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AMC Vs. GameStop: Which Meme Stock Has Real Potential?

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·4 min read
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During the rise of COVID-19 and the economic upheavals that followed, a new phenomenon arose. Fueled by social media, stimulus checks, and just a little boredom, the "meme stock" came into its own. Two such stocks—GameStop (GME) and AMC Entertainment (AMC)—have seen their share of ups and downs as part of the meme stock movement.

However, are these merely flash-in-the-pan inspirations? Here today and gone tomorrow like the memes for which they're named? Or are these potential long-term opportunities? I'm starting to lean bullish on AMC, though I am bearish on GameStop. AMC is making some baffling and yet thrilling moves, while GameStop is still...well...GameStop.

The last 12 months for GameStop have been a wild ride by any standard. Trading in a range between around $78 and $302, GameStop has been the soul of volatility. Meanwhile, AMC saw a massive spike back in May, from which it has been frantically retreating ever since.

However, a recent rally has emerged, thanks to one key and highly incongruous move that may have turned the company into a serious play.

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Sticking to and Breaking from the Old Model

GameStop should, theoretically, be doing better than it is. After all, interest in the video game markets spiked dramatically during the pandemic. Even after the government-required lockdowns began to lift, there was still plenty of interest in staying home and playing games.

Reports suggest that the gaming market, worth $198.4 billion in 2021, should reach $339.95 billion by 2027's arrival. Yet, GameStop's strong dependence on used, physical video games doesn't bode well for it, especially in a market increasingly dominated by digital gaming purchases.

When customers can download their game of choice and pay for it via credit card, debit card, or even digital transfer, it limits the impact of a used game dealer. Moreover, some consoles—the Xbox Series S in particular—will only work with digital games.

However, it's AMC that really catches the attention here. It was in a similar position to GameStop. It was in an industry that benefited substantially from the lockdowns, but it wasn't in a position to take advantage of that benefit.

AMC's focus on brick-and-mortar theaters in a market that was increasingly going to streaming hurt it badly. Streaming was already a threat to the brick-and-mortar theater, but the pandemic exacerbated the problem.

AMC's recent move to invest in Hycroft Mining (HYMC) changed the picture. Now, AMC had an industry for boom times—the movies—and a heavy presence in an industry for bust times as well in gold mining.

While the two industries aren't even sort of complementary, it's not like ticket takers are going out with picks and shovels. No, AMC just has a presence in a company that mines gold.

Historically, the value of gold has never gone to zero. Sometimes it's been less profitable than others, depending on the cost of inputs like fuel and labor to pull it out of the ground, but gold has always had some value to it.

So now, AMC has a presence in a market that should lend it some support in bad times. With theaters, in general, coming back into play and Hollywood rolling out the big-name movies again, AMC is in an excellent position to make a comeback here as well.

Concluding Views

It's clear that some meme stocks are better than others.

GameStop looks increasingly like a bad play, and it never looked all that good, to begin with. Its business model is still very much dependent on used physical titles. That's bad news in an increasingly digital environment. Its ability to engage in much change is also limited.

With a massive downside potential, minimal and declining hedge fund involvement, and no real dividend value to speak of, GameStop continues to look like a bad investment plan.

AMC, however, is different. Branching out into precious metals gives it a whole new edge and a perfect market for bad times as well as good. Considering the company is set to find more of these "transformative deals," this could be the start of something big. Though AMC has its own substantial downside risks, it also has more justification for keeping its current pricing than GameStop does.

Both AMC and GameStop are risky right now. However, AMC does seem to have a better chance of paying off on that risk than GameStop does. So I'd be cautious making an investment in either, but of the two, AMC looks like it might be about to start something big.

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