BlackBerry (TSX:BB) Stock Dips: Should You Invest in Meme Stocks?

A new stock market term has been coined: “the meme stocks.” Here is a complete guide to meme stocks and if they are worth investing in.

| More on:
consider the options

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

If you think the stock market behaved weirdly in 2020, what will you call the trend of meme stocks that began in 2021? The 75% jump in BlackBerry (TSX:BB)(NYSE:BB) stock in the last six days is an example of a meme stock. Meme stocks happened when social media merged with stock trading. This new concept of social trading evolved thanks to zero-commission online brokers like Robinhood. These brokers have made stock trading as easy as operating a Twitter account.

What are meme stocks? 

What is the most popular content in social media? It’s the memes. They are engaging, easy to share, and can communicate a message in few words. Believe it or not, memes are growing to be one of the fastest ways of spreading news. Memes go viral on social media and online forums like Reddit, users have a good laugh, and the meme dies as it goes down the news feed until someone revives or reposts the meme.

This term meme stock was coined because these stocks rally on the back of social media hype. Just like the life of a meme, the momentum of a meme stock is short. The momentum dies down with the hype. I will give you an example.

You must have heard about the Elon Musk memes of the Shiba Inu dog and the #dogetothemoon. Musk has been a Twitter sensation for a long time. He even faced a fine for tweeting things that hampered the share price of Tesla. He used his 56.4 million Twitter followers (and still growing) to create the Dogecoin hype, sending the meme coin up more than 1,000% in a month.

This craze died down as Elon Musk got busy with SpaceX work, and he didn’t post any tweets on Dogecoin. The result was a 40% dip this week. He posted another meme on June 2, and the Dogecoin price surged 27%. Such is the nature of meme stocks and meme coins. The rally has nothing to do with the fundamentals, news, or any insider information. 

BlackBerry stock price rally 

BlackBerry stock rallied 76% in the last six days as a subreddit group WallStreetBets decided to earn from the short position of hedge funds. The short position means to bet on the stock price to fall. So one person did the research and identified all beaten-down stocks and looked at their short interest. That person went to Reddit posting about the idea and the followers flocked in to buy these stocks, artificially inflating the stock price.

The objective of this rally is to force the hedge fund managers to buy stocks and square up their short position. This craze went to such an extent that Robinhood and other brokers blocked investors from buying more shares of BlackBerry. The result was the stock dipped 40% in one day. Redditors have started round two of the short squeeze mania.

This rally will die down by next week. The decline has already begun. It has dipped 5.4% as some retail investors cashed out their profits. You should also take advantage and sell while you are still getting an $18 price. If the regulator interferes, the dip will be 30-40%, and you won’t get the price you ask for.

The rule of stock market investing applies even in meme trading; buy when others sell and sell when others buy.

Should you invest in meme stocks?

Coming to the question if you should buy meme stocks? I won’t comment on other meme stocks, but BlackBerry is a stock with good growth potential. It has the fundamental to make it big in the 5G revolution. However, this potential doesn’t mean you buy the stock at an 80% premium. I am long-term bullish on this stock, but only if you buy it at $10 or $11 price.

Don’t buy meme stocks when they rally on hype. Instead, buy a stock for its fundamentals. If there is any hype-driven rally, take advantage to book some short term profits. You can use that extra money to buy some more fundamental stocks and repurchase BlackBerry at the dip.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla and Twitter. The Motley Fool owns shares of and recommends Tesla and Twitter. The Motley Fool recommends BlackBerry and BlackBerry.

More on Tech Stocks

A worker uses a laptop inside a restaurant.
Tech Stocks

2 U.S. Stocks Canadian Investors Can Buy and Hold Forever

Blue-chip companies such as Microsoft and Coca-Cola are forever stocks that have the potential to beat the market in 2022…

Read more »

financial freedom sign
Tech Stocks

1 U.S. Stock to Buy in August That Could Make You a Millionaire

Are you looking for stocks outside the TSX to add to your portfolio? Buy this one company that trades in…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Tech Stocks

2 Beaten-Down Growth Stocks You’ll Be Happy You Own in 2032

Buying these oversold TSX stocks could make you rich by 2032.

Read more »

shopping online, e-commerce
Tech Stocks

Shopify Stock: Could it Reach $100 in 2022?

Shopify stock (TSX:SHOP)(NYSE:SHOP) has seen a huge uptick in daily trading volume, with shares up 28% in the last month.

Read more »

money cash dividends
Tech Stocks

Got $1,000? Buy These 4 TSX Stocks in Bulk!

These four TSX stocks are rebounding already, and offer a substantial opportunity for long-term Motley Fool investors.

Read more »

A stock price graph showing growth over time
Tech Stocks

3 Cheap Growth Stocks to Buy Right Now

Given their growth prospects and cheaper valuations, these three TSX stocks could deliver superior returns in the long run.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

3 Stocks I’m Buying During a Tech Stock Correction

Tech stocks like Constellation Software (TSX:CSU) should be on your radar.

Read more »

financial freedom sign
Tech Stocks

$5,000 Invested in These 3 Stocks Could Make You Rich Over the Next 20 Years

Are you looking for stocks that could carry your portfolio over the next 20 years? Here are three top picks!

Read more »