Volatility is rising in the stock market. Between the recent hot inflation data and mounting geopolitical tensions, investors are starting to reassess the broader economic environment.
It seems that the Federal Reserve might not come through with previously anticipated interest rate cuts. This, in turn, has the potential to greatly reduce the speculative juices in the stock market. Throw in some softness in leading AI stocks, and the market’s red flags are mounting.
Investors should be repositioning their portfolios accordingly. Some of the companies at highest risk today are those that have weak fundamentals. Rather, their shares have found support primarily due to meme trading, short squeezes and other such exogenous factors.
But the stock market’s bull run is now in danger. It’s time to throttle back risk exposure, making it an opportune moment to sell these three meme stocks before they utterly implode like AMC Entertainment (NYSE:AMC).
Carvana (CVNA)
Carvana (NYSE:CVNA) has had a breathtaking run over the past year with this stock rising approximately 700%. Simply incredible stuff.
Unfortunately, there’s scant little fundamental cause to justify a move of any such magnitude. Carvana, as a retailer with its unique car vending machines, has created a distinct marketplace for used cars. It also purchases used vehicles directly from individuals, sometimes at surprisingly high prices.
If operated judiciously, this business model might be a winner. But, the issue is that the firm is incredibly levered and barely profitable. In fact, it had to fight off bankruptcy concerns not too long ago. Carvana barely squeezed out a small profit last year despite an exceptionally favorable car market and elevated levels of consumer spending.
Given high interest rates and the potential for significantly declining consumer discretionary spending, it seems Carvana probably has already enjoyed the best market conditions it could hope for. If it couldn’t squirrel away large profits when the sun was shining, a storm could devastate the firm. Things are likely to get worse from here, and analysts agree. They model Carvana falling back into loss-making territory this year. Furthermore, analysts expect Carvana to generate large losses in 2025 and 2026 as well.
In addition, the stock has been bolstered by a massive short squeeze. 32% of the float has been sold short and that’s rocket fuel on the way up. But this factor could lead to an equally rapid descent when momentum runs in reverse.
Beyond Meat (BYND)
Years ago, Beyond Meat (NASDAQ:BYND) was a hot new IPO that sought to revolutionize the protein market. Many people thought plant-based burgers and sausages would be a serious competitive threat to traditional animal meats as time went on.
This is becoming increasingly less likely. Beyond Meat’s partnerships with restaurants largely failed to move the needle. Sales at grocery stores have also declined as Beyond Meat has struggled to find traction outside of its dedicated, but small, vegan and vegetarian fanbase.
Simply put, alternative proteins haven’t found the right product, quality and price mix to garner significant market adoption from omnivores. Beyond Meat has always had massive overhead and low operating margins, resulting in the company losing hundreds of millions of dollars per year.
That was somewhat acceptable when revenues were rising and Beyond Meat could hope to reach operating scale and overcome its financial travails.
Now, though, the bloom is off the rose. Beyond Meat’s revenues plunged from $465 million in 2021 to just $343 million in 2023. Analysts expect another decline to $329 million in 2024.
BYND stock soared on a short squeeze earlier this year, but it’s already given back those gains, and there’s little fundamental reason for optimism. Traders should look to exit this meme stock before it goes from bad to worse.
Joby Aviation (JOBY)
Joby Aviation (NYSE:JOBY) is a venture stage company attempting to commercialize electric vehicles for short range flights. The idea is that passengers can use Joby vehicles to get from an airport to a destination close to their house or office, for example.
In theory, this sort of electric vehicle could transform the urban taxi market, at least on certain popular high-volume routes. However, it remains to be seen if these sorts of vehicles will be more commercially viable than helicopters.
Needless to say, private helicopters services have existed for decades and remain a niche. It seems there simply aren’t that many consumers that have the money or the willingness to pay for short range private flights.
Joby and other eVTOL players are hoping that the electrification of the private aircraft will lead to adoption as it can address some noise and environmental concerns. But commercial proof of concept remains lacking. Additionally, short sellers have taken Joby to task citing concerns both on the cost of the vehicles and with eventual passenger demand.
Despite having virtually no revenues and losing approximately $500 million per year, Joby retains a massive market capitalization. Simply put, a $3 billion market cap is a gigantic speculative bet on a company that may well not amount to much in the end. Put another way, traders should get out of JOBY stock before the broader economy turns downward and these sorts of highly speculative concept stocks totally implode.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.