Why one Wall Street analyst doubts GameStop’s e-commerce turnaround plan, even with Ryan Cohen set to become chairman

gamestop
  • GameStop’s plan to elect activist investor Ryan Cohen to become its chairman isn’t winning over Wall Street analysts.
  • CFRA Research reiterated its “sell” rating on GameStop and said plans to make Cohen chairman don’t change the fundamental story of the video game retailer.
  • Here’s why CFRA is still bearish on GameStop despite its e-commerce turnaround plan.
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GameStop is moving ahead with its turnaround plan to shift its selling strategy to e-commerce from physical stores, and its recently announced plans to elect activist investor Ryan Cohen as board chairman is part of that.

But one Wall Street analyst remains unconvinced that shares of GameStop present a good value for investors at current prices, and that GameStop can even pull off its turnaround plan.

CFRA Research analyst Camilla Yanushevsky reiterated her Sell rating on GameStop, arguing that the stock’s fair value is $16 rather than its current price of $177. That $16 price target represents 91% downside potential from its current price.

Yanushevsky was not surprised by GameStop’s decision to elect Cohen and said “little has changed in the fundamental story.”

The fundamental story, according to Yanushevsky, is the fact that GameStop was the only member of its peer group to post negative sales growth in its fiscal year 2020 despite the backdrop of thousands of dollars in stimulus checks and a surge in video game activity amid the pandemic. GameStop’s comparable store sales fell 9.5% to $5.1 billion last year.

“We hold concerns over [GameStop’s] ability to maintain competitive positioning due to [its] high dependence on brick-and-mortar and consumers’ shift away from physical to digital,” Yanushevsky said.

Further adding to Yanushevsky’s concerns on GameStop is the fact that it was the only member of its peer group to not provide earnings guidance for the upcoming year.

Investors seemed to also not view Cohen becoming chairman of GameStop’s board as a surprise. Shares initially rose 4% on the news, but eventually traded about flat in Thursday trades.

Read more: Goldman Sachs handpicks 40 stocks that will enjoy bigger earnings growth than Wall Street expects in 2021

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2 consecutive days of gains points to a stronger than usual April for the stock market, Fundstrat’s Tom Lee says

Tom Lee
  • Two consecutive positive closes for the stock market on March 31 and April 1 signal stronger than usual gains ahead for the month of April, according to Fundstrat’s Tom Lee.
  • “When March 31 and April 1 are both positive price dates, the follow through for the rest of April is very good,” Lee explained in a note on Thursday.
  • April already represents one of the best months of the year for stocks based on seasonality data.
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The stock market could see stronger than usual gains in April after equities closed higher on both March 31 and April 1, Fundstrat’s Tom Lee said in a note on Thursday.

Based on historical data since 1945, the S&P 500 returned an average gain of 2.4% in April when stocks posted consecutive gains on those dates, compared to just a 1.3% gain when they did not, according to Lee.

“When March 31 and April 1 are both positive price dates, the follow through for the rest of April is very good,” Lee explained.

April already is a strong month for the stock market based on seasonality data. Over the past 20 years, April has on average been the best month of the year for stocks, and since 1950 it has been the second best month, just behind November.

Besides seasonality data, a move higher in stocks this month would make sense as investors anticipate a full reopening of the economy and as Congress works on a $2.2 trillion infrastructure bill.

Economic numbers are already starting to improve based off of Friday’s jobs report, which saw a better than expected 916,000 jobs added in the month of March.

One more indicator that is increasing the chance of a strong April is a continued decline in the volatility index, also known as the stock market’s fear gauge. The VIX remains below the key 20 level, and fell below 18 on Thursday. Systematic quant funds typically pile into stocks when volatility is low on Wall Street, according to Lee.

“The bottom line is this is a positive environment and risk/reward for stocks. This keeps us constructive,” Lee concluded.

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2 big reasons why the market is poised for a massive rally this week, according to Fundstrat’s Tom Lee

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A potential “face rip” rally will be driven by the last trading day of March, Tom Lee said.

