The so-called Reddit revolution has been taking Wall Street by storm. It’s got everyone from parents to friends with no investment experience asking questions and, in some cases, taking leaps. While these Reddit stocks have shown big gains, they’re not for the faint of heart.
Why? Because, while these big gains are enticing, the losses can be big, too. GameStop — which we’ll cover later in this article — is the name that really started all of the fireworks. It has seemingly everyone talking about it, wondering just how high it can go.
On Wall Street, there’s a figure known as the short interest — in essence, what percentage of the stock is sold short. When these readings are high, it’s usually for a reason — usually because the company is poorly run and investors are betting on a lower stock price.
But what happens when the shorts are wrong? Essentially, buy orders start to push up a stock, forcing shorts to stop out of their position. Just like when a long needs to get out they sell, shorts get out of their position by buying. This adds fuel to the fire and can create what are known as short squeezes.
The debacle with GameStop has wreaked havoc with brokerages and has racked up billions of dollars in losses for hedge funds. But GameStop might not be the last time we see this. So, what other Reddit stocks do investors need to know about? Here are seven names to watch:
- GameStop (NYSE:GME)
- AMC Entertainment (NYSE:AMC)
- Bed Bath & Beyond (NASDAQ:BBBY)
- Gogo (NASDAQ:GOGO)
- FuboTV (NYSE:FUBO)
- Virgin Galactic (NYSE:SPCE)
Reddit Stocks to Watch: GameStop (GME)
GameStop has been leading this revolution of current short squeezes. However, it’s not just retail investors pushing this name around. Professional investors and funds are aware of the newfound momentum and don’t mind squeezing those who are stuck short in the position if it means they can make money.
GameStop has a very unique setup as opposed to the rest of the stocks on this list. Its short interest is in excess of 100%, currently at 131.76%. What does that mean? How can that be?
Essentially, more shares have been sold short than shares that are available. So, when a short squeeze gets going, it creates massive moves to the upside. There simply aren’t enough shares to go around as real buyers and momentum investors buy the stock, as well as short sellers who are buying to cover their position.
For a long time, sellers figured they could continue to short GME stock, with the intention of never buying it back. Basically, they were betting on a bankruptcy.
So, is GameStop really worth the $300 to $400 a share it traded for just weeks ago? Of course not. The business might not be dying, but it’s not exactly thriving and justifying that type of valuation, either.
Regardless, until that short interest level comes down, GameStop will likely continue being the headliner of the Reddit stocks trading list.
AMC Entertainment (AMC)
However, there’s a close second on that list of Reddit stocks, too: AMC Entertainment.
This company is obviously going through a difficult time due to the novel coronavirus. However, because of its short interest and its low stock price, AMC stock has attracted online traders with the GameStop hype.
Wisely, the company raised capital when the stock price was flying higher. Adding more shares into the mix will make it harder for AMC stock to squeeze higher like GameStop did. However, watching the short squeeze play out isn’t management’s main concern. Instead, it’s surviving. Raising some capital will help the company do just that, putting almost $1 billion into its coffers.
I don’t know how the company could justify not raising capital after such a stellar move in the share price — reaching a high of $20.36 on Jan. 27. Capital is exactly what it needed at a time like this. Further, it may not be done raising funds.
Will AMC be able to hold out? There’s no guarantee, but a Covid-19 vaccine will certainly help.
Bed Bath & Beyond (BBBY)
This next company is pretty interesting. For one, it’s one of the newly minted Reddit stocks that have been making the rounds recently. That’s due to having incredibly high short-interest levels.
At the time of this writing, Bed Bath & Beyond had a short-interest reading of 68.7%. In other words, about two-thirds of the available float is sold short. So, if buyers can get shorts to start covering aggressively, BBBY stock could have some major upside.
But none of this is what makes Bed Bath & Beyond “pretty interesting.” Instead, that has more to do with the underlying fundamentals.
