Meme Stock:Vanguard Increases Stake In Bed Bath & Beyond; Are Meme Stocks A Buy?

Exchange traded fund company Vanguard has increased its stake in meme stock Bed Bath & Beyond (BBBY), according to reports.  As of Dec. 20, it owned 8.57 million shares or a 7. 31% stake, compared to 8.20 million in the third quarter.

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BBBY is shutting down its Canadian stores. It plans to bring down its retail store count to 360 along with 120 buybuy BABY stores. Earlier, Bed Bath & Beyond declared that it did not have the cash to pay off its debts. Nor has it been able to find a buyer.

The company also said it had defaulted on its $500 million loan with JPMorgan Chase (JPM).

Caught between debt and a cash crunch, the company has plans of raising $1 billion in stock. The home goods stock found a hedge fund, Hudson Bay Capital Management, who will be a key investor, according to the Wall Street Journal. That will bring down the value of each BBBY share.

BBBY shares crashed 45% after the news Tuesday and are trading below 3 apiece.

In its fourth quarter, the Union, N.J.-based company reported a 33% decline in sales of $1.25 billion and a loss of $3.65 per share, according to IBD MarketSmith. On Monday, it announced that it would close 150 stores, bringing down the total stores still open to 480.

The retailer rose over 200% to 53.90 in January 2021 and settled back to its long-term averages for the rest of the year. It then spiked more than 30% to 30.06 in March 2022, with frenzied buying after Ryan Cohen bought a 9.8% stake. Shares crashed in August after he exited his position.

AMC’s Clever Moves

AMC (AMC) will charge different rates for different movie theatre seats. The three-tier pricing is based on the location of the seat.

The meme stock has made clever moves to revive its floundering share price and mounting debt.

The movie theater chain plans to reduce debt to zero by converting its preferred equity “APE” units to common stock. Converting preferred equity to common stock is not unusual but it may be tough to get shareholders to approve of the conversion.

If converted, total outstanding AMC share value will jump from $524 million to $550 million. That is not a good thing since the stock price will likely go down. But AMC is getting its preferred share holders to vote alongside common stock owners. That could turn the tide in favor of the swap.

AMC also announced plans for a 10-for-1 reverse split on Dec. 12.  Will the double action of eliminating debt and the number of outstanding shares save AMC stock? Both plans await a special shareholders’ meeting for approval.

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Has the movie theater stock done the right things to improve liquidity and protect itself from the perfect storm of mounting interest rates and crashing stock values?

Shares rose steeply during the pandemic but have fallen near all-time lows. AMC issued APE units last August.

Meme Investor Takes Stake In Alibaba

GameStop (GME) Chairman Ryan Cohen is known for his investments in meme stocks. His stake in GameStop profited when a short squeeze in 2021 drove the stock to its all-time high of 120.

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In August 2022, the contrarian investor picked up a large position in Bed Bath & Beyond for $15 and change, only to sell the stock and options for $178 million, according to reports. BBBY rose to trade at 30 and crashed to 6 in September.

His recent stake in Alibaba (BABA) seems to have a different aim. Cohen is reportedly pushing for more buybacks at the Chinese e-commerce giant. Alibaba increased its buyback from $40 billion earlier. Cohen sees double-digit sales growth and 20% free cash flow growth and he is pushing for higher buybacks.

Buybacks tend to increase the value of outstanding shares.

Alibaba is not a meme stock. The investor started buying BABA stock in 2022 through the holding company RC Ventures. Cohen has indicated that he prefers companies whose valuations are lower than their business fundamentals.

Is Tesla A Meme Stock?

Misfortune snowballed for Tesla (TSLA) in 2022. The stock traded at a high of 390.91 in December 2021 and fell more than 50%, slicing through its 50- and 200-day moving averages.

Unpredictable moves are common in meme stocks. Tesla’s price action sometimes resembles some meme stocks, but otherwise lacks the distressed or boom-bust nature of meme stocks.

The stock is up over 50% so far in 2023 and has cleared its 50-day line. But it has a lot of repair work left to do.

Are Meme Stocks A Buy Now?

Meme stocks are speculative plays, known for high levels of unpredictability because they can rally or crash in any market, and at any time. Their meteoric rises and heart-stopping crashes typically depend on social media hype and online interest.

Hyper-stock valuations for these companies depend, for the most part, on young fans and an anonymous following that can appear or disappear overnight. Retail investors dominate the interest in these stocks.

These stocks do follow traditional investment wisdom, which says you should buy stocks based on growth and performance.

Top Meme Stock to Watch

GameStop saw sales fall 8% to $1.18 billion, from $1.29 billion in its third quarter. A loss per share of 31 cents was slightly better than the 35-cent loss the previous year. The meme stock rose over 11% in strong volume after the Dec. 7 report. The action started a mini-meme rally, although the stock is far removed from its 2021 frenzy.

The video game retailer grew a fan base in late 2020. In January 2021, the stock shot up 1,625% to 81.25 and then crashed to 15 in February 2021. However, it climbed back up to 265 by mid-March. GME is now trading near February 2021 levels.

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