The Reddit stocks bubble is bursting. This should come as no surprise. All bubbles burst. It isn’t a matter of if, it’s when.
All bubbles have common characteristics. One of those is that they leave a lot of victims in their wake. For example, within a decade of becoming commercially viable, there were over 100 companies that made cars. And their stocks were bubbles too.
But eventually the auto bubble burst and broadly only the Big Three — General Motors (NYSE:GM), Ford (NYSE:F) and Chrysler survived. Hundreds of other companies saw their share prices crash. Most either went out of business or ended up being bought out.
Similar dynamics occurred with the Nifty Fifty. The Nasdaq bubble, the Roaring Twenties Radio Bubble, and every other bubble in the history of the financial markets. The Reddit stocks are no different.
Many of the stocks that have been caught up in the recent day trading bubble have already crashed. Some haven’t yet, but most will. Some of the companies will go bankrupt. Some will survive but you can expect their share prices to return to their pre-frenzy levels.
Here’s a look at seven popular Reddit stocks that may survive, though many with significantly lower shares prices then they are trading at now.
- GameStop (NYSE:GME)
- American Entertainment (NYSE:AMC)
- Nokia (NYSE:NOK)
- Sundial Growers (NASDAQ:SNDL)
- Takung Art (NYSEAmerican:TKAT)
- Plug Power (NASDAQ:PLUG)
- BlackBerry (NYSE:BB)
Reddit Stocks That May Survive: GameStop (GME)
Chart by TradingView
GameStop — perhaps the quintessential member of the Reddit stocks group — is a video game, consumer electronics, and collectibles retailer in the United States, Canada, Australia and Europe. The company was founded in 1996 and is headquartered in Grapevine, Texas.
This company became synonymous with the day-trading frenzy. As you can see on the above chart, GME was clearly in bubble territory. In early January, it was trading below the $20 level. But the end of the month it exceeded the $450 level. Then within a matter of days, it fell back to the $35 level. This was a classic bubble.
Then in March it rallied back to the $350 level. This is bubble number two, which is now popping, especially after earnings earlier this week.
Twelve firms on Wall Street follow GameStop. Their average target price is around $14 a share. If history is any guide, don’t be surprised if shares of GME are trading back at that level within a matter of a few weeks.
American Entertainment (AMC)
AMC Entertainment Holdings owns and operates movie theaters. It has about 1,000 movie theaters in the United States and internationally. The company was founded in 1920 and is based in Leawood, Kansas.
AMC was also targeted by the day traders and formed a bubble. In early January shares were trading around the $2 level. Then they skyrocketed and cleared the $20 level. Then the bubble popped and the shares crashed. In a matter of days, they fell back to $6. That was bubble number one.
Now bubble number two appears to be forming. Over the past two weeks shares more than doubled, before dropping back down to current levels around $9.
Fifteen of the Wall Street investment banks follow AMC and produce research on it. The average target price is $3.44 per share.
Nokia Corporation provides mobile and fixed network solutions worldwide. The history of this company goes back to 1865. It is headquartered in Espoo, Finland.
This stock shows how bubbles can give back all of their gains. NOK came into 2021 trading below the $4 level. Then it got caught up in the Reddit frenzy. In a matter of just one week, shares soared as high as the $9.79 level. Then, as all bubbles do, it popped and came crashing back to reality.
Within a matter of a few days, shares completed are round trip and fell all the way back to where they were when the bubble began to form. However, there is a chance that the shares rally again. But it’s highly doubtful it will be with the same speed as before.
Fifteen Wall Street firms follow Nokia. The consensus rating is a hold. The average target price is $4.87. That’s about 24% higher than where the shares are currently trading.
Sundial Growers (SNDL)
Sundial Growers grows and and sell cannabis products for the adult-use market in Canada. It was incorporated in 2006 and the headquarters are in Calgary, Canada.
Sundial shares have come crashing back to reality. As you can see on the above chart, shares were trading around 50 cents when the Redditt traders took hold of it. Within a matter of days, shares almost reached the $4 level.
As you can see on the above chart, SNDL has found support around the $1.10 level. There is support at this level because it was resistance during last March and then again in June.
Resistance turns into support because of the regretful sellers. They sold SNDL at $1.10. But when the shares rallied through the $1.10 level, many of these sellers regret their decision to sell. A number of them decide to buy it back … but only if they can get it for the same price they sold at.
This results in buy orders being placed at a level that had been resistance. If there are enough of these buyers, support will form like it has here. If this support breaks, the stock could take a nose dive.
Takung Art (TKAT)
Takung Art is an electronic online platform for artists, art dealers, and art investors to offer and trade in valuable artwork. It operates primarily in China. Most people, including myself, have no idea what this company does. But I know a bubble when I see one, and we have one here.
As you can see on the above chart, shares were trading below the $4 level when the day traders took control of it. Not shown on this chart, it surged all the way to a 52-week high of over $74 … and now is at half that.
This stock could be back to the $4 level in a matter of just a few days.
This is a very risky stock at any price level. It isn’t followed by any of the Wall Street firms. It also operates mostly in China, so as can be expected there is less transparency into the company’s financials and operations.
Plug Power (PLUG)
Plug Power builds fuel cells for the electric mobility and stationary power markets in North America and Europe. It was founded in 1997 and is based in Latham, New York.
Shares of PLUG went into an epic rally. As you can see on the above chart, in November shares were trading around the $15 level, By February, they reached $70 a share. Since then they have sold off and are now trading around the $33 level.
PLUG may appreciate from there. The consensus ratings of the firms that follow it is a buy. The average target price is around $60. That’s almost a double in price from here.
BlackBerry provides security software and services to companies and governments worldwide. It was founded in 1984 and is headquartered in Waterloo, Canada.
Shares of this company soared by 400% in less than two months during the Reddit stocks hype. But they have given back most of their gains.
As you can see on the above chart, a level that was resistance turned into support. The $8.75 level was resistance in December and now it has become support. This is the same dynamic that occurred in Plug Power and Sundial. Remorseful sellers have have decided to buy their shares back.
Analysts call Blackberry a hold, with a price target below $8.
At the time of this publication, Mark Putrino did not have any positions (either directly or indirectly) in any of the aforementioned securities.