Source: Golden Ten Data
Looking at the trading boom set off by social platforms such as Reddit and Truth Social, many investors are anxious about missing out on these seemingly tempting opportunities.
from 2021$GameStop (GME.US)$The frenzy has recently$Reddit (RDDT.US)$With Truth Social's surge, many investors may be worried about missing out on these seemingly lucrative opportunities.
However, Hannah Gooch-Peters (Hannah Gooch-Peters), a global equity investment analyst at Sanlam Investments, said, “For investors whose 'meme' stocks pose more risk than their appetite, there may be a less volatile way to take advantage of this trading phenomenon.”
“Meme” stocks, which became popular through social media platforms such as Reddit and X, attracted retail investors looking for quick profits. In 2021, GameStop's stock price soared by more than 1,500% in just a few weeks, thanks to the coordinated efforts of retail investors on the Reddit forum. While some investors made decent profits, others were forced to hold when the bubble burst. For retail investors in particular, Gucci Peters emphasized the importance of long-term investing. She said, “If you want to increase your wealth over the long term, focus on five to ten years. I think this really is the perfect time.”
Gerry Fowler (Gerry Fowler), chief European equity strategist at UBS, pointed out that the market structure has recently changed significantly, and quantitative funds play a more important role in daily fluctuations. This means that retail investors are generally at a disadvantage when it comes to trading.
Earn profits
So how can investors take advantage of the trading phenomenon without taking the risks associated with “Meme” stocks? Gucci Peters suggests looking at the exchange itself, using the Intercontinental Exchange (ICE) as an example. ICE is part of the Sanlam Global High Quality Equity Fund, where Gucci Peters is an advisor. The company makes money every time securities are traded on its trading venue. The company achieved its biggest revenue and profit in 2021, due in part to increased financial market volatility and a “meme” stock trading frenzy. ICE also sells market data for investors to use in transactions.
As of fiscal year 2021, the company achieved a net profit margin of 40%, according to FactSet data. However, in its latest fiscal year, profit margins have returned to their normal pre-pandemic level of 25%. The industry is dominated by four companies: ICE, NASDAQ, the Chicago Board Options Exchange, and the Chicago Mercantile Exchange. Other exchange providers, such as IEX, haven't taken market share from the dominant players for decades.
“The barrier to entry is so high, and they're using that to benefit,” Gucky-Peters said. The trading volume of options and futures contracts increased in 2021. UBS's Fowler pointed out that this type of trading activity has also increased recently, which may affect ICE's profit potential.
According to FactSet data, the consistent price target for all analysts indicates that the company's stock price has room to rise by 11.4% over the next 12 months. However, Fowler also warned that market performance is sometimes out of touch with consumer confidence, which is often closely related. “We're starting to see this situation again, and the market has been rising for just the past few months. However, consumer confidence has stopped rising,” he added.