  • An explosive rally in the stock market could transpire over the next two days, according to Fundstrat’s Tom Lee.
  • Window dressing on the last day of the month by fund managers favors buying pressure in some of the most popular stocks, Lee said.
  • And the start of April on Thursday will likely be marked by inflows into equities as one of the strongest months of the year for the stock market begins.
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The stock market is poised for a massive rally over the next two days as window dressing and strong seasonality begins to kick in, according to a Tuesday note from Fundstrat’s Tom Lee.

The potential “face rip” rally will first be driven by the last trading day of the month on Wednesday, in which fund managers participate in “window dressing,” Lee said. The practice of window dressing occurs when funds sell their losing stocks and buy the winning stocks to improve the image of their quarter-end holdings.

And on Thursday, strong seasonality should kick in as it’s the first trading day of April. Stocks typically see inflows on the first trading day of the month, according to Lee, and systematic funds want to be long stocks in April because it is on average one of the strongest months of the year for markets.

According to LPL Financial’s Chief Market Strategist Ryan Detrick, gains for stocks in April have been consistent, as “stocks have closed higher in April an incredible 14 out of the past 15 years.”

“We are literally facing a turning point, due to the above named factors, and add to the performance anxiety created by the past few weeks, and it is a set-up for a big chase higher,” Lee explained.

That performance anxiety refers to the $20 billion liquidation of Archegos Capital and the subsequent volatility that roiled a handful of stocks. Investors braced for more pain related to the unwinding of Bill Hwang’s family office, but the market has since shrugged off the event and investors that expected more volatility are likely ready to step in and buy stocks.

“I think this chase starts Wednesday [morning],” Lee concluded.

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A broad sell-off in the stock market looks less likely as rolling corrections hit tech and energy, according to Fundstrat

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  • The chances of a broad sell-off hitting the stock market in the first half of 2021 are diminishing, according to Fundstrat’s Tom Lee.
  • Rolling corrections in certain sectors like technology and energy have diminished the chance of a big sell-off, Lee said in a note on Friday.
  • Technology, energy, and small cap stocks have all experienced declines of more than 10% in recent months.
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The chances of a broad sell-off hitting the stock market in the first half of 2021 are diminishing as rolling corrections hit certain sectors, Fundstrat’s Tom Lee said in a note on Friday.

Since the start of the year, technology and growth, energy, and small cap stocks have all experienced sell-offs of at least 10%, Lee highlighted.

“Because of this recent suite of rolling corrections, we believe the prospects for a larger correction in 1H2021 have largely diminished,” Lee explained.

Tech stocks have sold off on fears of inflation and rising interest rates, while energy and small cap stocks have taken a breather in recent weeks after staging over-extended rallies on the reflation trade.

The change in leadership within the stock market has led to a choppy range of trading, with tech and energy switching places for 2020 and 2021. Tech is now the worst performing sector within the S&P 500 so far in 2021 after being the winner in 2020, while the energy sector is the best performing so far this year after suffering in 2020.

Four structural factors driving this change in 2021 include the first real rise in long-term interest rates not driven by the Fed in decades, rising inflation expectations, a less business-friendly Biden administration that is mulling a rise in the corporate tax rate, and the re-opening of the US economy.

Read more: Buy these 30 stocks that are best-placed to benefit from the pandemic’s ‘seismic shifts’ and continue surging in its aftermath, BTIG says

“Each of these individual factors would be difficult for a fund manager to discount. But 2021, these 4 are happening simultaneously. Moreover, the first two factors have not been part of the investment playbook for a generation, so it is natural for markets to be uncertain,” Lee said.

To navigate the uncertainty of the markets, Lee suggest investors buy cyclical stocks poised to benefit from a strong reopening of the US economy as the COVID-19 pandemic subsides.

“Energy is really the sector facing the best tailwinds in 2021,” Lee said.

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The coronavirus recession is almost over, Wall Street strategists say

Wall Street Coronavirus
New York Stock Exchange.

  • Wall Street strategists are increasingly optimistic that the pandemic is in its final phase.
  • JPMorgan said in February the crisis will “effectively end” in 40 to 70 days.
  • The “recession is effectively over,” Morgan Stanley said Sunday.
  • Visit the Business section of Insider for more stories.

