index of $7.3 billion set by Russell.

GameStop is expected to graduate to the Russell 1000 large cap index. Managers who have chosen not to own those stocks prefer they stay within the index so as not to disrupt their performance versus the benchmark.

“Where those stocks move will dictate a lot of active manager’s relative performance over the following six, eight or 10 months after the rebalancing,” said Keith Buchanan, senior portfolio manager at Globalt in Atlanta.

“I would rather have AMC in the benchmark because obviously since I don’t own it I think it is overvalued.” Therefore, if AMC falls, his investments would look better against the benchmark.

Goldman Sachs expects 255 additions to the Russell 3000 and 295 deletions, and expects 57 stocks will enter the Russell 1000, including 34 currently in the Russell 2000. Goldman anticipated a total of 279 stock will enter the small cap index, comprised of 232 new components and 47 being knocked down from the large cap index.

A big portion of expected adds will be companies that went public through a merger with a SPAC. Jefferies’ DeSanctis estimates over 25% of additions to the Russell 3000 are SPAC companies.

“It is the year of the SPAC, the year of the meme stock – and here they are having ramifications on real money,” said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky.

During the event every year, volume surges near the close, often resulting in the biggest trading volume day of the year. The Nasdaq and New York Stock Exchange have contingency plans for the event.

KBW analyst Melissa Roberts expects the bulk of passive fund trading related to the reconstitution will occur in the last 15 minutes or so of the session and estimates the net trade will total nearly $75 billion.

“Let’s face it, for the New York Stock Exchange – Russell reconstitution, from a trading standpoint, is the greatest show on earth, that’s where it all comes down,” said Gordon Charlop, a managing director at Rosenblatt Securities in New York.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Chuck Mikolajczak; Editing by Alden Bentley and David Gregorio)

 

GameStop Poised to Trade With Tech Giants in Russell 1000

GameStop stock has had an impressive year, gaining almost 1,200% year-to-date and kicking off what has become a movement among retail investors. The stock has also reached a significant milestone that could qualify it to trade in the same index as some technology behemoths including Apple, Amazon, Facebook and even Tesla — the Russell 1000.

GameStop needed to have a market cap of USD 5.2 billion as of May 7 to be eligible, a standard that it passed with flying colors. On that date, its value was roughly USD 12 billion. The Russell 1000 index is reportedly set to be reorganized on June 25. To be fair, GameStop’s weighting would likely be small in comparison to the tech giants.

Still, should GameStop gain entry into this popular index, it could provide some long-term stability to the stock price. That is because index funds are a popular choice in retirement accounts via ETFs or mutual funds. As a result, GME could become part of the portfolio of many future retirees who might otherwise not hopped on the meme-stock bandwagon.

Good Company

When Tesla joined the Russell 1000 more than a decade ago, the stock was trading at less than USD 5 per share. Today the stock is trading at more than USD 616 per share. That’s not to say that the stock’s bull run has been a function of its membership in the Russell index. But it is a good sign and an indication of how beneficial it can be to be part of the index club.

In addition, Tesla recently joined the S&P 500 index on Dec. 21, 2020. To join the S&P 500, a stock must boast a market cap of at least USD 11.8 billion as one of the criteria. GameStop meets that criteria with a market cap of more than USD 16 billion. Perhaps it won’t be long before the market is talking about GME not only joining another Russell index (it currently trades in the smaller-cap Russell 2000) but also the benchmark U.S. stock market index, the S&P 500.

Meme Stock Bet

Meme stocks have proven to be some of the best bets of the year. Stocks like GameStop and AMC Entertainment have gone parabolic and gained comparisons to cryptocurrencies like bitcoin. On the commodities front, lumber has shed more than 40% of its value since hitting a multi-year high in early May. The gold price has managed to rise a modest 1.6% since then.

GameStop shares are tacking on more than 1% today on the index chatter.

Why GameStop Stock Is Down By 13% Today

GameStop Video 10.06.21.

GameStop Stock Moves Lower As Company Expects To Sell More Shares

Shares of GameStop gained downside momentum after the company released its quarterly results.

GameStop reported an adjusted loss of $0.45 per share and revenue of $1.28 billion, easily beating analyst estimates on both earnings and revenue. GameStop noted that it had $770.8 million of cash and restricted cash on May 1, 2021, while it had not borrowings under the asset-based revolving credit facility and no long-term debt.

