Wednesday's Headlines: Is Meme Stock Mania Set To Return?
Here were the biggest movers in the MyWallSt shortlist yesterday:
Moving Up ⬆️
Nautilus (NLS) +7.0%
Sea Limited (SE) +6.2%
Twilio (TWLO) +6.0%
Shopify (SHOP) +5.6%
Atlassian (TEAM) +5.6%
Moving Down ⬇️
Stitch Fix (SFIX) -4.5%
Etsy (ETSY) -2.8%
Chegg (CHGG) -2.0%
Amazon (AMZN) -1.6%
Spotify (SPOT) -1.4%
Here are the stories that you need to know ahead of market-open today, Wednesday the 8th of June:
Meme Stocks See Short Interest Skyrocket 🚀
We’re now well over a year removed from the madness of the infamous GameStop short-squeeze and meme stocks are still finding their way into the headlines. Short interest in both GameStop and fellow pandemic darling AMC has risen significantly as investors look to bet against these companies once again. Short interest currently stands at roughly 24% and 22% of GameStop and AMC’s respective floats — flirting with their highest levels in a year according to analysts.
This sentiment appears to be driven by institutional investors. The timing of such concentrated short interest is certainly interesting, with both companies appearing in somewhat better health than they were before 2021’s short squeeze. GameStop, despite a mixed earnings call, reported significant increases in its software and collectibles sales earlier this month, while AMC is currently flying high on the back of the stellar performance of the ‘Top Gun: Maverick’ cinematic release last weekend.
Last January saw institutional investors get badly burned as retail investors sent GameStop shares soaring by over 1000% — prompting billions in losses for many large hedge funds. Now, however, with retail investing slowing down amidst a declining market, these fund managers appear content to risk shorting these stocks again.
Meme stocks such as GameStop and AMC are highly volatile and prone to extremely wild swings that are largely dependent on external factors not linked to their fundamentals. As evidenced by the fallout from January 2021’s stock action, both retail and institutional investors often find it difficult to predict the movement of these companies.
Target and the Post-Pandemic Blues 🛍
Big-box retailer Target announced this week that it will have to slash prices on thousands of items it is unable to sell in the wake of changing consumer spending habits. It will also begin canceling orders from some vendors. While management declined to give an exact number, CFO Michael Fiddelke stated that “retail inventories are elevated. And they certainly are for us, especially in some categories that we misforecast.”
Much of this excess stock can be attributed to consumer habits realigning with pre-pandemic trends. During the early days of stay-at-home orders, comfy items like sweatpants, pajamas, and throw pillows became increasingly popular and hard to find. This encouraged retailers to bolster in-stock levels, but as the economy has re-opened, these categories have fallen out of favor.
Instead, shoppers hit by inflation are doubling down on true essentials such as groceries, beauty items, and seasonal goods like back-to-school supplies —which is unfortunate for Target, as it now lacks shelf space to rotate into these verticals. Hence, the firehouse sale.
Bad news for investors, this will impact profitability in Q2 2022. Target now expects operating margins to be around 2%, a pretty big drop from its projected operating margin of 5.3%. This announcement sank the company’s stock about 5%.
It’s also worth noting that this doesn’t just impact Target. Walmart, Gap, American Eagle, and Abercrombie and Fitch also face an abundance of in-store inventory that they will most definitely need to shift, so operating margins may be impacted across the board.
However, this should just be a temporary issue that can be addressed by decisive action. Especially, for big-box retailers that are effectively diversified and can adapt to consumer needs.
According to Target’s CEO Brian Cornell: "We thought it was prudent for us to act quickly, get out in front of this, address and optimize our inventory in the second quarter — take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest relevant with our assortment."
Exxon Mobil’s Fantastic Year Continues 🛢
Shares of Exxon Mobil — along with other energy companies like TotalEnergies and ConocoPhillips — are up in pre-market trading this morning off the back of reports that they will be named as partners in a new multibillion-dollar gas exportation project in Qatar.
One of the largest ever involving natural gas, this plan will see massive investments in the Gulf state with the goal of raising its annual output of liquefied natural gas to almost 130 million tons by 2027. Although nothing has been confirmed yet, all three of the companies mentioned above have stakes in Qatar’s existing production facilities, which indicates that they will likely benefit massively from the new project.
Of course, with European countries trying to wean themselves off natural gas imports from Russia at the minute, the announcement of a deal like this couldn’t come at a better time. Exxon Mobil, in particular, has already been having a blockbuster 2022 on the markets, with its stock price up over 60% from the start of the year to hit new all-time highs.
This is an extreme turnaround from trends we’ve seen on the market in the decade or so previous. In the wake of the Financial Crisis, high-growth tech stocks usurped many industry giants like Exxon Mobil — once the most valuable company in the world — as investor interest shifted towards more renewable sources of energy.
Now, however, with tech stocks getting crushed and a macroeconomic environment that’s driving up the price of many things, not least energy, Exxon Mobil is proving that there’s life in the old-world industry yet.