One year after the S&P 500 tumbled nearly 8% on COVID-19 fears, experts on Wall Street see the US bearing down on the finish line of the pandemic.

Declining case counts, vaccine rollouts, and expectations for new stimulus have lifted spirits in recent weeks. Economists have upgraded growth forecasts and investors continue to shift cash from defensive investments to riskier assets more likely to outperform during a rebound. Major banks’ strategists are taking it one step further.

The rapidly improving backdrop and “spectacular” profit growth in the fourth quarter signal “the recession is effectively over,” Michael Wilson, chief investment officer at Morgan Stanley, said Sunday.

“At the current pace of vaccinations and with spring weather right around the corner, several health experts are talking about herd immunity by April,” he said in a note. “It’s hard not to imagine an economy that’s on fire later this year.”

JPMorgan made a similarly bullish claim late last month, telling clients it doesn’t expect new COVID-19 strains to dent its positive outlook. The spread of new variants is still overshadowed by the broader decline in cases, the team led by Marko Kolanovic, chief global markets strategist at JPMorgan, said.

The rate of vaccination implies the pandemic will “effectively end” in the next 40 to 70 days, they added.

To be sure, there’s plenty of progress to make before the pandemic is no longer a public health threat. The US reported 98,513 new COVID-19 cases on Monday, lifting the seven-day moving average to 64,722, according to The New York Times.

And while the country is averaging 2.17 million vaccine administrations per day, reaching herd immunity at the current rate would still take roughly six months, according to Bloomberg data, which gauges how quickly the US can vaccinate 75% of its population.

Herd immunity is widely considered the most effective way to defeat COVID-19. Yet Wall Street’s more bullish forecasts suggest a mix of vaccinations and continued precautions could crush the virus in a matter of weeks.

Officials have warned that, while accelerated growth is on the horizon, there’s work to be done before the US stages a complete recovery. Reopening and new stimulus may fuel a sharp increase in inflation, but such a jump will likely be short-lived and fail to meet the Federal Reserve’s target, Fed chair Jerome Powell said Thursday.

The labor market also has “a lot of ground to cover” before reaching the central bank’s goal of maximum employment, Powell added. The chair indicated that, along with a lower unemployment rate, the Fed would need to see improved wage growth and labor-force participation before tightening ultra-easy monetary conditions.

Others are more optimistic. Treasury Secretary Janet Yellen said Monday that the $1.9 stimulus package nearing a final House vote can “fuel a very strong economic recovery.”

“I’m anticipating, if all goes well, that our economy will be back to full employment – where we were before the pandemic – next year,” Yellen said in an interview with MSNBC.

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US households will push $350 billion into stocks this year as faster economic growth lifts demand, Goldman says

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A man sits on the Wall street bull near the New York Stock Exchange (NYSE) on November 24, 2020 in New York City.

  • Goldman Sachs lifted its forecast for 2021 US household equity demand to $350 billion from $100 billion.
  • The new level accounts for stronger economic growth and sets households up to be the largest source of stock market demand this year.
  • Corporations are set to buy $300 billion in stock as repurchase activity rebounds, the bank added.
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US households’ demand for stocks is set to rebound alongside the broad economy and even exceed corporate buying in 2021, Goldman Sachs strategists said.

Equities continue to endure volatile price swings as rising Treasury yields cut into their appeal. Pricey tech stocks and growth names have plummeted as investors shift cash to sectors most likely to benefit from a full reopening. 

The choppy price action isn’t likely to keep Americans from the market, Goldman said in a note to clients. The bank lifted its estimate for 2021 household equity demand to $350 billion from $100 billion. The new projection sets households up to be the largest source of stock-market demand this year.

The updated forecast reflects “faster economic growth and higher interest rates than we had assumed previously, additional stimulus payments to individuals, and increased retail activity in early 2021,” the team led by David Kostin said Friday. Accelerating economic growth has been the single most important driver of households’ equity purchases over the past three decades, the team added.

Corporate equity demand will also bounce back from 2020 levels. Roughly $126 billion in stock buybacks have been approved year-to-date, up 50% from levels seen at the same time last year, Goldman said. Surging profits and elevated cash balances should also prop up repurchase activity. The bank sees corporations buying $300 billion in stock through the year, up 100% from last year’s levels but 25% below the annual average seen from 2010 to 2019.

