Nearly two weeks ago, when Rocket (NYSE:RKT) figuratively flew to the moon, the follow-through proved disappointing. RKT stock, which has a short float of just above 35%, peaked at $43 per share before falling to near its current price of just under $26. But why is the media attaching the fast pump and quick dump to Reddit — making some companies “Reddit stocks?”
The social networking site gained notoriety when users gathered to buy up as many GameStop (NYSE:GME) shares as possible. In turn, GME stock topped at $483 in late-January and did not recover since.
In the days that followed the GME stock trade, silver rose and fell. Cannabis stocks like Tilray (NASDAQ:TLRY) also rose and fell, too. The stock peaked at $67.00 in mid-Feb. only to trade back at pre-run-up levels.
Overall, whether Redditors are responsible for the wild swings remains unknown. And speculators seeking quick gains are obligated to new stocks that could follow RKT to the moon.
That said, seven companies could attract Reddit’s r/WallStreetBets group. Some already caught the group’s attention before, but they may return to the list — rewarding investors who get them beforehand.
The companies are:
- AMC Entertainment (NYSE:AMC)
- General Electric (NYSE:GE)
- FuboTV (NASDAQ:FUBO)
- Nokia (NYSE:NOK)
- Palantir Technologies (NYSE:PLTR)
- Tesla (NYSE:TSLA)
In the chart above, Tesla scores the highest overall. At the bottom is Palantir. Scores are based on valuation, quality, sentiment and quality.
Stocks the score poorly are not necessarily under-performers. The Reddit gang will pick them based on the stock’s momentum and volatility.
AMC Entertainment (AMC)
Movie theatre chain AMC Entertainment is one of the original stocks that roared ahead with the GME stock short squeeze in late January. It has a troubled balance sheet with high debt, and the stock issuances dilute shareholders. Conversely, the vaccine rollout worldwide may bring the audience back to the theatre. In the Reddit forums, users may buy AMC stock again to pressure short-sellers.
On March 5, New York allowed theatres to reopen. Other large cities like Chicago, Houston, Phoenix and Philadelphia have already been open for several months. But weak attendance suggests that the re-opening in New York at reduced capacity will not lift AMC’s revenue. The rebound is still in the early phases. And as more businesses reopen, the reluctance to see a movie will fall.
Overall, AMC has a big hurdle to overcome. Moviegoers signed up for one or more streaming services already. They are saving money by watching movies at home. Plus, it is safer to avoid crowded places, even if theatre capacity is limited to 25%.
That said, renewed buying interest in AMC stock would send shares to the teens or higher.
With a short interest approaching 22%, FuboTV is potentially the next Reddit favorite. DraftKings (NASDAQ:DKNG) announced a strategic agreement with DISH Network (NASDAQ:DISH). It will bring DraftKings’ sportsbook to the DISH customer base.
In turn, the deal worried FUBO stock investors — overshadowing strong fourth-quarter revenue. Revenue grew by 98% year-over-over to $105.1 million. It benefited from subscription revenue growing by 91% YOY to $91.4 million and advertising revenue rising 157% YOY to $13.1 million. In 2020, Fubo posted revenue growing by 83% YOY to $268.8 million.
In 2021, the company said it would speed up the investment in its team and in developing its product into wagering. This is a hint for investors for expecting higher expenses. FuboTV shares are highly volatile ever since they broke out from the $10 October 2020 lows. Trading volume increased whenever the stock sold-off.
The past rebounds lost momentum. But if speculators take a bullish interest in this stock, it could head higher again. This time, it may stay there if customer additions accelerate.
In this 5-year discounted cash flow EBITDA Exit model, the fair value is around $30.00.
|Discount Rate||9.5% – 8.0%||9.00%|
|Terminal EBITDA Multiple||6.0x – 8.0x||7.0x|
|Fair Value||$27.12 – $31.72||$29.07|
The fair value is based on an aggressive seven-times multiple. Readers may lower the discount rate and increase the multiple to arrive at a higher price target.
General Electric (GE)
With 8.77 billion shares outstanding, Redditors will not have enough buying power to buy General Electric. In the last year, the stock enjoyed a steady run-up. To escape from volatile, speculations, investors may build a position in GE stock from here.
