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Meme Stock Crash: 10 Worst-Performing Stocks of Reddit’s WallStreetBets

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·11 min read
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In this article, we discuss the 10 worst-performing stocks of Reddit's WallStreetBets. If you want to skip our detailed analysis of these stocks, go directly to the Meme Stock Crash: 5 Worst-Performing Stocks of Reddit's WallStreetBets.

On July 1, legendary investor Michael Burry, the chief of California-based Scion Asset Management, told finance magazine Barron's that he expected meme stocks — companies that rally on the back of retail investor interest without significant upside in earnings or sales — to crash like the housing and internet bubbles of the past. Burry has a reputation of predicting market crashes. In 2008, he was one of the few who predicted the housing crisis that led to the financial meltdown. His investing prowess is the subject of a Hollywood film as well.

Burry's prediction is slowly but surely proving to be prescient at least for now, based on the recent losses suffered by Reddit stocks that were once breaking all records. According to a report by news publication Bloomberg, investors are selling meme stocks in favor of safer equities and a retail boom in speculative bets seems to be fading. Up until July 8, when the report was published, a group of 37 meme stocks tracked by the publication had extended losses to 20% from early June highs. Four big meme stocks had decreased by a quarter in value over the period as the massive sell-off continued. It remains to be seen how meme stocks bounce back from this record slump. In January, these stocks rallied amid sky-high retail investor interest during lockdowns. As the economy reopens, this influence appears to be waning.

However, there is little doubt that meme stocks have transformed market dynamics. Meme stocks have registered record rallies this year as retail investors use the power of social media and trading applications like Robinhood to take on big finance. Already, hedge funds have suffered billions in losses from the meme stock craze, although some have used the situation to their advantage as well. These meme stocks usually gain prominence through internet platforms like Reddit and StockTwits. The WallStreetBets forum on Reddit, with more than 10.7 million members, is the most popular retail investor platform.

Some of the stocks presently popular on the forum include Tesla, Inc. (NASDAQ: TSLA), the California-based EV maker, Palantir Technologies Inc. (NYSE: PLTR), the Colorado-based software company, Apple Inc. (NASDAQ: AAPL), the California-based technology firm, and Shopify Inc. (NYSE: SHOP), the Canadaian ecommerce giant, among others. The popular meme stocks on this forum include AMC Entertainment Holdings, Inc. (NYSE: AMC), Clover Health Investments, Corp. (NASDAQ: CLOV), and BlackBerry Limited (NYSE: BB).

The GameStop saga presented an unprecedented challenge to the already-struggling hedge fund industry. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Photo by Adam Nowakowski on Unsplash

With this context in mind, here is our list of the 10 worst-performing stocks of Reddit's WallStreetBets. These were ranked keeping in mind the monthly losses ( over the last 30 days), mentions on Reddit, and hedge fund sentiment around each.

Meme Stock Crash: Worst-Performing Stocks of Reddit's WallStreetBets

10. Corsair Gaming, Inc. (NASDAQ: CRSR)

Number of Hedge Fund Holders: 9 Monthly Decline: 8%

Corsair Gaming, Inc. (NASDAQ: CRSR) is placed tenth on our list of 10 worst-performing stocks of Reddit's WallStreetBets. The stock has declined by 19% since the start of the year. The firm makes and sells computer hardware for gaming. This fall compares sharply with a recent rally that the stock enjoyed last month as the share price jumped close to 14% on June 14 as retail traders tried to spoil short bets on the video game hardware firm. The stock rally followed mentions of the firm on Reddit forum WallStreetBets and social platform StockTwits.

On May 5, investment advisory Barclays lowered the price target on Corsair Gaming, Inc. (NASDAQ: CRSR) stock to $47 from $51 but maintained an Overweight rating. The ratings update was issued following the quarterly earnings report of the firm.

Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Corsair Gaming, Inc. (NASDAQ: CRSR) with 414,300 shares worth more than $13.7 million.

Just like Tesla, Inc. (NASDAQ: TSLA), Palantir Technologies Inc. (NYSE: PLTR), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), Clover Health Investments, Corp. (NASDAQ: CLOV), and BlackBerry Limited (NYSE: BB), Corsair Gaming, Inc. (NASDAQ: CRSR) is a popular meme stock on Reddit.

9. Rocket Companies, Inc. (NYSE: RKT)

Number of Hedge Fund Holders: 21 Monthly Decline: 10%

Rocket Companies, Inc. (NYSE: RKT) is a firm that owns and operates digital platforms for real estate and ecommerce. It is ranked ninth on our list of 10 worst-performing stocks of Reddit's WallStreetBets. The company’s shares have plunged by 14% over the course of the past six months. On May 13, the share price of the firm reached a record low since making its debut on the market in August 2020, falling to around $16, compared to the IPO price of $18, representing a close to 10% decline in share value.

On July 12, investment advisory Jefferies downgraded Rocket Companies, Inc. (NYSE: RKT) stock to Hold from Buy. The price target was also reduced to $18 from $26. The advisory cited increased competition and margin concerns as the reasons behind the ratings update.

At the end of the first quarter of 2021, 21 hedge funds in the database of Insider Monkey held stakes worth $208 million in Rocket Companies, Inc. (NYSE: RKT), up from 16 in the preceding quarter worth $222 million.

