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GameStop Or AMC: Why Not Both Stocks?

Despite fundamental differences between the two companies, apes support GME and AMC for mostly the same reasons. Wall Street Memes wonders whether buying both instead of only one might make sense.

GameStop  (GME) - Get GameStop Corp. Class A Report and AMC stocks  (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report have been the backbone of “meme frenzy” this year. The two have been the most popular tickers on discussion boards across Reddit. Despite some disagreement among apes that are bullish either stock, many own both for similar reasons.

Figure 1: GME and AMC stock performance YTD.

Figure 1: GME and AMC stock performance YTD.

Today, Wall Street Memes debates whether buying both GME and AMC stocks might be a better strategy for momentum traders, rather than picking only one of the two.

(Read more from Wall Street Memes: AMC Stock Peeks Past $50: What Is Next?)

GME and AMC: the similarities

At the core, most GME and AMC stock enthusiasts have the same idea in mind: to crowd out the trade and cause a short squeeze of bearish institutional traders. Skepticism towards the stock has come in great part from hedge funds that chose to bet against the companies, particularly on the heels of a disruptive pandemic.

Bearishness led to elevated short interest in both cases, but “apes” accused shorts of dubious market practices. A series of orchestrated bullish attacks followed, creating a buy-and-hold-at-all-cost movement of retail investors in GME and AMC against a common enemy.

The Ryan Cohen and Adam Aron factor

Another similarity between GME and AMC is that, in both cases, retail investors have found inspiration in two leaders: chairman Ryan Cohen at GameStop and CEO Adam Aron at AMC. The actions of both personalities have often resulted in a boost to investor sentiment.

Ryan Cohen is also GameStop’s major shareholder. The chairman is generally appreciated, to say the least, by the ape community. His ideas and enthusiasm towards the retailer’s turnaround have been inspiring, which justifies his nickname “Papa Cohen” – despite the young age.

Adam Aron has become a great ally of the ape cause. The CEO has gone out of his way to show that he values ​​and listens to shareholders’ opinion before making key strategic decisions. For example, he put the issuance of 25 million new shares to a vote, and backtracked when the initiative was vetoed by investors that feared weakness in share price.

Sidestepping an eventual pullback

As the world continues to slowly recover from the COVID-19 crisis, a robust stock market has fueled fears over a potential speculative bubble in a post pandemic scenario. Hedging against such risks, or at least being prepared for a pullback, is generally a good idea.

GameStop and AMC stocks are unique in that both have a negative beta of -6.8 and -4.2 respectively, according to Infront. In general, the negative coefficient means that the stocks often move opposite the general market trend. See tables below.

Figure 2: AMC and GME's beta coefficient.

Figure 2: AMC and GME's beta coefficient.

It is not unreasonable to expect that, in a market correction scenario caused by macroeconomic factors, investors would seek alternative forms of investment. AMC and GME prices have been largely determined by supply and demand dynamics, not so much by business fundamentals.

Therefore, despite all the risk and volatility associated with GME and AMC as stand-alone plays, both could be considered portfolio diversifiers. If or when the markets crumble, GME and AMC stocks might still benefit from positive ape sentiment and sidestep a broad market retraction.

By owning both names instead of one, investors can diversify their portfolios’ “meme allocation”. This is a good reason for retail investors who subscribe to meme mania to set aside the GME vs. AMC debacle and consider holding both instead.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)