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Meme ETF: These 2 Stocks Are Not Obvious Meme Plays

AMC and GME are the old-school meme stories in the market. But a couple of stocks with unlikely meme potential have been added to the Meme ETF. Could they rally next?
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It is time to take another look at Roundhill’s Meme ETF (MEME) holdings. This is a portfolio of more than 20 potential meme stocks, refreshed every 14 days, that could benefit from retail investors’ excitement and eventually “head to the moon”.

Names like AMC  (AMC) - Get Free Report and GameStop  (GME) - Get Free Report have become staples in the MEME fund. But every so often, a few stocks pop up that I bet most traders and investors would probably never think to consider as meme plays.

Today, we review 3 of these stocks. Could they be on the brink of a rally into the summer months?

Figure 1: Meme ETF: These 2 Stocks Are Not Obvious Meme Plays

Figure 1: Meme ETF: These 2 Stocks Are Not Obvious Meme Plays

(Read more from Wall Street Memes: Is Robinhood Doomed to Become a Penny Stock?)

How to find meme stocks

Different people may have different opinions on what a good meme stock might be. Some would probably only bother to own AMC and/or GME. Others could scan the most popular stocks of the moment to see if overwhelming bullishness could take them to new heights.

The Meme ETF uses a simple but systematic way of identifying new meme stories every two weeks. The filtering and stock picking process goes as follows:

  • From a large pool of many stocks, assign a “social media activity score” to each, thus identifying stocks that have been “hot” on the main social media platforms.
  • Separate the top 50 most popular stocks, discard the rest.
  • Rank those 50 based on short interest, with the most heavily shorted ones featuring on top. Pick the top 25 names.
  • Keep monitoring the market to capture the most recent trends in meme mania, and refresh the list every 14 days.

2 oddball meme stocks: TWTR, AAL

As of MEME’s most recent portfolio refresh, a few traditional names remain on the list: AMC and GME, also Draftkings  (DKNG) - Get Free Report and Nio  (NIO) - Get Free Report among the top 10 holdings.

But the first surprise to me is Twitter  (TWTR) - Get Free Report. This stock is the third largest holding in the MEME ETF. It is not hard to understand why shares of the social media company have risen to the top: Elon Musk has just offered to buy the company for $44 billion, and shareholders have said yes.

It is also reasonable to expect speculative moves here, including from those who think that the deal to take Twitter private will fall apart. Should this happen, TWTR is likely to drop from its current market value of about $49 per share to something in the 30s.

The problem is that, in my view, TWTR has very little upside opportunity. There is no reason for the stock to climb above Elon’s $54.20/share offer, which caps the moon potential in this case to a gain of about 10%. Therefore, to me, TWTR stock is a bad meme play.

The other stock on the list that has caught my attention is American Airlines  (AAL) - Get Free Report. Shares of the air carrier currently feature among the top 12 holdings in MEME.

If one’s definition of meme stock is “high share price but weak business fundamentals to support the rich valuations”, then AAL does not fit the profile. This stock has not made fresh all-time highs since November 2006! Also, it trades at a next-year P/E of only 8 times.

But otherwise, I agree that AAL stock has mooning potential, to an extent.

Consumers are starting to spend quite a bit of money once again on travel. Airport traffic is nearly at pre-pandemic levels, and the summer season is promising for the industry.

American is one of the most leveraged (financially and operationally) companies in the sector. Therefore, upside in the space could be exponentially bullish for AAL.

Ask Twitter

Of the following popular stocks, which pair would you most likely buy today and hold through the summer season?

(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)