GameStop also stated that it may offer and sell up to 5 million shares of its common stock in “at-the-market” offerings.

The company has also announced that Matt Furlong will become CEO while Mike Recupero will become CFO. Both executives come from Amazon.

GameStop added that its May total sales increased by about 27% compared to last year, but the company continued to suspend guidance for the full year.

What’s Next For GameStop Stock?

While the company’s report exceeded analyst expectations, the news about another share sale served as a bearish catalyst for GameStop shares. The company’s management is using the stock’s popularity to boost GameStop’s balance sheet, which is the right thing to do from the business point of view.

However, the “at-the-market” share sale may put pressure on GameStop shares as trading volume has declined significantly in recent months compared to January – March period.

From the fundamental point of view, the stock remains significantly overvalued despite the positive trends highlighted by the report. In this light, the near-term dynamics of the stock depend on the activity of retail traders.

It remains to be seen whether the current pullback will turn into a strong sell-off as professional short-sellers will likely stay away from GameStop after three major short squeezes in 2021.

Without selling pressure from professionals, GameStop’s fate will be in the hands of retail traders which were not worried about the company’s fundamentals before, and may continue to hold GameStop stock.

For a look at all of today’s economic events, check out our economic calendar.

New GameStop Chairman Gives Nod to Reddit Crowd, Stock Rises

GameStop doesn’t really need any help to ignite any sort of rally in the stock market these days. Nonetheless, a nod by the company’s chairman during the annual shareholder meeting in Texas today certainly didn’t hurt. According to reports, GameStop Chairman Ryan Cohen presided at the meeting, and he was quick to give credit where it was due, calling the WallStreetBets crowd “special” and saying,

“We’re fortunate to have such a special group of investors holding the company’s shares. You guys inspire us to think bigger, fight harder and work longer each day.”

GameStop shares are up 3% at last check to USD 309.91.

Activist Investor Turned Chairman

Cohen isn’t your average company chairman. He is an activist investor who only entered GameStop stock because he wanted to see the company take a different direction. After joining the board, he was nominated to the top spot in April amid a management shakeup.

Cohen, who is also the co-founder of Chewy, is known for pushing the company to sell its brick-and-mortar locations in light of a shift in the gaming industry to a digital model. He officially becomes chairman of the GameStop board today.

GameStop appears to have a second wind with Cohen at the board helm and the Reddit investor crowd in tow. The chairman reportedly discussed a new strategy for the gaming retailer but kept the details close to the vest. One thing that is clear is that he is focused on driving shareholder value, which suggests that investors could ride this train for the foreseeable future.

Tale of Two Meme Stocks

Meme stocks are a mixed bag today. While GameStop is on a tear, yesterday’s darling Clover Health is a different story, with investors taking profits and sending the SPAC-related stock 10% lower.

Source: TradingView

While it isn’t unusual for meme stocks to be volatile as retail investors and hedge funds wrestle for control, just yesterday Clover shares soared 85% and became the latest target of the WallStreetBets crowd. If Clover investors are hoping for similar gains they have seen with GME or AMC shares, however, they will have to be patient.

Clover Health is up 25% so far this year, which by usual standards is outperforming the S&P 500. But GME and AMC stocks are up a much more impressive 1,500% and 2,300%, respectively, leaving their newest club member in the dust.

 

Clover Health is the Next Stock Getting Attention on Reddit

Day traders on Reddit have pumped numerous stocks over the past few months. They have now turned their attention to Clover Health, with the company’s stock rising by over 100% at some point today.

Reddit traders turn to Clover Health

Reddit traders have been responsible for pumping a few stocks over the past year. The GameStop stock rally gained popularity and was covered by major news outlets globally. However, the day traders on Reddit also pumped other stocks, including AMC, despite the company taking a hit due to the closure of public places because of the pandemic.

The traders have now turned their attention to Clover Health. The company’s shares went up by over 100% earlier today. Shares of Clover Health, a Medicare insurance start-up that went public through Chamath Palihapitiya’s SPAC, rallied by 100% earlier today. This comes after recording a 32% surge in stock price yesterday.

