'DORK' Stocks: A Sign of the Times

More signs of speculative fervor… Stay away from the 'DORKs'... Margin debt hits an all-time high… Why lose some money when you can lose more?... Only two bigger peaks in this indicator… Beware the calm…

Stay away from the 'DORK' stocks...

We wrote to you last week about a return of "meme-stock mania" and a surge in a frenzy of speculation.

Shares of beaten-down companies like Kohl's (KSS), Krispy Kreme (DNUT), and Opendoor Technologies (OPEN) had been juiced higher by short-squeeze-seeking traders from Reddit's WallStreetBets online forum.

Remember, when a stock is heavily shorted, buying activity can prompt a virtuous price cycle. If the share price rises, short sellers begin cutting their losses by buying shares – pushing the price higher still. This puts a further "squeeze" on the shorts. 

As we shared in the July 22 Digest...

On today's open, shares of Kohl's doubled. They gave back about 50% of that gain but were still sitting on a 30%-plus gain as of lunchtime, with the stock seeing 20 times its normal trading volume.

Combine this action with the fact that the company is endearing itself to a younger generation and is heavily shorted by Wall Street (covering about 50% of its shares outstanding, according to FactSet), and this behavior has all the signatures of a GameStop-like meme-stock mania from 2021.

Well, since then, investing circles have been talking about these stocks – plus one more, Rocket (RKT). And they grouped the ticker symbols DNUT, OPEN, RKT, and KSS into the acronym DORK.

If nothing else, the label tells you about the interest in the speculative fervor... much like FAANG (for Facebook, Amazon, Apple, Netflix, and Google) demonstrated heightened interest in mega-cap tech stocks when the acronym became popular about a decade ago.

The difference is those companies had big revenues behind them. Krispy Kreme, Opendoor, and Kohl's were getting shorted for good reason.

Meanwhile, individual retail traders had a different, and misguided, reason for driving up Rocket. It's the parent company of Rocket Mortgage and the Redfin real estate listing platform. It has rapidly become trendy for traders to bet on real estate companies, with the hook being that they'd bank profits to buy a home.

(Opendoor – another residential real estate platform – also fits this trend as well as being a short squeeze. Krispy Kreme and Kohl's are well-known brands with flagging sales.)

Shares of all the DORK stocks have gone on wild rides – higher and lower (today, it was mostly the latter with all but Rocket down by at least 7%) – over the past week on extremely high volume.

Stay out of it. As with other meme stocks, the price action is unrelated to the companies' fundamentals. It's just gambling whether you'll grab one as it's rising or crashing.

The return of meme stocks is also a glaring sign of greedy market sentiment right now.

As our Stansberry's Investment Advisory lead editor Whitney Tilson wrote in his free daily newsletter yesterday, "speculative foolishness [is] infecting corners of our markets." He described these DORKs as "four beaten-down, garbage stocks that have been pumped in message boards for the past week."

The meme-stock crowd has 'saved' one of these companies (for now)...

Up until last month, Opendoor was heading for a delisting on the Nasdaq exchange. Its shares had traded below $1 for 30 consecutive days, which makes it ineligible for the Nasdaq.

In order to get back in compliance with Nasdaq listing rules – and remain on an exchange where it's easy to trade shares – the stock's closing price needed to close for at least $1 for 10 consecutive business days. Nasdaq gave the company until late November.

In many instances, companies achieve this via a reverse split. That means they reduce the number of shares and increase the price per share. It's purely an accounting gimmick, but it keeps the stock in compliance with the listing requirements.

With the stock still below $1 in June, Opendoor announced plans for a reverse stock split. But then the retail crowd showed up.

Opendoor's stock has gone from less than $0.60 a share at the start of July to an intraday high around $5 on July 21, and back down to around $2 today. And yesterday, it closed above $1 per share for the 10th straight day... no reverse split required.

Think back to late 2020 into early 2021, when Reddit-driven retail investors saved movie-theater chain AMC Entertainment (AMC) from bankruptcy. That mood is back.

More signs of a frenzy...

A surge in volume for stocks like Opendoor and Kohl's isn't the only thing that has our attention. Investors are investing on margin more than ever before. Take a look...

Margin balance is money that investors borrow to finance their trading. At the end of June, this debt crossed above $1 trillion for the first time – and jumped more than 9% from May, according to the latest monthly data from the Financial Industry Regulatory Authority ("FINRA"), the regulatory body of U.S. broker-dealers.

We last highlighted margin balances last December, when they were still well below (but trending toward) the then-high from October 2021. Well, margin balances blew through that last month and are now at record levels.

As we wrote in the December 16 Digest...

When markets are going up, it seems like a genius move to gamble with money you don't have. The more money you put into the markets, the more you make. But during downturns, margin magnifies your losses.

Not coincidentally, that period of time essentially marked the beginning of a local "top" for stocks. The S&P 500 Index and tech-heavy Nasdaq Composite Index ticked a touch higher from there into highs in February, before falling by roughly 20% to lows after the "Liberation Day" tariff announcement.

Now, 'off the books' margin could make the picture even worse...

FINRA's margin-debt data doesn't tell the entire story. Folks can now leverage their exposure to the markets and even single stocks through exchange-traded funds ("ETFs"). Put simply, these stocks offer twice – or sometimes three times – a stock's daily return.

These funds are buying shares on margin themselves, giving you one-click leverage to higher gains (and higher losses).

And this activity has become more popular over the past year. As our colleague Dan Ferris wrote in May, fund companies are offering these leveraged ETFs in companies that stay in the headlines. At the time, the most popular ones covered electric-car maker Tesla (TSLA) and tech company Strategy (MSTR) as a proxy for bitcoin.

