7 Reddit Stocks to Watch for a Possible Second Surge

reddit stocks - 7 Reddit Stocks to Watch for a Possible Second Surge

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Earlier this year, Reddit stocks took Wall Street by storm. These stocks, many of which were short-squeeze candidates, exploded higher. Many rallied 50% or more in a single session. In some cases, the stocks doubled and even tripled.

The bottom line is pretty simple: These stocks generated an astronomical return in just a few short days. Could they be gearing up for a second wave? Thanks to the novel coronavirus, the term “second wave” can have investors shuddering. In this case though, bulls would love nothing more than another rip to the upside.

Digging through these names is easy and difficult all at the same time. Because of the “first wave,” we have a solid list of potential candidates. It’s more difficult now though, because many of these names have made their initial move, and many now have a different short-interest reading.

The decline from the highs allowed many shorts to cover. Will that take away from the potential upside? Let’s look at seven Reddit stocks with more upside potential:

  • GameStop (NYSE:GME)
  • Tanger Factory Outlet (NYSE:SKT)
  • AMC Entertainment (NYSE:AMC)
  • Rocket Companies (NYSE:RKT)
  • Bed Bath & Beyond (NASDAQ:BBBY
  • Palantir (NYSE:PLTR)
  • Gogo (NYSE:GOGO)

Reddit Stocks to Watch: GameStop (GME)

GME Stock On a Mobile Phone

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GameStop is the leader in the Reddit wave. It’s the stock that really started it all and got the momentum rolling with potential stocks that can see an epic short squeeze.

I mean, this is a stock that had a prior all-time high in the $60s back in 2007. That didn’t stop the stock from flying to $483 in January 2021. 

While one of the more epic short squeezes in modern trading history, this goes to show the power that these squeezes can have. However, not every stock should be looked at as having GameStop-like potential. 

This stock was uniquely positioned in that more than 100% of the float was sold short. Short-sellers were expecting this company to go bankrupt. When that never happened, they were left in a near-impossible position — trying to cover without igniting a rocket. 

It didn’t matter. Reddit traders picked up on it. Or the market did. Whoever, it doesn’t matter. Buyers realized it, and it was enough to create an epic eruption. 

Down plenty from its highs — lower by about 50% — and investors may believe GameStop’s best days are behind it. That’s probably true, but it doesn’t mean a few more powerful rallies aren’t in store. 

Tanger Factory Outlet (SKT)

Tanger Outlets (SKT) sign over a building

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One of the newer entrants of Reddit stocks is Tanger Factory Outlet. 

It’s not as if Tanger didn’t see a nice squeeze of its own back in January, but it didn’t get the attention that many others like GameStop did. Still, it’s now a candidate to keep an eye on. 

Plus, it has momentum. Unlike many of the Reddit stocks that hit 2021 highs in January or February, Tanger just did so in March. 

While the price action wasn’t pretty, shares hit a new high of $22.40 before fading lower. That was also a 52-week high for those keeping track. At one point, the stock rallied more than 26% from the prior day, although the ugly price action becomes apparent after realizing the stock closed lower by 3.3%.

Tanger has obvious issues, but it’s being seen as a reopening play. As the U.S. gears up for higher rates of vaccination, the public is increasingly looking at getting out and about. 

Throw in its 46% short float and it’s certainly a stock to keep an eye on. 

AMC Entertainment (AMC)

Image of the entrance of an AMC Entertainment (AMC) branded theater. undervalued stocks

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AMC is in a similar boat as the public gets moving again. Some states are moving back to limited capacity in the theaters. If we start to see a movement back toward its business reopening, AMC could have some real juice left in its squeeze potential. 

However, AMC management was smart during the last squeeze higher. 

The company took advantage of the higher stock price, raising capital to shore up its balance sheet. It’s a good thing it did, too. When business is effectively shut down and revenue is difficult to generate, paying the bills is pretty darn hard. 

As it stands, AMC has a short interest of just 17%. While high for an average company, that’s pretty low among many of the names on this list. 

