I'm highly amused (and a little disturbed) at the amount of attention that "meme stocks" are getting these days.

If you're not already familiar, meme stocks are just stocks that have become popular on social media.

Many meme stocks soared to unimaginable heights simply because users on social media sites like the Wall Street Bets forum on Reddit encouraged members to buy and intentionally drive up the stock price!

(Yes, this is market manipulation. And market manipulation is illegal. But when you have a group of people all working together like this, it's going to be hard for any district attorney to prosecute. But I digress…)

I've got mixed feelings about these meme stocks…

Pros and Cons of Meme Stocks’ Popularity

On one hand, I love to see more people involved in the market. The stock market is one of the best ways for all of us to invest in the growth of our global economy.

It’s truly a free market full of opportunity and it warms my heart to see new investors jumping in and growing their profits.

On the other hand, many of the meme stocks being pushed higher are worthless companies.

Some big winners have been literally bankrupt companies that simply traded higher because these groups decided to all buy at once and push the stock higher.

That makes no sense in the long run.

And for new investors who don't understand what’s going on, these stock price surges (and the resulting crash back to reality) pose tremendous risks.

That makes me angry because often it’s the people who can least afford to lose money who get sucked into these "get rich quick" investments.

Lately, I've heard coffee shop employees (and customers), neighbors, delivery drivers and even my kids advising how to trade these stocks.

And often, the advice I hear flies directly in the face of the knowledge I've gained through more than 20 years of investing professionally.

If you're holding shares of some of these meme stocks that have moved sharply higher, I'd encourage you to pat yourself on the back for any profits you've accumulated.

And then I'd say it’s safe to sell your shares right away — or at least make sure you have a plan for how to manage your position if the stocks trade sharply lower.

Because most of these meme stocks are either worthless or trading at valuations that simply don't reflect the reality of the companies behind them.

But with that said, there is one meme stock that I can get on board with.

And today, I want to give you the story behind this exciting stock that could surge sharply higher thanks both to social media groups and the company's great underlying business!

Let's take a look…

A Meme Stock With a Legitimate Reopening Business

The company I want to introduce to you today is Cleveland-Cliffs Inc. (CLF).

The company is known for its iron ore mines based in the Great Lakes area around Michigan and Minnesota.

As a North American miner, CLF enjoys a special advantage when it comes to U.S. manufacturing.

Iron ore is an important resource used for steel manufacturing. And CLF's iron ore mines are near the biggest steel companies in the country.

Since CLF's mines are located close to the steel factories, it's very easy for CLF to pull raw iron ore out of the ground, load it on a barge and ship it across the great lakes to any one of its U.S. customers.

In comparison, international competitors have to ship iron ore all the way from China or other parts of the world, adding higher transportation costs. This makes it very tough for international competitors to match the prices CLF can offer.

So clearly CLF is in a great position when it comes to providing iron ore to its customers.

And in today's reopening economy, the advantage of proximity and lower transportation costs is helping to drive the stock higher!

Over the next year, Wall Street analysts expect the company to transition from losing $0.11 per share (due to the pandemic slowdown in manufacturing) to a profit of $2.25 per share in the year ahead. That's an exceptional turnaround!

No wonder the stock has surged higher over the last few months.

But while the fundamental story behind CLF is what excites me about the stock, there's an entirely different narrative that the meme stock traders are following.

Meme Traders Squeeze Shares Higher

The main reason meme traders are interested in CLF is because of the stock's short interest.

Professional investors (and often individual investors as well) often short stocks that they expect to trade lower.

To use this strategy, you first have to borrow shares from your broker and sell those shares in the market.

Then this trade must be closed out by buying back the shares from the market and returning them to the broker you borrowed them from.

It sounds like a complicated process, but it's actually very easy.

And shorting shares of stock is a healthy way that our free market keeps prices at a fair level. If shares get overvalued, there’s an incentive for short sellers to bet against a stock.

This short-selling function of the market can help keep certain areas from trading too high and creating dangerous bubbles.

But the meme traders don't see it that way. They believe "evil short sellers" artificially push shares of stock lower.

And so these social media groups intentionally drive the price of stocks that are shorted higher in an attempt to hurt the Wall Street traders who bet against the stocks.

(See what I mean about market manipulation?)

Anyway, CLF has become a target for meme traders because there is a significant amount of short interest in the stock.

According to published data, there are currently about 52 million shares of CLF that are sold short.

That's not a huge amount compared to the 490 million shares outstanding. But these short statistics aren't always terribly accurate.

Some Wall Street market makers don't have to report their positions the same way that a hedge fund or other institutional investor would.

Meme stock traders believe the real short interest for CLF is much higher. And these traders are rallying around CLF to try to push the stock higher and hurt the investors betting against CLF.

Manageable Debt and a Bright Future

When you hear that investors are betting against CLF, the first thing you should be asking is why?

After all, many times the investors who short stocks are some of the brightest minds on Wall Street!

In this case, the decision to bet against CLF appears to be ill-advised.

Over the past year, CLF has had to make some adjustments to survive the coronavirus crisis.

When the company's revenue declined, CLF needed to get its hands on cash to stay in business. So it borrowed capital and sold new shares of stock.

These moves helped the company keep enough cash on the books to stay in business.

And now, revenue is picking up. This revenue will help CLF manage the new debt and will ultimately drive lucrative profits for new shareholders.

CLF could even reinstate its dividend once business returns to a normal level.

If the economy hadn't picked back up and manufacturing hadn't resumed, CLF's additional debt could have been a nail in the company's coffin.

But now, it looks like the extra debt did exactly what it was supposed to do. It helped the company survive a challenging period and emerge on the other side with a profitable business.

And just so you know, the number of traders who are short CLF has dropped significantly over the past several months.

That's great news because it shows that the risks have declined and the stock looks like a much more attractive investment today.

In short, this meme stock is one of the few situations that actually makes sense and has my blessing as a stock that can help you grow your retirement wealth.

As always, there are risks with every investment you make. So never put all of your investment capital into any one stock.

But if you take a reasonable position in this profitable mining company, I expect your investment to grow as our economy reopens.

Here's to building your rich retirement!

Zach Scheidt
Editor, Rich Retirement Letter
RichRetirementFeedback@StPaulResearch.com