Rocket Companies, Inc. (NYSE: RKT) is a popular meme stock on Reddit, alongside Tesla, Inc. (NASDAQ: TSLA), Palantir Technologies Inc. (NYSE: PLTR), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), Clover Health Investments, Corp. (NASDAQ: CLOV), and BlackBerry Limited (NYSE: BB).

8. Virgin Galactic Holdings, Inc. (NYSE: SPCE)

Number of Hedge Fund Holders: 17 Monthly Decline: 17%

Virgin Galactic Holdings, Inc. (NYSE: SPCE) stock has plunged by 38% over the course of the past week. It is placed eighth on our list of 10 worst-performing stocks of Reddit's WallStreetBets. The company markets aerospace services and aims to take commercial tourists into space. Richard Branson, the owner of the firm, recently flew aboard one of the space vehicles of the firm to the edge of space. However, even this feat failed to inspire a record rally in the stock, which fell in the days following the flight.

On July 12, the share price of Virgin Galactic Holdings, Inc. (NYSE: SPCE) dropped by close to 10% as the firm announced that it was selling $500 million worth of common stock and had signed a partnership in this regard with Credit Suisse, Morgan Stanley and Goldman Sachs.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in Virgin Galactic Holdings, Inc. (NYSE: SPCE) with 2.8 million shares worth more than $86 million.

Reddit forums are full of mentions of Tesla, Inc. (NASDAQ: TSLA), Palantir Technologies Inc. (NYSE: PLTR), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), Clover Health Investments, Corp. (NASDAQ: CLOV), and BlackBerry Limited (NYSE: BB), as well as Virgin Galactic Holdings, Inc. (NYSE: SPCE).

7. ContextLogic Inc. (NASDAQ: WISH)

Number of Hedge Fund Holders: 25 Monthly Decline: 18%

ContextLogic Inc. (NASDAQ: WISH) is ranked seventh on our list of 10 worst-performing stocks of Reddit's WallStreetBets.The company’s shares have declined in value by 49% since the start of the year. The company runs an ecommerce platform and is based in California. On May 12, the firm posted earnings for the first quarter, reporting earnings per share of -$0.21, missing estimates by $0.03. The revenue for the first three months of 2021 was $772 million, up 75% year-on-year. The share price of the firm dropped by 6% as the results were released.

On July 1, investment advisory Evercore downgraded ContextLogic Inc. (NASDAQ: WISH) stock to In Line from Outperform. The price target was also revised to $13 from $17. The ratings update was issued on the back of execution risk following the CFO exit from ContextLogic.

Out of the hedge funds being tracked by Insider Monkey, New York-based firm JS Capital is a leading shareholder in ContextLogic Inc. (NASDAQ: WISH) with 8.3 million shares worth more than $131 million.

ContextLogic Inc. (NASDAQ: WISH) is one of the stocks popular on WallStreetBets, with giants like Tesla, Inc. (NASDAQ: TSLA), Palantir Technologies Inc. (NYSE: PLTR), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), Clover Health Investments, Corp. (NASDAQ: CLOV), and BlackBerry Limited (NYSE: BB) also in the mix.

6. GameStop Corp. (NYSE: GME)

Number of Hedge Fund Holders: 13 Monthly Decline: 20%

GameStop Corp. (NYSE: GME) stock has slumped in value by 11% in the past week. It is placed sixth on our list of 10 worst-performing stocks of Reddit's WallStreetBets. The firm is a Texas-based video games and entertainment products retailer. The company recently joined the Russell 1000 Index and is perhaps the most famous meme stock in the world. In January, the share price of the firm jumped by more than 700% in a matter of days as it became the subject of a short squeeze by retail investors. The stock remains one of the most volatile on the market.

On June 28, investment advisory Baird suspended the rating of GameStop Corp. (NYSE: GME) stock temporarily as more clearances were sought regarding the business strategy of the firm. Baird had rated the stock Neutral with a $25 price target before the suspension.

Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in GameStop Corp. (NYSE: GME) with 3.2 million shares worth more than $620 million.

Tesla, Inc. (NASDAQ: TSLA), Palantir Technologies Inc. (NYSE: PLTR), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), Clover Health Investments, Corp. (NASDAQ: CLOV), and BlackBerry Limited (NYSE: BB) are very popular on Reddit forums, just like GameStop Corp. (NYSE: GME).

In its Q1 2021 investor letter, Rhizome Partners, an asset management firm, highlighted a few stocks and GameStop Corp. (NYSE: GME) was one of them. Here is what the fund said:

“The first quarter saw some bizarre market reactions. Game Stop is a heavily shorted legacy video game retailer that saw its stock price rise from $17 to a peak of $483 within a month. It appears that retail investors on a Reddit.com forum called WallStreetBets used memes to create a viral feedback loop of forced buying. Game Stop reached $20 billion in market cap and had more daily trading volume than Apple at one point. The Game Stop short squeeze became a black swan event for the short sellers. Large hedge funds such as Melvin Capital suffered 50% losses during a short period and required emergency capital injections that resulted in costly dilution. Shorting is difficult and introduces a risk of ruin. This is especially true in situations where a large percentage of the float is shorted. We want to remind you that we hedge our portfolio via index puts, sector puts, and sometimes buying puts directly in our own portfolio companies. However, we rarely short because 1) we are not good at it 2) the potential for brain damage is too high and 3) we want to avoid the risk of ruin.”

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Disclose. None. Meme Stock Crash: 10 Worst-Performing Stocks of Reddit's WallStreetBets is originally published on Insider Monkey.