Precedent suggests the market’s wild moves precede healthy gains, the bank said. Periods of rising real rates and breakeven inflation have been the most favorable for stocks over the past 10 years. Investors’ equity allocations usually grow when interest rates tick higher, the strategists added.

To be sure, Goldman’s Sentiment Indicator currently sits two standard deviations above average, implying “extremely stretched” positioning in stocks. Such crowding will serve as a headwind to market gains, the team said. But accelerating growth should still drive the S&P 500 higher over the next two months at least, they added.

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The stock market is not in a bubble for these 2 reasons, DataTrek says

Stock Market Bubble
A trader blows bubble gum during the opening bell at the New York Stock Exchange (NYSE) on August 1, 2019, in New York City.

  • The stock market is not yet in a bubble, DataTrek co-founder Nicholas Colas said in a note on Wednesday.
  • Two conditions that define stock market bubbles are fast rising valuations and retail investor fervor, according to the note.
  • “We don’t have the first, and the second is just starting,” Colas said.
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The stock market is not yet in a bubble, but a “baby bubble” might be forming, DataTrek co-founder Nicholas Colas said in a note on Wednesday.

In order for a bubble to even form in the stock market, two conditions are necessary: fast rising valuations and retail investor fervor, according to the note.

“We don’t have the first, and the second is just starting,” Colas said.

Based on the Shiller PE ratio, the bubbles of 1929 and 2000 were evident when a sharp move higher in valuations occurred. It’s about the rate of change in valuations, not the absolute valuation levels that indicate a bubble is present, according to the note.

So far, the current reading of the Shiller PE ratio does not indicate that a bubble is forming in stocks, the note said.

Read more: Tesla just invested $1.5 billion in bitcoin. Here are the bull and bear cases for the crypto, according to legendary macro trader Mike Novogratz and Goldman’s wealth management CIO.

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“To our eyes the current-day red dot above lacks the antecedent spike of either 1929 or 2000, so by this measure we can’t call the current US equity market in a bubble,” Colas said.

While the stock market is not in a bubble yet, it is possible that one could be forming, according to DataTrek.

Heightened Google search trends for terms like “buy stocks,” “stock bubble”, and “stock market bubble”, have increased recently. The search trend data represents preconditions to create a stock market bubble “in terms of social attention on equities,” Colas said.

Retail investors have piled into the stock market since the COVID-19 pandemic, with $0 commission trading apps like Robinhood making it easier than ever to begin buying and selling stocks. The heightened retail activity was apparent last month after a Reddit forum helped spark a gravity-defying short-squeeze in shares of GameStop.

But while more retail investors are participating in the stock market, that doesn’t mean it’s time to sell stocks, the note said.

“We have not yet had the sort of valuation run up that says it’s time to sell,” Colas said, adding that investors should remain invested in US large cap and emerging market stocks. 

And while trying to call the top of a bubble remains appealing for investment professionals, it’s ill-advised.

“Even if you’re more bearish than us, remember that the end of the world only happens once so timing is everything for that trade. And early is the same as wrong,” Colas concluded. 

Read more: Credit Suisse says to buy these 16 ‘highest-conviction’ stock picks that are set to outperform despite the market’s contrarian view

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The stock market could jump 20% from current levels as buy-the-dip mentality continues, JPMorgan says

A trader works on the floor at the New York Stock Exchange (NYSE) in New York, U.S., March 4, 2020. REUTERS/Brendan McDermid
A trader works on the floor at the NYSE in New York

  • The stock market has 20% upside potential from current levels, according to a Thursday note from JPMorgan.
  • Analysts at the bank said the bull market in stocks is not yet exhausted and that investors should remain overweight stocks.
  • Here’s why the stock market is set to continue grinding higher, according to JPMorgan.
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Conditioned to “buy-the-dip” in stocks for more than a decade, investors continue to do just that, illustrated by the swift rebound from last week’s 3% decline in the S&P 500.

They should stick with that mentality going forward as the stock market is set to jump 20% from current levels, JPMorgan said in a note on Thursday.

