Year of the Meme Stock: Hertz, Kodak Top List of 2020 Highlights

(Bloomberg) -- Vaccine developers, electric-vehicle startups and a bankrupt car-rental company captured the imagination of individual investors in 2020 as Reddit chat rooms touted the so-called meme stocks as the next big winners.

“You saw an amazing amount of volume compared to normal and that came from the retail side,” said David Wagner, a portfolio manager at Aptus Capital Advisors. “The dumb money was the smart money this year” as lower-quality stocks -- those with negative earnings and substantial debt -- outperformed value stocks.

The wild swings reflected bets by individuals, many of them new to the market, who looked to brokerage apps like Robinhood Markets to pass the time during the pandemic, especially after cashing stimulus checks. However, many trades weren’t based on companies’ financials, but rather on alluring products or stories circulated through memes online by other traders. As a result, some bets turned out better than others.

Below is a list of some of the wackier trades of the year.

Hertz Global Holdings Inc.

Hertz Global Holdings Inc. became one of the first household names to file for bankruptcy after the coronavirus outbreak sent demand for rental cars plummeting in the wake of travel restrictions and shutdowns around the world.

The shares fell as low as 40 cents. And then something odd happened. Trading volume spiked and hordes of investors -- possibly looking for a cheap way to buy the dip -- piled into the virtually worthless stock, driving it up more than 10-fold at one point.

Leaning into the craze, Hertz attempted to sell even more shares in order to raise some cash. A judge approved the sale. But the company called it off after regulators stepped in. Hertz didn’t return a request for comment.

Eastman Kodak Co.

Investors in Eastman Kodak Co. experienced euphoria that lasted just a matter of days after the 132-year-old company said it would begin manufacturing Covid-19 drug ingredients. The storied photography giant was the recipient of a $765 million government loan from the Trump administration in an attempt to speed production of critical medicines.

The stock surged 1,481% over the course of three days in July as investors cheered yet another attempt by the company to reinvent itself. But within a week, Senator Elizabeth Warren called for an investigation into potential insider trading. The shares collapsed as critics began to question why the loan was issued to the company, and it was put on hold pending further investigation.

Later in September, a legal report commissioned by Kodak determined the company had mishandled the process but there had been no insider trading. Then in December, a probe from the inspector general of the agency that brokered the deal also said it discovered no wrongdoing.

Kodak shares are still nearly double the price of where they started the year. The company said it “does not speculate or comment on investors’ decisions,” adding that it’s “concentrating on growing” its core businesses including manufacturing key starting materials for pharmaceuticals.

Nikola Corp.

Once called “more of a business plan than business” by a Wall Street analyst, electric-truck startup Nikola Corp. is emblematic of the speculative trading that sent EV stocks surging this year.

After going public in a reverse merger with a blank-check entity in June, Nikola commanded a market capitalization of nearly $29 billion, topping even Ford Motor Co. However, the post-IPO euphoria did not last as billions were gradually trimmed from its valuation over the next two months.

The stock saw a brief pop in September after a tentative collaboration with General Motors Co. was announced. But soon after, short seller Hindenburg Research accused Nikola of deceiving investors about its technology and vehicles, spurring a chain of troubles including federal investigations.

The company denied the allegations and said Hindenburg was trying to manipulate the market. Founder Trevor Milton later stepped down as chairman and a severely truncated deal with GM was announced.

Nikola shares are now down more than 80% from their June peak, with a market capitalization of about $5.3 billion. A Nikola spokesperson denied a request for comment.

United States Oil Fund LP

At the depths of the oil market’s plunge in April, mom-and-pop investors turned to the U.S.’s biggest oil exchange-traded fund, the United States Oil Fund LP, to bet on a rebound.

The only problem is that USO isn’t a direct bet on oil prices and incurs costs from rolling over its futures positions that hamper performance when longer-dated contracts cost more than the current one. As a result, the wagers contributed to even more market mayhem and may have even helped push crude prices below zero.

Amid the turmoil, the fund made a series of investment strategy changes in addition to halting the creation of new shares. The moves would later draw scrutiny from U.S. regulators around risk disclosures. However, the ETF still proved popular, even after U.S. securities regulators recommended an enforcement action against the fund.

It is only more recently -- with relatively stable oil prices and vaccines on the horizon -- that the fund has seen any significant outflow. A request for comment was not returned.

Novavax Inc.

Vaccine developers -- including those that have never had a commercial product and have no revenue -- had perhaps their best year ever as the biotech sector raced to develop inoculations for Covid-19.

Leading the pack was Novavax Inc., which saw its stock skyrocket 4,385% by mid-August, before it had even started the late-stage trials needed to secure regulatory approval. Its potential advantage is that its vaccine may be easier to mass produce than others and requires only normal refrigeration temperatures.

However, the stock has pulled back from its highs as investors shifted their focus to front-runners such as BioNTech SE and Moderna Inc. Novavax is now up about 3,000% this year. The company didn’t reply to a request for comment.

The stratospheric gains for the vaccine chasers have been likened to Bitcoin mania and some analysts have said that even Moderna’s nearly sevenfold surge is divorced from fundamental valuation, given future sales prospects.

So far, Novavax has been backed by more than $1.6 billion in funding from the U.S. government and $399 million from the Coalition for Epidemic Preparedness. A late-stage trial has yet to start in the U.S.

©2020 Bloomberg L.P.