By Medha Singh
(Reuters) – An army of retail traders drove up shares of meme stocks this week, led by a surge in Bed Bath & Beyond, as growing signs that inflation has peaked encouraged them to pick up shares at relatively “cheap” prices after the 2022 market slump.
The struggling home good retailer’s shares have surged 300% from three-decade lows hit last week when the firm warned it could seek bankruptcy protection, with online forums abuzz with retail traders’ speculation on a potential takeover deal.
Individual traders’ interest in Bed Bath & Beyond is reminiscent of trading in Hertz Global Holdings Inc and Revlon Inc, a move counterintuitive to conventional wisdom as investors risk losing their entire investment if an M&A deal fails to materialize.
Bed Bath & Beyond Inc is in talks with potential lenders and the discussions are also exploring potential takeover bids, Bloomberg reported on Thursday.
The U.S. consumer price inflation report on Thursday bolstered growing belief that inflation has peaked, helping revive the rally in highly-shorted meme stocks after rising interest rates dimmed the appeal for speculative trading last year.
“The rally in risk assets has carried meme stocks in its wake,” said Jason Benowitz, senior portfolio manager at CI Roosevelt, adding that a sharp slide in stocks in the final month of 2022 and strong seasonality for January are also at play.
“Investors who sold for tax reasons in late 2022 might be reinvesting in early 2023,” he added.
The Roundhilll MEME ETF, which tracks an index focused on stocks with elevated social media activity and high short interest, jumped nearly 12% this week, compared to a 2.3% gain in the broader S&P 500.
Bed Bath & Beyond shares eased about 5% in pre-market trading on Friday.
Despite the renewed buying from retail investors, “the hurdle to reach previous net-flow highs looks difficult, and any meme stock mania is poised to be short-lived, in our view,” Vanda analysts said on Thursday.
(Reporting by Medha Singh in Bengaluru; Editing by Chizu Nomiyama)