“Stay overweight equities and commodities versus bonds and cash,” JPMorgan said. 

According to the bank, the bull market in stocks is not yet exhausted, and any slowdown in the recent strength of retail investors should be made up for by institutions that de-risked their portfolio last week amid an epic short-squeeze in stocks like GameStop and AMC Entertainment.

“While we recognize the risk from a potential slowing in retail investors equity impulse, we are reluctant to reduce our equity overweight in our model,” JPMorgan said.

JPMorgan’s forecast for 20% upside potential in the stock market is driven by its metric of equity positioning based on global non-bank investors’ holdings of bonds, stocks, and cash. 

“The argument is that the current implied equity allocation of 43.8% is still significantly below its post Lehman period high of 47.6% seen in January 2018, and that the equity appreciation needed to mechanically shift the implied equity allocation of non-bank investors globally from its current level to the post Lehman period is 23% for the MSCI AC World Index and even more for the S&P 500,” JPMorgan explained.

JPMorgan isn’t alone in its thinking. Fundstrat’s Tom Lee said in a note on Wednesday that the historic decline in volatility over the past three days sets the stock market up well for further upside ahead.

Read more: Investors are flocking to trade Dogecoin and other hot digital tokens with no Robinhood-style restrictions on Voyager. The CEO tells us why Bitcoin will hit $100,000 this year – and 3 other cryptocurrencies to watch

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Millennials are driving a regime change in the stock market. Here are the 6 major differences between them and baby-boomer investors, according to Fundstrat’s Tom Lee

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  • A structural regime change driven by a flood of millennial investors is coming for the stock market, Fundstrat’s Tom Lee said in a note on Friday.
  • Evidence of the change has been front and center this week after Reddit’s WallStreetBets forum sparked massive short-squeezes in certain stocks at the expense of Wall Street hedge funds.
  • These are the 6 biggest differences between millennial investors and baby-boomers, according to Fundstrat.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Millennials are coming for baby-boomer investors, and the imminent regime change was front and center this week after a 6-million strong Reddit forum sparked massive short-squeezes in certain stocks at the expense of Wall Street hedge funds.

That’s according to a Friday note from Fundstrat’s Tom Lee, who has been fielding a flurry of calls this past week from institutional investors who are trying to make sense of the price action in stocks like GameStop and AMC Entertainment.

The short-squeezes have been driven by a surge in retail investing, which has been enabled by trading apps like Robinhood, which offer $0 trading commissions and make it easy to buy or sell a stock. 

“I believe the rise of retail investors is structural, led by Millennials,” Lee said, adding that there are marked differences between them and the baby-boomer generation, which controls a bulk of the wealth on Wall Street.

Read more: A veteran options trader breaks down the intricate strategy that Reddit traders used to outsmart Wall Street’s bet against GameStop – and shares 2 ways the parabolic rally could permanently alter the stock market

“Millennials are already very critical thinkers, thoughtful and cost conscious, with habits so different from GenX and Baby Boomers, that this is going to upend how many industries operate,” Lee said.

The same type of disruption that hit the hotel industry with Airbnb and the taxi business with Uber is now headed for the financial markets, Lee opined. 

And this new group of retail investors is a force to be reckoned with when you consider that the millennial generation, combined with its younger counterparts Gen Z and post-Gen Z, make up over 50% of the US population, the note said. 

“The impact from Millennials is set to go to ‘Plaid’ mode in the next decade,” Lee said in an apparent nod to Tesla’s premium Model S vehicle. The main reason why? They’re on the verge of inheriting $68 trillion in assets over the next two decades, according to the note. 

That’s about 70% of the $100 trillion controlled by US households. 

“Get the picture?” Lee asked.

So how will things change for the markets? Lee highlighted the 6 major differences between millennial and baby-boomer investors to try and find an answer.

Read more: A Wall Street expert warns that restricting GameStop and AMC trading from Robinhood could trigger ‘one of the worst-ever’ market crashes as retail investors lose trust

1. Millennials are stock heavy where as baby-boomers are bond heavy.

2. Millennials favor self-directed investments whereas baby-boomers favor hedge funds and mutual funds.

3. Millennials favor trading apps like Robinhood whereas baby-boomers utilize “White shoe investment banks.”

4. Millennials are getting their information from Reddit and TikTok where as baby-boomers favor Grant’s Interest Observer.