First, this company has done a wonderful job pivoting from its struggling-retailer status to a solid omni-channel operator. Many shorts were betting that Covid-19 would collapse this business. It didn’t.
Free cash flow is positive and the company is profitable. Its liquidity is strong and it’s shedding underperforming assets. This lean-and-mean approach with a focus on cash flow is going to pay off for management and for investors.
And lastly, it has a massive share buyback in place.
Like Bed Bath & Beyond, Gogo is interesting because of its improving fundamentals — even if no one wants to give credit to the company just yet.
Short squeezes are fun to watch and may be Wall Street’s equivalent to entertainment. But when these opportunities are combined with improving fundamentals, that’s where the real potential lies.
Gogo can effectively be divided into two businesses: commercial aviation (CA) and business aviation (BA).
The company’s CA segment essentially deals with Wi-Fi on regular passenger planes and has thus far been unprofitable. The BA segment, however, deals with Wi-Fi on private planes and has been profitable. The latter also held up well despite the impact of the novel coronavirus pandemic.
So, why not shut down the former and focus on the latter? That’s what Gogo is doing. But rather than shut it down, it actually sold the unit for $400 million in cash.
Just getting this unit off of the books for free would have created value for the company, but dumping it for $400 million will allow Gogo to pay down debt. It will also enable the company to restructure its business around the more profitable unit without a bloated balance sheet. That makes this pick of the Reddit stocks very compelling.
Now we just need a re-rating on the debt and GOGO stock may have some real potential.
What do I like about silver? The technical setup was attractive before there was any sort of subreddit forum chatter about wanting to trigger a squeeze in this one.
GameStop is one thing, but the silver market is another. This market is so deep, it’s silly to think that a “meme culture” of stock-trading bandits could trigger a squeeze. That said, the technicals were setting up very nicely and a move higher shouldn’t have been out of the question.
Combine that with the Reddit talk and investors bid this one higher in a hurry, sending the iShares Silver Trust ETF (NYSEARCA:SLV) higher by 7%. At its high, SLV stock was up about 12% on Feb. 1.
While that took the air out of the trade in the short term, it still seems like silver could have a nice upside move, though. With all of the monetary action from the central banks, as well as the industrial use of silver, demand should remain solid.
Plus, the charts are still intact despite the recent volatility. That all earns silver a spot on this list of Reddit stocks.
FuboTV isn’t just one of the Reddit stocks floating around online message boards. It has also attracted quite a bit of discussion among hedge funds and short sellers.
This one exploded onto the scene, blasting higher in October and November. Then in December, shares rallied 135% to new 52-week highs in just five trading sessions. FUBO stock topped at $62.29 on Dec. 22. Then the onslaught of short-reports and debate began, sending shares lower by about 60% in just six days.
The volatility here has been intense and for good reason. While FuboTV does operate at a loss, it also has pretty impressive revenue growth. Of course, those aren’t the only two things that matter. But should it gain some momentum, this stock’s 72% short interest should provide some fuel for the fire.
Virgin Galactic (SPCE)
Virgin Galactic has always been an interesting speculative holding for me. Why is it speculative? Because it has almost no revenue.
The company has yet to begin its major business operation, which is space-flight tourism. I know, it sounds far-fetched and far off in the future. But it’s not as futuristic as one might think.
Virgin Galactic is nearing completion with the Federal Aviation Administration (FAA) and once it does so, it can begin taking customers up. With a currently untapped market, some analysts believe it could be huge, too. One analyst believes space tourism could be a $38 billion market by 2030.
Further, Virgin Galactic also has multiple deals and partnerships set up with NASA, including one for developing high-speed technologies.
Who knows, maybe this one doesn’t pan out — hence SPCE stock’s speculative nature. But if it does, it could be a home run, especially from lower prices. Like the rest of the names on this list of Reddit stocks, the short interest — currently at 29.08% — could also be a catalyst.
On the date of publication, Bret Kenwell held a long position in BBBY and GOGO.