At the time of this report, the company’s stock price is trading at $19.65, up by 65% over the past 24 hours. At the start of the US trading session, 300 million Clover Health shares were trading in the market, up by 13 million from yesterday. Its daily trading volume is also higher than the 30-day average volume of 22 million shares.

Clover Health’s stock price has been rallying thanks to the attention it has received from Reddit’s WallStreetBets forum. The forum now has over 10 million participants, and it is one of the largest gathering of day traders in the world.

Reddit users favor broken businesses

The Reddit day traders seem to favor struggling businesses and pumping their stock prices higher. It began with GameStop towards the end of last year, with the company struggling to stay afloat. The traders pumped its price by hundreds of percentages.

AMC price chart. Source: FXEMPIRE
AMC price chart. Source: FXEMPIRE

This was followed by AMC. The theater chain took a hit following the closure of public places due to the pandemic. AMC had to sell some of its assets to settle some debts. The traders pumped AMC’s price, with the stock rising by 110% in June alone.

The traders are also focusing on another stock. Wendy’s is up by 15% so far today, and it could rally higher if more people enter the market.

Why GameStop Stock Rallies Ahead Of The Earnings Report

GameStop Video 08.06.21.

GameStop Shares Move To New Highs On Low Trading Volume

Shares of GameStop gained strong upside momentum today as traders continued to push the stock higher ahead of the release of the company’s first quarter fiscal 2021 earnings report. The report will be issued on Wednesday, June 9, 2021, after the market close.

Analysts expect that GameStop will report a loss of $0.83 per share. Earnings estimates for the full-year have actually trended down in recent months, and the market expects that GameStop will report a loss of $1.02 per share, which is projected to be followed by a loss of $0.59 per share in the next year.

Typically, declining earnings estimates serve as a bearish catalyst for a stock, but GameStop’s valuation is completely detached from fundamentals so it remains to be seen whether traders will pay attention to the company’s financials when it releases its earnings report.

What’s Next For GameStop Stock?

The key question for the market right now is whether traders will use the earnings report as a catalyst to sell GameStop shares as the company is overvalued by any meaningful valuation metric.

I’d note that Gamestop shares are moving higher at a very low trading volume compared to the volume that we have seen back in January – March when the stock was especially active.

This means that there are few sellers of the stock, which allows buyers to push the company’s shares higher without using significant funds. In addition, the thin market is a true nightmare for short sellers who are trying to get out of their positions.

At this point, it looks that dynamics of GameStop shares will depend on social media activity and short sellers’ problems rather than on the company’s earnings report. However, if the market decides to focus on GameStop’s earnings instead of the current short squeeze, the stock may gain significant downside momentum.

For a look at all of today’s economic events, check out our economic calendar.

From Inflation to Free Popcorn Bubble

Inflationary pressures remain the focus for now. According to Google, search interest for “inflation” is at an all-time high. It has also been largely discussed during the last companies’ earnings calls, especially the two main sources of inflation, that is the increase of supply costs (commodities, transportation, chip shortage, etc.); and the increase in wages, due principally to the difficulty of finding workers.

It seems that people currently receiving unemployment benefits till September are not in a rush to go back to work. As a result, in order to attract employees, many companies announced increases in salaries. With higher costs leading to increased prices, it does not look to us like inflation will be only transitory, as most of Fed and Treasury officials keep saying.

Note, that the only phenomenon that could be temporary is the comparative economic data which compares current economic performance to last year’s performance. This is at best quasi-irrelevant as last year’s numbers obviously reflect an economy that was then shut down.

While a rate hike is unlikely, the Fed could decide to reduce its bond purchases. Indeed, the release of the latest Fed meeting minutes gave some hints that such a move could possibly be announced during the next meetings – but more likely in July or September than in June. In Europe, the ECB made it clear that no tapering would happen before they see further evidence of a full economic recovery.

May was also marked by progress on the President’s massive infrastructure plan. Republicans made a $928 billion counteroffer to Biden’s $1.7 trillion original plan, proposing the use of existing funds for financing instead of a tax hike. A compromise must be negotiated and accepted by each side in order to pass the bill as soon as possible, as the Democrats wish to do.