5. Millennials favor thematic investing in long-term disruptive trends whereas baby-boomers fundamental investing.

6. Millennials favor digital assets like bitcoin where as baby-boomers favor physical gold. 

“$68 trillion….yup,” Lee concluded. 

Read more: MORGAN STANLEY: Buy these 17 stocks with strong earnings that are expected to outperform into 2022 even if the broader market sinks

 

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Reddit day traders are taking on hedge fund giants and winning, and it’s a sign of a new era for markets

WallStreetBets
  • The 4 million-strong WallStreetBets forum on Reddit has officially disrupted Wall Street.
  • They did it by piling into heavily shorted stocks, sparking short-squeezes at the expense of Wall Street hedge funds and large institutional investors.
  • “They are proving to be quite capable of mounting some successful ‘value capture’ against Wall Street institutional investors,” Fundstrat’s Tom Lee said.
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Wall Street hedge funds are scrambling, and it’s all because of a online investing forum that has more than 4 million members who self-describe themselves as “degenerates.”

Reddit’s WallStreetBets forum has surged in popularity after retail investors within the group successfully staged a gravity-defying short-squeeze in GameStop at the expense of hedge funds that were betting the physical video-game retailer was on its last legs. 

A short-squeeze occurs when investors who are betting against the stock are forced to close out their position by buying the stock, further adding fuel to the fire.

As of Thursday morning, GameStop had a year-to-date gain of more than 2,400%. The rally in GameStop crushed Melvin Capital, a roughly $12 billion hedge fund that has suffered a more than 30% decline due to its short position in GameStop.

The hedge fund received an emergency $2.8 billion investment from Steve Cohen’s Point72 and Ken Griffin’s Citadel amid the record surge in GameStop.

Read more: As Redditors flood the stock market, UBS breaks down 6 options strategies investors can use right now to protect their portfolios

Citron’s Andrew Left, a famed short-seller, also felt the heat from Reddit investors after he called for the stock to fall 50% last week. Left ultimately closed out his short in GameStop for a loss, as did Melvin Capital.

Maplelane Capital is another New York-based hedge fund that saw declines of about 30% due to its short position in GameStop, according to a report from The Wall Street Journal.

The developments are remarkable when you consider that retail investors on Reddit likely lack the sophisticated data feeds that multi-billion-dollar hedge funds rely on.

But after spending a few hours on the forum, billionaire investor Chamath Palihapitiya concluded that the Reddit traders can do the same fundamental analysis as hedge funds, if not better. Palihapitiya ultimately followed the retail investors into GameStop, and won big.

Now, Reddit traders are trying to replicate the success of GameStop and are targeting other stocks that are highly shorted by professional investors. And they’re succeeding.

Stocks like AMC Entertainment, Bed Bath & Beyond, and Virgin Galactic have soared this week as Reddit investors piled into the names via both stocks and deep out of the money call options, creating unprecedented demand for the shares.

Read more: A chief investment strategist breaks down how the GameStop saga could upend decades-long practices on Wall Street – and shares her 4-part advice for navigating the frenzied trading environment

“They [retail investors] are proving to be quite capable of mounting some successful ‘value capture’ against Wall Street institutional investors,” Fundstrat’s Tom Lee said in a note on Monday, adding that “large size does not always win.”

But the influence of WallStreetBets on stock moves could wane in the future as systematic funds “adjust” their models to incorporate this new source of volatility, Lee said.

And it’s not only quant funds that could put a dent in the influence of 4 million Reddit traders, it’s also trading platforms.

On Thursday, Robinhood restricted buy trades in a handful of stocks that have seen epic short squeezes and have been targeted by the Reddit group, including GameStop, AMC Entertainment, and Nokia, among others.

Now the question is, according to Lee: “Will their strategies endure?” 

Read more: Morgan Stanley handpicks 18 US stocks to buy for the best business models that deliver market-beating returns for years to come

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