Meme stocks gained immense popularity earlier this year following the GameStop (NYSE:GME) short squeeze due to social media hype. While the dizzying rallies caught the attention of retail traders, most meme stocks are risky as their fundamental strength does not back up these massive gains. We believe fundamentally weak meme stocks Beyond Meat (NASDAQ:BYND), SmileDirectClub (NASDAQ:SDC), Rocket Lab (RKLB), and Ocugen (NASDAQ:OCGN) could see a significant pullback in the near term. So, investors should avoid these stocks for now.Meme stocks emerged as a pandemic-induced diversion, fueled by the hype surrounding them on social media forums. They gained immense popularity following the GameStop (GME) short squeeze triggered by retail traders earlier this year, and the craze continues with social media platforms influencing retail investors’ investment decisions. However, while the massive price gains of meme stocks look tempting, the performance for most of them may not be sustainable given their weak fundamentals.
Last month, the U.S. Securities and Exchange Commission (SEC) charged two individuals for a fraudulent trading scheme involving meme stocks to take advantage of a surge in retail trading driven by social media. This has raised investor anxiety surrounding meme stocks.
So, it could be wise to avoid meme stocks with weak growth prospects and bleak financials. To that end, we believe Beyond Meat, Inc. (BYND), SmileDirectClub, Inc. (SDC), Rocket Lab USA, Inc. (RKLB), and Ocugen, Inc. (OCGN) are best avoided now.