Market conditions could warrant 'potential bounce' in meme stocks, strategist says

Evercore ISI Senior Managing Director of Equity, Derivatives & Quantitative Strategy Julian Emanuel joins Yahoo Finance Live to discuss whether meme stocks will make a comeback in the market.

Video Transcript

- It's been about a year since meme stocks soared to new highs. But these darlings of the Reddit-fueled trade last year have endured a tough couple of months. Our next guest is looking for a potential rebound. Julian Emanuel is Evercore ISI's senior managing director of equity, derivatives, and quantitative strategy. Julian, thank you so much for joining us. And walk us through this thesis that you have. So first, what stocks specifically in the so-called meme trade are you seeing as ripe for a recovery?

JULIAN EMANUEL: Well, there really are a number of them. And the way we think about it is if you crested at that peak of emotion in January and February, and you were down 50%, 60%, 70% or more into what is really what we think a bottoming phase in here, particularly if you had the same thing that carried the meme stocks to their highs a year ago, onerous short interest, those are the kinds of names across a variety-- synthetic meats, theaters, all manner of things like that, exercise equipment, et cetera.

All of those names really do look as if not only have they been sort of left for gone, but that, in fact, the short side of the ledger is really pressing these bets. And from where we stand, basically, it's not likely warranted simply because positioning is so extreme on the one hand. And on the other hand, the credit markets, even though we have this kind of volatility we're seeing in the broad market, are still relatively sanguine despite sort of the way January has gotten off to start.

- All of these names are very different. We were just taking a look at a few of the prominent meme stocks on the screen there a moment ago. And Robinhood, the only one in positive territory today. We should also note that off of their most recent earnings report they had seen some new all-time lows. And so with all of that in play, one company very different, AMC, they secured $950 million.

And that was as part of a bid and attempt to pay down debt. And so all of this considered, where have you seen some of the meme stocks try to reattach themselves to fundamentals? And are the traditional or the Reddit retail trader community, are they latching on to that move back towards fundamentals and praising that?

JULIAN EMANUEL: Well, to be perfectly frank, the market itself is going to dictate that traders and investors reassert the primacy of fundamentals. That's what a rising interest rate environment dictates. That's what higher volatility dictates and, frankly, Fed policy that is likely to become markedly less accommodative in the weeks and months to come.

All of that means that you need to do your homework about what fundamentals look like. And the case in point that you made of the company that was able to secure financing to the extent that the credit markets remain open and there is substantial business viability, that really argues for a potential bounce in these types of stocks.

- So against that backdrop and all these factors, including Fed policy that you mentioned, how sustainable would a rebound actually be for some of these names? Would it be something that could be sustained? Or would it just be a brief jump off of the bottom?

JULIAN EMANUEL: I would say that a lot of it has to do with what the outlook is for the economic reopening. Our fundamental thesis is that the virus is likely to become endemic by mid-year. And if that's correct, some of these names that have had their fluctuations in and around the last year, in and around the movements and the psychology surrounding the virus may have a lot more staying power than their share prices currently reflect.

- All right. We'll leave it there. Julian Emanuel is Evercore ISI's senior managing director of equity, derivatives, and quantitative strategy. And thank you again so much for your time.