It’s easy to dismiss so-called “meme stocks” as trendy trades whose only underlying value is investor sentiment. As soon as they stop being a Reddit flavor of the week, they’ll crash, right?
Well, Wall Street Memes has identified three meme stocks that we think have something else going for them. In fact, we think they might serve as hedges against some of the macroeconomic fears we’re dealing with right now — COVID variants, inflation, job shortages, and supply-chain disruptions.
That’s because they all have something known as negative beta.
Let’s dig deeper.
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What Is Beta?
Beta is a coefficient that measures the behavior of a security’s price relative to the overall market. In other words, it’s a historical indicator of how much an asset’s value is likely to rise or fall, given the market’s performance.
Beta equal to 1.0 means that the security is strongly correlated to the market. For example, if the market goes up 10%, the stock will go up 10% too. It works in the same direction, as well — a market dip of 20% would equal a roughly 20% decrease in the stock.
Stocks with beta above 1.0 tend to be more volatile than the market. Most tech stocks fall into this beta category.
And negative stocks with negative beta tend to move the opposite to the market. They zig when the market is zagging.
It’s very rare to find stocks with negative beta. However, these three meme stocks just might be an exception.
#1. Rocket Lab
Rocket Lab (RKLB) – Get Rocket Lab USA, Inc. Report is an aerospace company that develops rocket launch vehicles and other space products, including satellite components and spacecraft parts. At the time of writing, Rocket Lab vehicles have launched 109 satellites into orbit.
The company has some stiff competition from much-hyped companies like Richard Branson’s Virgin Galactic (SPCE) – Get Virgin Galactic Holdings Inc Report, Jeff Bezos’s Blue Origin, and Elon Musk’s SpaceX.
It went public through an SPAC deal in August 2021 that valued Rocket Lab at $4.8 billion. Within a few weeks of its stock market debut, shares of RKLB had risen nearly 100%. But currently, the stock is 48% below its all-time high.
According to MarketBeat data, currently, Rocket Lab has a beta of -5.02. As we mentioned earlier, that negative beta means it should move opposite to the general market trend. By comparison, Virgin Galactic, has a beta of 1.74.
#2. SoFi Technologies
Fintech company SoFi (SOFI) – Get SoFi Technologies Inc Report stands out among the meme stock crowd because it has been a profitable fintech (financial technology) company.
Figure 2: SoFi logo and app.
SoFi
The fintech industry is quickly emerging as an alternative to large banks and financial institutions. According to third-party data, fintech should see growth of 25% by the end of 2022.
Recently, SoFI has been the subject of constant discussion on Reddit since going public through an SPAC deal led by investor Chamath Palihapitiya.
Since its stock market debut, SOFI has suffered high volatility. It’s currently down nearly 40% since its initial trading price in June 2021.
And according to MarketBeat data, SoFi stock has a beta of -2.70.
Right now, short interest in SoFi is considered normal, at approximately 10% of its float. But a recent increase in short interest may also be an indicator of its negative beta, since its volatility appears to be uncorrelated to the S&P 500.
#3. GameStop
The granddaddy of all meme stocks, GameStop (GME) – Get GameStop Corp. Class A Report is a classic example of negative beta. Its value has been determined largely by supply-and-demand dynamics, rather than its business fundamentals.
Figure 3: GameStop logo.
The Verge
Since the meme mania began, GME has seen a share-price increase of more than 600%.
And it has a beta of -2.13, according to MarketBeat data. That indicates GameStop’s stock trades opposite to the S&P 500, and its shareholders — who are mostly retail investors — trade GME regardless of macroeconomic influences.
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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 the Wall Street Memes)
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