On the ETFs side, ESG (Environmental, Social and Corporate Governance) ETFs, encountered more inflows than any other ETFs in Q1 and hit new records in terms of size. In addition, the new Ultra Short Bonds ETF of Vanguard, launched in April, has already raised $730 million, indicating that some cash is seeking to be invested on the sidelines for the time being.

Also interesting was the rebalancing of some of BlackRock’s ETFs. The giant asset manager decided to reduce the concentration and the volatility of its clean energy ETFs by adding a component of “energy transition” stocks, making the thematic ETFs a bit more mainstream. Moreover, it heavily rebalanced its USA Momentum Factor ETF, by switching most of the tech exposure with value stocks, especially Financials that now account for 1/3 of the ETF. An interesting new weighting, that although based on the past six months momentum, gives a clear indication of the outlook according to prominent actors.

Finally, May saw the fall of Bitcoin and the comeback of frenzied trading. After the cryptocurrency more than doubled in value in only a few months, one-third of its value was erased following Chinese regulators’ announcements and Musk’s tweets, both against the digital coin. Also, AMC Entertainment stock that was paired with GameStop during the Reddit saga in January made a comeback as traders’ favorite stock of the month: its shares were up more than 500% in one month only, based on nothing but meme-trendy-viral-trading.

The earnings season for the first quarter showed exceptional numbers and overall good guidance for the rest of the year. Since it is too early to price a rate hike, we continue to believe that, despite the current valuations, equity markets could be further supported. Having said that, everyone who follows the markets this year can feel the fragility and keep expecting the unexpected. In this context, we continue to reduce risk, to be prepared for an eventual sharp pullback.

As always, risk management combined with rigorous sector and geographical diversification will remain key factors for investment performance.

You are more than welcome to contact us to discuss our investment views or financial markets generally.

For a look at all of today’s economic events, check out our economic calendar.

Meme Stock Bulls Take Back Control as Hedge Fund Battle Rages

After a wave of selling heading into the weekend, retail investors have wrestled back control of their favorite shorted stocks, including AMC Entertainment and GameStop. The stocks are off their highs of the day, and retail investors are convinced that something shady is going on.

Short sellers are swinging back after losing USD 2.2 billion from AMC’s rally last week. There are theories of traders pulling out all the stops — including the illegal practice of naked shorting, which is currently trending on Twitter.

Double-Digit Percentage Gains

Shares of AMC have galloped 16% today but still failed to cross the psychologically important USD 60 level, where the movie chain stock closed above on June 2 for the first time. While AMC might be off its peak, investors don’t have much to clamor about considering that the stock has skyrocketed more than 467% since early May.

Fellow WallStreetBets stock GameStop is tacking on close to 11% in today’s session. The stock has gained more than 1,400% year-to-date for a market cap of USD 19.4 billion. GameStop investors have proven to be a loyal bunch as it hasn’t always been easy to hold. But those who have stuck around continue to be rewarded with more potential runway for gains.

Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, revealed in a tweet that GMC and AMC each have a short squeeze risk score attached of 10 out of a possible 10.

Source: Twitter

Naked Short-Selling

Meanwhile, the WallStreetBets crowd has taken over Twitter, with #nakedshorting trending on the social media site. To be clear, unlike regular shorting, which is legal, naked selling is not legal. It has to do with selling shares that have not been issued yet. Nonetheless, it still happens in the market.

Naked shorting is how 140% of GameStop’s float can have short interest, as pointed out by Charles Payne on Fox Business. Christian, Smith & Jewell Law Firm Attorney Wes Christian said he blames the prime brokers that are custodying the assets as well as market makers for this behavior.

The meme stocks have captured the attention of regulators, who say that they are monitoring the market for any manipulation and that they are looking to “protect retail investors.”

In the interim, retail investors appear to have hedge fund traders on the defense. Interactive Brokers Chairman Thomas Peterffy has some advice for them: don’t short meme stocks or you’ll come out on the losing side of the bet. He said stocks such as AMC have the potential to reach “unimaginable highs” that can leave traders holding the bag.

Earnings to Watch Next Week: Vail Resorts, GameStop, Restoration Hardware and Chewy in Focus

Earnings Calendar For The Week Of June 7

Monday (June 7)

IN THE SPOTLIGHT: VAIL RESORTS

Vail Resorts, which owns and operates several premier mountain resorts in Colorado and California, is expected to report its fiscal third-quarter earnings of $6.54 per share, which represents year-over-year growth of about 75% from $3.74 per share seen in the same period a year ago.

