MW How to build an anti-meme portfolio

By Mark Hulbert

Watch out: Meme stocks are back.

You can make money from meme stocks. Not by investing in them, but by doing the opposite.

I'm referring to the relatively obscure and illiquid stocks that now and then will capture the social-media attention of certain traders, skyrocket and then, more often than not, quickly fall back to earth. They are the polar opposite of so-called quality stocks - those of companies with solid balance sheets that are trading for reasonable valuations. It's a good bet that, over the long run, quality will come out way ahead.

Meme stocks nevertheless are back in the news, as the bull market has drawn more investors to Wall Street in hopes of turning a quick profit. Just take the Roundhill Meme exchange-traded fund, which closed in December 2023 due to lack of investor interest. During its short lifetime, its annualized return was a stunning loss of 30.5%. Hope springs eternal, however: Roundhill last week resurrected the fund with the same ticker and a slightly different name: The Roundhill Meme Stock ETF MEME.

To appreciate the long-term advantage that quality stocks enjoy, consider the performance of two hypothetical portfolios that AQR Capital Management has constructed. The first, made up of quality stocks, owns the 10% of stocks that at any given time score highest in terms of profitability, financial stability and safety, and that pay out a large percentage of their profits as dividends. The junk-stock portfolio, meanwhile, contains the decile of stocks at the opposite end of these dimensions. Both portfolios are rebalanced monthly.

Since mid-1957, the quality-stock portfolio has beaten the junk portfolio by 7.7 annualized percentage points - gaining 7.5% annualized, versus minus 0.2% for the junk portfolio.

This history bodes ill for the meme ETF in its new incarnation. Consider the 20 stocks it currently owns: 17 of the companies lost money over the last 12 months, according to FactSet data, and therefore have no price-to-earnings ratio. The average ratio for the remaining three is 135 to 1 -versus 25.7 to 1 for the S&P 500 SPX.

Furthermore, these companies' average price-to-sales ratio is off the charts: 993 to 1, according to FactSet, versus 3.3 to 1 for the S&P 500. And none of the 20 pays a dividend.

An anti-meme portfolio

For those of you who invest for the long term, the table below is an "anti-meme" portfolio of quality stocks. It contains stocks that are currently recommended for purchase by at least two of the investment newsletters my auditing firm monitors and that also are undervalued relative to the S&P 500 according to their ratios of price to earnings, book value, sales and dividends. The stocks that survived this winnowing process are listed in alphabetical order.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

-Mark Hulbert

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October 14, 2025 12:23 ET (16:23 GMT)

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