In the fourth quarter, GE posted an improving industrial profit margin of 800 basis points. Revenue and total orders fell, with adjusted earnings per share of 8 cents. Free cash flow topped $4.4 billion. For the full year of 2020, GE commanded a strong backlog of $386.5 billion.
A recovery in the aerospace and airline business will benefit GE’s sales of its GE9X engine. The Federal Aviation Administration certified this aircraft engine in 2020. The $16 billion debt reduction in 2020 will strengthen its balance sheet further. And the $37 billion of liquidity will protect the company from any credit crunch in the future.
GameStop’s drop to below $50 did not last for very long. Buying interest accelerated when the company said that the Chief Financial Officer resigned. The exit will pave the way for GameStop for board member Ryan Cohen to implement his long-term vision. For example, the Chewy (NYSE:CHWY) executive may more aggressively transition the company’s restructuring. This includes a share buyback, a debt reduction plan and reducing the storefront square footage to cut costs.
When Robinhood files its initial public offering, Redditors may turn their attention on betting against the brokerage and buying GME stock. Recall that Robinhood restricted the buying of GameStop and other heavily short-sold stock. It is accused of helping bearish investors who bet against this retailer.
GameStop’s quarterly earnings report may include an upbeat forecast. Any glimmer of details in the turnaround plan will help GameStop’s rally.
Nokia shares traded as high as $9.79 at the height of the GameStop short-squeeze. Selling has continued steadily since then. The fourth-quarter earnings report did not recharge NOK stock.
The beaten-up stock is an inexpensive play on 5G networking growth. Though revenue fell by about 5%, the GAAP gross margin of 39.2% is healthy. Nokia forecast operating margin in the range of 7-10%. Its cautious net sales forecast is due to headwinds from its Mobile Networks division.
Nokia could still beat market expectations. As customers convert their 4G footprint into 5G in North America, net sales will recover this year.
In a price-earnings (P/E) multiples model, Nokia’s fair value is around $4.50. Here are the metrics used:
|Selected LTM P/E Multiple||NA – 0.0x||NM|
|Selected Fwd P/E Multiple||16.0x – 19.6x||17.8x|
|Fair Value||$3.88 – $2.37||$4.31|
|Cisco Systems, Inc.||–||NASDAQ:CSCO|
|Telefonaktiebolaget LM Ericsson (publ)||–||NASDAQ:ERIC|
|Motorola Solutions, Inc.||–||NYSE:MSI|
|Juniper Networks, Inc.||–||NYSE:JNPR|
NOK stock is not a fast-moving volatile trade. Except for the stock spike in January, shares will trend lower for a long period. As sentiment reverses, buying volume tends to increase without warning. Investors looking for an ignored, the beaten-up stock should consider buying Nokia.
Palantir Technologies (PLTR)
For whatever reason, Palantir is a Reddit favorite. The software firm has a low short interest of 4.15%. Shares traded as high as $45 at the height of the Nasdaq market top last month.
ARK Investment Management is doubling down on PLTR stock, metaphorically speaking. It added over 2.6 million shares on March 3. In the last quarter and last fiscal year, Palantir paid so much in stock-based compensation that it exceeded revenue. This led to a loss. The lack of profits shared with investors is troubling. Fundamentals are unfavorable while the buying and selling momentum continues.
Volatility will attract investors to Palantir shares. Conversely, if Reddit users collectively buy the stock, sharing their purchases as Robinhood screenshots, the stock could fly to the moon.
Despite its massive market capitalization, Tesla has under 800 million in share float. As Reddit investors consolidate their electric vehicle bet, they will pick the best firm. Tesla has the longest record of accomplishment and the biggest hype. It will not take much attention from Chief Executive Officer Elon Musk to tweet and attract buyers.
Collectively, Tesla has a strong balance sheet and a bright future. And on Wall Street, most analysts rate TSLA stock as a “hold.” The average price target is around $640, according to TipRanks.
China-based EV companies and Special Purpose Acquisition company EV stocks lost momentum. Shareholders who lost money holding them may sell. They will turn to TSLA stock instead. Tesla has a strong brand and is growing globally. It established its charging network in North America. Worldwide availability will help drive Tesla EV sales.
Gigafactory installations worldwide will lower supply disruption risks. By comparison, China-based EV companies are bound to their domestic markets. They will need to sell billions of dollars’ worth of shares to raise capital. Without that, it cannot pay for the expansion plans.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.