Here’s proof that investing in meme stocks really works. BANG!

Meme stocks Blackberry, AMC, Nokia, and GameStop have all soared in 2021. But, For me, two of these four BANG stocks have become insanely overvalued today.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The biggest investment story of 2021 must be the incredible returns from ‘meme stocks’. The popularity of these stocks on forums such as Reddit have driven their prices to unbelievable heights. Thus, market veterans have repeatedly issued warnings about these sky-high shares. But investing in meme stocks has worked brilliantly this year — so far, at least.

BANG go the meme stocks

Amusingly, the initials of four popular meme stocks form an appropriate acronym: BANG. These four shares are BlackBerry, AMC Entertainment Holdings, Nokia Corp, and GameStop Corp. It’s also notable that these companies form matched pairs. BlackBerry and Nokia, both pioneers in mobile telephony, have fallen on harder times. Meanwhile, cinema chain AMC and video-game retailer GameStop both provide screen-watching entertainment.

Although these meme stocks share similarities, their returns have actually been very widely dispersed. Here’s how each share has performed over six months:

Blackberry +71% | AMC +2,337% | Nokia + 36% | GameStop +1,004%

Again, these meme stocks pair up, but this time by returns. BlackBerry and Nokia have produced high double-digit returns since 7 January 2021, easily beating the S&P 500 index. But the truly staggering returns have come from GameStop (an 11-bagger) and AMC (a 24-bagger).

The maximum potential returns are astonishing

What’s absolutely unbelievable is how much traders could have made by buying these meme stocks at 52-week lows and selling at 52-week highs. This table shows how much incredibly lucky (or skilful) investors could have made in each of the four BANG stocks:

Stock Low High Maximum gain
BlackBerry $4.37 $28.77 558.4%
AMC $1.91 $72.62 3,702.1%
Nokia $3.21 $9.79 205.0%
GameStop $3.77 $483.00 12,711.7%

Once again, these meme stocks pair up by potential returns. A perfect trade would have tripled one’s money in Nokia and produced more than a six-fold return in BlackBerry. But a perfect low/high trade in AMC would have returned 38 times one’s money, while the same luck with GameStop would deliver 128-fold returns.

For me, two BANG stocks are doomed

If you put a loaded gun to my head and ordered me to buy two BANG meme stocks, I wouldn’t hesitate for a second. I would buy Nokia and (very reluctantly) BlackBerry. That’s because, though these shares look fully priced to me, they don’t trade at insane multiples of sales, profits, or earnings. That’s more than I could say for AMC and GameStop — two businesses both facing very strong headwinds.

When I look at AMC and GameStop, I’m reminded that ‘money moves markets’. Intense waves of momentum-following money has flowed into these two meme stocks over the past six months. But this flood of buy orders will do nothing to improve the future prospects of either company. AMC had a disastrous 2020, thanks to cinemas being closed during lockdowns. But its sales growth was also flat in coronavirus-free 2019. Likewise, GameStop is a bricks-and-mortar retailer in a world moving inexorably towards digital and online sales. Its revenues also declined steeply between 2016 and 2019. For me, trading in AMC and GameStop will continue to be very risky, difficult, and even dangerous in 2021/22.

Of course, I could be wrong. AMC and GameStop could stage miraculous recoveries through soaring sales growth in a post-pandemic boom. Likewise, new strategies or leadership teams could set both groups on paths to brighter futures. But I wouldn’t bet even a penny from my portfolio on this actually happening!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended BlackBerry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »