AMC Entertainment Holdings Inc. AMC was one of the hottest meme stocks in 2021. Now, it's facing a stark reality.
On Monday, AMC shares plummeted 35%. Investors were concerned about dilution following Friday's court approval of a settlement that would allow the company to convert its preferred equity units into common shares.
This significant movement in the stock caught the attention of legendary investor Bill Gross, known widely as the Bond King.
"Another Meme bites the dust — AMC," he said in a recent tweet. "Hope you followed my earlier tweet below from April."
In April, Gross warned that AMC stock could tumble because of "the massive dilution of new AMC shares being issued." Now Gross says that when easy money is no longer available, a lot of "fun ideas" will bite the dust.
To investors who capitalized on the meme stock frenzy two years ago, AMC was a fun idea. At the beginning of 2021, the stock was trading at around $2.10 per share. On June 2, it reached an all-time high of $72.62.
Of course, as it's now evident, shares of the movie theater chain weren't able to maintain that upward momentum. Today, AMC trades at $3.75 per share.
But the Bond King is not finished issuing warnings about previously fun ideas.
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Another Crash Coming?
In a follow-up tweet, Gross said, "GME is next — just my opinion."
GameStop Corp. GME is another name involved in the meme stock rally.
The interest in GameStop started to build in late 2020 and gained significant momentum in January 2021, causing its stock price to skyrocket. The surge was largely attributed to retail investors, many of whom hailed from the Reddit forum r/wallstreetbets. They challenged the hedge funds that had bet against the stock, leading up to a dramatic short squeeze.
The rapid ascent of GameStop stock not only captured headlines but also highlighted the unprecedented influence of retail investors when mobilized by social media.
But much like other meme stocks, GameStop's meteoric rise didn't last. The stock has since relinquished much of its January 2021 gains.
Gross isn't the only one with a bleak forecast for GameStop.
Wedbush Securities analyst Michael Pachter has an Underperform rating on GameStop and a price target of $6.20. Because shares currently trade at $18.80, the price target implies a potential downside of 67%.
Best Value Stock Pick
Gross isn't just bearish on meme stocks. In a recent interview with Bloomberg, he said, "I simply think that based on the low equity risk premium and relatively high PE (price-to-earnings) ratios, the market's overvalued."
Still, that doesn't mean you can't find opportunities in the market.
According to Gross, the top value pick in this market is Magellan Midstream Partners MMP, a publicly traded partnership that owns and operates an extensive network of refined petroleum products pipelines, storage facilities and marine terminals.
"Best value for me is MMP at 5.5% discount to acquirer OKE," he wrote in a tweet.
Gross was referring to the planned merger between midstream service provider ONEOK Inc. OKE and Magellan. Under the terms of the agreement, ONEOK will acquire all outstanding units of Magellan in a cash-and-stock transaction. Magellan investors are set to receive $25 in cash and 0.667 shares of ONEOK common stock for each of their Magellan common units.
The transaction is expected to close in the third quarter of 2023.
Like many midstream partnerships, Magellan offers a generous yield. It pays quarterly distributions of $1.0475 per unit, translating to an annual yield of 6.4%. ONEOK is also a high-yield name, with its current yield standing at 5.9%.
For context, the average dividend yield of S&P 500 companies is about 1.6%. If you're seeking higher dividends but want to avoid the large swings in stock prices, you might want to look into reliable income plays outside the stock market — such as investing in rental properties with as little as $100 while remaining completely hands-off.
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