The premier mountain resort company would post revenue growth of 27% to $880.8 million. In the last four quarters, on average, Vail has beaten earnings estimates over 21%.

“Shares of Vail Resorts have outperformed the industry in the past three months. Notably, the company has been benefiting from its offerings such as Epic Pass, Epic Local Pass, Epic Day Pass and Epic Coverage products. This along with focus on digital marketing and media advertising bode well. Going forward, the company expects the season pass program to be a key growth driver as it relates to the growing number of people associated with the program,” noted analysts at ZACKS Research.

“Meanwhile, the company continues to reinvest in its resorts to boost customer traffic. Also, it is focussing on technological enhancements to support its data driven approach, guest experience and corporate infrastructure. Nonetheless, earnings estimates for 2021 have moved up over the past 60 days, depicting analysts optimism regarding the stock growth potential.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 7

Ticker Company EPS Forecast
MTN Vail Resorts $6.54
MRVL Marvell Technology $0.27

Tuesday (June 8)

Ticker Company EPS Forecast
NAV Navistar International $0.50
THO Thor Industries $2.28
ASO Avesoro Resources $0.83
CASY Casey’s General Stores $0.86
ABM ABM Industries $0.71
MIK Michaels Companies $0.30

Wednesday (June 9)

IN THE SPOTLIGHT: GAMESTOP, RESTORATION HARDWARE

GAMESTOP: The world’s largest multichannel video game retailer is expected to report its first-quarter loss of -$0.68 per share, an improvement from a loss of -$1.61 per share seen in the same period a year ago.

“Shares of GameStop have risen and outpaced the industry over the past three months. The company has been undertaking prudent efforts to fast-track growth. It is particularly focusing on expanding in the digital arena. To accelerate transformation, the company has resorted to board restructuring. It has also undertaken capital restructuring to support growth. In this context, it has completed the redemption of $216.4 million worth senior notes,” noted analysts at ZACKS Research.

“Also, it has completed selling 3.5 million shares, thereby aiding it to cash-in on the massive price surge witnessed since January, due to potential short-squeeze events. Apart from this, GameStop issued encouraging preliminary sales numbers for the nine-weeks ended Apr 3, 2021, wherein total global sales grew 11%. The company has been able to achieve sales growth despite challenges related to the pandemic.”

RESTORATION HARDWARE: The Corte Madera, California-based home-furnishings company is expected to report its first-quarter earnings of $3.99 per share, which represents year-over-year growth of over 214% from $1.27 per share seen in the same period a year ago.

A retailer in the home furnishings marketplace would post revenue growth of 56% to $752.1 million. In the last four quarters, on average, Restoration has beaten earnings estimates over 60%.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 9

Ticker Company EPS Forecast
GME GameStop -$0.68
RH Restoration Hardware $3.99
VRNT Verint Systems $0.36
GEF Greif $1.03
CPB Campbell Soup $0.66
UNFI United Natural Foods $0.88

Thursday (June 10)

IN THE SPOTLIGHT: CHEWY

The Dania Beach, Florida-based online pet store is expected to report its first-quarter earnings of $0.03 per share, which represents year-over-year growth of over 125%.

The retailer would post year-over-year revenue growth of over 30% to $2.12 billion.

“We see CHWY as one of the best-positioned Internet SMID-cap names given 1) the “staple-like” ~$100B US pet products and services industry CHWY addresses and secular pet ownership growth, 2) its leading online position and expected further brick & mortar share losses, and 3) ability to reach profitability due to strong marketing efficiency,” noted Lauren Schenk, equity analyst at Morgan Stanley.

“However, with the COVID-19 acceleration and long-term opportunity of the model well understood by the market, incremental data points from here could be less bullish. Thus, tactically, we see a more balanced risk-reward near term; however, long term we continue to be bullish and could look to re-upgrade the stock on a pullback.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 10

Ticker Company EPS Forecast
SIG Signet Jewelers $1.23
HLMA Halma £30.51
CMD Cantel Medical Corp $0.63

Friday (June 11)

There are no major earnings scheduled