AMC, other ‘meme’ stocks jump; regulator signals concern

An AMC theater is pictured amid the coronavirus disease (COVID-19) pandemic in the Manhattan neighborhood of New York City, New York, USA, 27 January 2021. REUTERS / Carlo Allegri / File Photo

AMC Entertainment Holdings Inc (AMC.N) and other "meme stocks" soared on Monday, extending a rally of social media favorites into a third week when message boards talked about it Oppress wall street short sellers.

The strong gains prompted the US Securities and Exchange Commission to look for signs of market manipulation given the "volatility of certain stocks".

The volatility has challenged analysts, and two of them stopped reporting on video game retailer GameStop last week, whose shares rose in a retail-driven rally in January.

The cinema operator AMC rose by almost 15% and put its growth in the last five sessions at 111%. BlackBerry's US listing rose 14% and is now 57% higher since early June.

“AMC always surprises me. Just when I think the train is over, it jumps almost 10 points in the first 30 minutes of trading, ”wrote a poster on Reddit.

AMC stock is up about 2,500% in 2021 as the company courted individual investors, while GameStop is up over 1,300% year-to-date.

Some bearish investors pulled out of their bets against AMC on Friday. According to S3 Partners, short interests plummeted from 88.2 million on Thursday to 74.5 million shares, or 14.9% of the AMC float.

Clover Health Investments (CLOV.O), which has been the target of short sellers, was one of the top-cited stocks on Reddit's Wallstreetbets on Monday, with some users suggesting the stocks as the forum's next short squeeze target.

The insurer's shares rose 32% on their highest trading day since April 19.

Institutional investors sit largely on the sidelines as the meme stocks rally continues.

Amateur investors "don't need a reason, however," said Michael O'Rourke, chief marketing strategist for JonesTrading in Stamford, Connecticut. "They're trying to do the same thing they did last week. It's a new week. You're starting over, the meme stock buyers, the Wallstreetbets Reddit community."

ANALYSTS SIT OUT

Despite the retail-led rally, Wall Street analysts have largely refused to raise price targets that reflect their view of the fair value of a company's stocks.

Telsey Advisory Group analyst Joseph Feldman stopped reporting on GameStop. His most recent rating was "Underperform" with a price target almost 90% below Monday's level.

“We're focusing on other areas,” he said. "It's hard to justify where the stock is trading relative to fundamentals."

Bank of America stopped reporting on GameStop last week, citing "a reallocation of resources".

With GameStop announcing its quarterly results on Wednesday, the same day it holds its annual general meeting, option prices imply a possible 24% swing in either direction by the end of the week, according to data from Refinitiv.

AMC was the best-traded stock among clients of brokerage firms Fidelity and Freetrade, and it is heavily used by individual investors managing their own money, data showed.

According to the swaggystocks.com sentiment tracker, BlackBerry topped the list of stocks mentioned on Wallstreetbets on Monday.

The SEC continues to monitor "the market in light of the continued volatility of certain stocks to determine whether there has been any market disruption, manipulative trading or other misconduct," an SEC spokesman said in a statement Monday.

"In addition, we will protect retail investors if violations of US securities laws are found," said the SEC.

Market participants have told Reuters that some institutional investors are expanding option trades where they can bet that stocks will fall while limiting potential losses on gains.

AMC corporate bonds have benefited from the stock's price rally, though not to the same extent, in part because corporate bonds are less accessible to retail investors. Its 12% June 2026 bond, valued at approximately $ 1.5 billion, has risen over 360% since Jan. 1, compared to the stock's price gain.

"Bondholders are suspicious of stock volatility and real valuation," said John McClain, high-yield portfolio manager for Diamond Hill Capital Management. "Do you really want to be the investor who buys AMC bonds and watches equity return to reality?"

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