According to Barron's, more than 30 additional leveraged ETFs launched in the second quarter... including many single-stock funds. And some are in further retail favorites – like NuScale Power (SMR), AST SpaceMobile (ASTS), and recent IPO CoreWeave (CRWV).

Of course, these single-stock ETFs just highlight the risks involved with leverage and margin in downturns...

So far this year, the Direxion Daily TSLA Bull 2X Shares (TSLL) is down more than 50%, while Tesla is only down about 20%. (In other words, why lose just some money when you can lose more?)

Markets aren't worried – yet...

The major U.S. stock indexes have gone up pretty much on a steady track higher since the April lows and now sit at all-time highs.

And investors have plenty of "good" news to point to. Tariffs haven't been the worst-case scenario, inflation remains relatively in check, and unemployment is low.

But that doesn't mean there aren't warning signs that returns could cool down. After all, in just a few months, the S&P 500 has put up nearly three years' worth of average returns. And now things like margin debt and renewed speculation in meme stocks should be important signals on a contrarian's radar.

We're not calling for what you might call the top, though. We know that a frenzy of risk appetite from retail investors can send both individual stocks and markets higher in the near term and longer than it might "make sense."

Here's some context...

Goldman Sachs' Speculative Trading Indicator is at a multiyear high. But it's still not close to peaks in February 2021 (during the original "meme-stock mania" and highs for many post-COVID tech stocks) or January 2000 in the dot-com bubble days...

This indicator accounts for activity in unprofitable companies and penny stocks, and those with a high multiple to sales. These have all been trading at unusually high volumes lately. And bullish call options make up 61% of all options activity on U.S. stocks, the highest share since 2021, according to this Goldman report, which came out Friday.

At some point... not enough people will be left to keep hitting the "buy" button. Already, speculative flavor is at its strongest level in the past 25 years outside of two big peaks.

Take note, as Dan just wrote on Friday...

Most folks don't think risk is real until after it has done its damage...

It's just too hard to be cautious or bearish or even just thoughtful about making new investments when markets keep hitting new all-time highs. Near-record valuations have lost all meaning for most folks. They don't see stocks as either cheap or dear. They see them merely as rising or falling.

Risk is about probabilities... And by buying at all-time-record valuations, many folks are locking in a permanent capital loss, or will at least have to endure one for many years.

That's what history suggests, at least. Folks who bought the Nasdaq at the dot-com peak saw the value of their capital cut by nearly 80% by the end of the crash. They didn't break even for another 15 years. Same thing for folks who bought stocks at the 1929 peak, except that it took 25 years to get back to even.

The point isn't so much that the value would go sideways for a decade or more. It's that the returns on stocks bought at soaring valuations are doomed to be lousy for years to come.

It's not so much that you'll lose money. If you can wait out the downturn and keep investing when stocks are cheap, you'll do great.

At the very least, it's a 'time for patience'...

That's what our Ten Stock Trader editor Greg Diamond plans to discuss tomorrow morning in his latest free live YouTube video. As he told me the other day, Greg has been "turning slightly cautious heading into August."

You can sign up to be notified about tomorrow's free video to get much more detail and even ask Greg questions if you'd like...

And you might want to listen to Greg, an expert technical analyst who has been on top of the turning points of the market this year. He has closed 87% of his 30-plus trade recommendations for wins in 2025.

Beware the calm...

As we mentioned yesterday, it's a busy week of potential market-moving events.

Tomorrow brings the conclusion of the latest two-day Federal Reserve policy meeting, and the path of interest rates and Fed Chair Jerome Powell's job status will be front and center. We'll have a post-meeting report in tomorrow evening's edition.

By the end of the week, a deluge of new jobs data will be available for the market to digest, as will a new inflation report from the government.

Then throw in continued Magnificent Seven earnings tomorrow and Thursday, and there's plenty of kindling for some potential market volatility ahead.

And who knows what else could add to the mix, like on the tariff front...

Just today, Commerce Secretary Howard Lutnick said "reciprocal" tariff rates – the ones outlined in letters several weeks ago – will go into effect on Friday as previously announced (except for countries that have struck other deals already or, like China, are otherwise on a different timeline).

Expect negotiations to continue, and the legality of the tariffs is still up for decision soon. But after Lutnick's statements earlier today made headlines, most U.S. indexes reversed from slightly higher for the day to slightly slower.

Meanwhile, expectations right now are for smooth sailing ahead. The CBOE Volatility Index ("VIX") has dipped to a five-month low, another potential contrarian indicator.

As a recent Stansberry Investor Hour guest, the "VIXologist" Jim Carroll, wrote in his free market update this morning: "It seems like no one is worried and that might be the reason to be concerned."

In sum, we'll leave you with our conclusion from back in December when margin trading was also at a high and sentiment was overwhelmingly bullish... When it feels like you shouldn't manage risk, this is exactly when you should.

New 52-week highs (as of 7/28/25): Altius Minerals (ALS.TO), Broadcom (AVGO), Alpha Architect 1-3 Month Box Fund (BOXX), BWX Technologies (BWXT), DXP Enterprises (DXPE), Comfort Systems USA (FIX), GE Vernova (GEV), Lumentum (LITE), Ryder System (R), ProShares Ultra Technology (ROM), Uranium Energy (UEC), ProShares Ultra Semiconductors (USD), Veeva Systems (VEEV), and VeriSign (VRSN).

In today's mailbag, feedback on tariffs, which we discussed yesterday amid the U.S.-European Union trade agreement... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I've been selling product for export from the US for over 40 years. Tariffs have never been the issue. It's VAT [value-added tax]. I see no mention of VAT changing." – Subscriber William L.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
July 29, 2025