While global blue-chip stocks may have seen muted moves ahead of key economic data releases later this week, GameStop, the video-game maker, has seen its share price surge more than 40% so far on Monday, its strongest performance since March 2021, at the peak of the meme stock craze.
Monday’s move in Game Stop rounds off a good month for the company, its stock price has surged more than 60% in the past month, fueled mostly by demand from retail traders. There has been no direct catalyst for this move. Its first quarter results were horrible: net income was down by $27.7mn, while earnings per share was negative by $0.09, suggesting that the company is not profitable. Thus, the move in the stock price in recent weeks, is not driven by fundamentals. This is one of the key risks of trading meme stocks – there is no clear driver aside from momentum and social media hype, which can reverse very quickly. It is worth keeping in mind that Game Stop is lower by more than 16% YTD.
Will retail traders get burned again?
The retail community are willing to plunge headlong into these stocks, with Bloomberg reporting $12mn of flows from retail investors into Game Stop shares in the past month. Options activity in the stock is also rising sharply. On Friday more than 200,000 calls were traded on the stock, which is much higher than average. The meme craze may have further to go, after a tweet from ‘Roaring Kitty’ on X surfaced on Sunday night. This account was one of the key drivers of the meme stock craze in 2021, and this was the first tweet for three years. This suggests that the meme stock craze could be back. However, we think that traders might approach this craze with a little more caution compared with 2021. GameStop is down 80% since its high, while AMC, another meme stock, is down 99% since its post -pandemic peak, although its share price was also given a lift on Monday, rising 10% in the pre-market.
Game stop share price
Source: Bloomberg
Anglo bats away BHP’s latest offer as Boots up for sale
Elsewhere, UK stocks are also in focus at the start of this week. Anglo American’s share price is down 0.8% today, more than the 0.2% decline in the FTSE 100, after it rejected BHPs offer to takeover the company. Anglo’s share price is up more than 26% in the aftermath of the initial offer, and it is the best performing stock on the FTSE 100 in the past month.
What’s next for Anglo?
Anglo has refused to accept the $34bn offer by BHP, so is it waiting for a better offer? It had already upped its bid by 15%, however, Anglo wants more, and it is not happy with BHP’s demand that it must spin off its South African mining units as part of the deal. We expect further horse trading in the coming days and weeks. Firstly, BHP may have to increase their bid for a third time, and secondly, Anglo will have to justify to shareholders why it won’t accept a $34bn price tag. Anglo’s share price decline has been fairly moderate in the aftermath of its refusal of this latest offer, this suggests that the market fully expects BHP or another suitor to step up with a better offer. Also, on a longer term basis, Anglo’s refusal of BHP’s revised offer is a sign that the beleaguered FTSE 100 will not let go of its gems for nothing. If executives think that they can snap up under valued UK assets, they will need to think again, as the companies themselves know they are already undervalued and will want a decent premium above current share prices before they agree to be sold. This could either pump up the price for key UK companies or put foreign buyers off from buying them. With the pound’s resilience this year, combined with a rising FTSE 100, there may be a limited window of opportunity for foreign buyers to purchase UK assets. Thus, we do not see Anglo’s share price falling off a cliff on the back of this offer, as it highlights the company’s worth, especially its highly prized copper mines.
Walgreens puts boots up for sale, again
On the theme of limited windows to sell UK assets, Walgreens is looking to sell Boots for £7bn. This comes 18 months after its last failed attempt to sell Boots. If a buyer can’t be found, then Boots may have an IPO in London.
Walgreens needs to offload assets, after its share price has struggled in recent months, and is down more than 40% so far this year, it also recently slashed its dividend in half.
The battle for virgin money heats up
We often talk about foreign firms taking over UK companies, however, there is also a domestic battle going on for Virgin Money at the start of this week. Virgin Money shareholders will vote on whether to accept Nationwide’s £2.9bn offer for the firm. However, fund manager and shareholder Allan Gray said that this offer falls short of Virgin Money’s true valuation. This could lead to a battle between shareholders and Virgin Money executives, who are urging shareholders to vote for the deal. With one week to go, we could see things start to get juicy between fund managers opposed to a deal and the Virgin Money exec team who seem deeply attracted to Nationwide’s offer. The risk for Virgin Money is that shareholders start to grumble about the offer not being enough, and a grumble turns into a chorus. Either way, this sets the stage for an interesting shareholder vote on May 22nd, as shareholders in Virgin Money are pitched against the management team. We will have to see who wins out, although the recent surge in confidence about the UK’s economic outlook could force Nationwide to up their offer.