Either way, with momentum flowing into the stocks that are reopening plays and with theaters coming back to life (albeit, in limited fashion), AMC may be a Reddit stock to keep an eye on. 

Rocket Companies (RKT)

RKT stock Rocket Mortgage is open on a smartphone

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This is a new fun one for the list, as Rocket Companies can actually do what its name implies: rocket higher. 

The company recently reported earnings and gave investors a big reason to launch higher. Rocket traded higher into resistance on the results, then exploded through it. 

The buyers realized the short-squeeze potential, and once the company announced a $1.11 special dividend — which is paid out by bears if they short the stock — it was the perfect catalyst. In November, Rocket also announced a $1 billion share buyback plan. 

Not to mention that the company is solidly profitable and has momentum working in its favor, which  only adds to the reasons that bulls don’t want to bail. Now add that to the 34% short interest and one can see why this stock may have more potential.

Bed Bath & Beyond (BBBY)

The front view of a Bed Bath & Beyond (BBBY) retail location in Indianapolis, Indiana.

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Speaking of powerful buybacks, Bed Bath & Beyond has a strong one too. The company has announced various buyback programs as of late, adding a strong bid under the stock price. 

Bed Bath & Beyond isn’t the strongest retail operator out there. However, it’s gotten much better over the past year as it embraces multiple omni-channel operations and sheds underperforming brands. 

The moves have helped improve the fundamentals, too. 

While forecasts call for year-over-year declines in revenue both this fiscal year (which is almost complete) and next year, consensus expectations call for a swing to profitability in fiscal 2022 (the upcoming year). 

With estimates of $1.33 a share, the stock trades at a reasonable 21 times earnings with 28% of its float sold short. 

Margins are expanding, EBITDA (earnings before interest, taxes, depreciation and amortization) is exploding, and free cash flow is positive. In the latest quarter, BBBY announced its buyback would increase to $825 million. That’s about 25% of the current market cap. 

Palantir (PLTR)

Palantir Technologies (PLTR) headquarters

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For some reason, Palantir has found itself on the list of Reddit stocks that could rip higher. 

This company is a relatively new stock in the market, having gone public in September 2020. In late January, it too had a massive squeeze higher, rallying to a high of $45 a share. 

To get there, the stock rallied 73% in a four-day stretch before cooling off and consolidating over the next several weeks. With the stock now trying to stabilize in the low- to mid-$20s, Palantir bulls are gaining confidence. 

First, the stock has reset to multi-month support, while its latest earnings report reiterated a number of new deals for the company. From the company:

“In Q4 2020, we signed 21 contracts each worth $5 million or more in total contract value, including 12 contracts each worth $10 million or more in total contract value.”

Further, analysts now expect more than 30% revenue growth in each of the next two fiscal years. That’s impressive growth, particularly as the company looks to generate a profit in both years. Let’s keep this one on the radar. 

Gogo (GOGO)

A digital illustration of the telecom industry.

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Last but not least is Gogo. This company has made a number of strong moves lately that Wall Street may not be fully giving it credit for. 

At a glance, Gogo may not seem that impressive. The company is forecast to see a near-20% drop in revenue next year, while losing five cents a share. It also appears to have 28% of its float sold short. 

However, the fact that Gogo is even solvent is a huge victory for the bulls. 

The company sold off its unprofitable business segment — commercial aviation — and kept its profitable unit (business aviation). As a result, not only did it net $400 million in cash, but its margins should improve along with its operating results. 

All we need is a refinancing of the debt and some work on the balance sheet and Gogo could have some real upside. Many investors attribute the high short interest to convertible debt holders, but either way, this name could still have some upside. 

After a dip back down into the $10 to $12 range, the stock could see $15-plus if it regains momentum. 

On the date of publication, Bret Kenwell held a long position in BBBY and GOGO. 

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. 

Article printed from InvestorPlace Media, https://investorplace.com/2021/03/7-reddit-stocks-to-watch-for-a-possible-second-surge/.

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