If a Reddit user bought shares of GameStop (NYSE:GME) around two years ago, that one user made an over 100-fold return — at a minimum. GME stock’s breathtaking rise peaked at $483 in January. Add in option call purchases, and the total unrealized returns are even more spectacular. As investors now know, Melvin Capital lost half its value in the first quarter by betting against GameStop and getting short-squeezed. The collective buying from Redditors led to what will probably become the biggest squeeze ever. And now, Redditors and other investors are looking for the next GME.
After GME stock peaked, the stock fell to below $50 only to rise again to above $300, albeit briefly. Volatility is a symptom of the bull and bear struggle. While volatility alone is not the only ingredient in finding the next GME, it is a start. Investors should look at stocks whose volatility offers quick near-term gains.
Listed alphabetically, here are seven stocks that could be the next GME:
- Alibaba Group (NYSE:BABA)
- AT&T (NYSE:T)
- C3.ai (NYSE:AI)
- Fastly (NYSE:FSLY)
- Lordstown Motors (NASDAQ:RIDE)
- Tesla (NASDAQ:TSLA)
- The Trade Desk (NASDAQ:TTD)
The Next GME: Alibaba Group Holding (BABA)
After the Chinese government canceled Alibaba’s plans to list its Ant Financial unit, BABA shares fell from a $319.32 peak to a low of $220 by December 2020. On April 10, the government slapped a record $2.75 billion fine on Alibaba. It discovered that the company abused its dominant market position for several years.
The penalty amounts to around 0.5% of Alibaba’s market capitalization. This should remove any future uncertainties surrounding the stock. From here, investors can speculate that Alibaba may resume its plans to seek a public listing for Alipay. That could send Alibaba shares back to above the $300 level. Conversely, the fintech unit is worth less on paper after it canceled its initial public offering (IPO) and forced restructuring.
Investors cut its Ant valuation to $20 billion, down from the $37 billion IPO.
Most analysts rate BABA stock as a buy.
On Wall Street, 16 of 18 analysts rate BABA stock as a buy.
The average price target is over $300. After the settlement with the government, analysts may raise their bullish view on the beat-up Chinese e-commerce giant.
AT&T (T)
AT&T shares dipped to $28 in February on no news. The stock pays a dividend that yields around 7%, so investors may wait for the WarnerMedia unit to outperform. As the lockdown eases, movie studios will release blockbusters to theaters. The company’s revenue should rise from here.
WarnerMedia previously relied on movie releases to HBO Max driving subscriptions. Yet the revenue growth will accelerate from movie releases. Conversely, the simultaneous release of movies on HBO Max and theaters will give the studio the best of both worlds. AT&T will grow its subscription services from these movies — The Conjuring and Reminiscence — while booking theater revenue in 2021.
In the fourth quarter, AT&T reported nearly six million domestic wireless net additions. It claimed the title of the nation’s fastest 5G wireless network. This is the eighth consecutive quarter that it enjoys that title (based on AT&T analysis of Ookla of Speedtest Intelligence data).
C3.ai (AI)
C3.ai shares tumbled from $100 after reporting quarterly results on March 1. The company posted a 23-cent loss per share. Its near-term forecast is also barely above consensus.
AI stock failed to get a lift after posting subscription revenue growth of 23% year-over-year to $42.7 million. Revenue rose by only 19% year-over-year to $49.1 million. The paltry growth undermined the stock’s valuation. At levels well below the highs, technology investors may look at AI stock as the next GME. The short float is around 14%. Although the short float on GME is significantly more than that, AI shares have not yet enjoyed a bounce.
Looking ahead, AI forecasted full-year total revenue in the range of $180.9 million to $181.9 million. It will still lose up to $50.1 million from operations. Cautious investors should not ignore the negative divergence between AI stock and the Nasdaq in the last two months. Consider waiting for the stock to settle in a trading range for a few weeks before starting a position.
Fastly (FSLY)
The next stock that could be the next GME is FSLY. Fastly peaked at $136.50 in the last year. The company will report Q1 results next month, which may increase the stock’s volatility.
In the fourth quarter, Fastly posted gross margins that rose from 57.6% to 63.7%. It owes most of the improvement from its acquisition of Signal Sciences. The net retention rate, excluding Signal Sciences, was 115%, compared to 122% in Q3 of 2020. The stock fell after the Q4 report because the company’s guidance failed to exceed consensus estimates.
In Q1, Fastly expects revenue as high as $86 million. It will likely lose between 9 cents and 13 cents. For the full year, it will lose between 35 cents and 44 cents, well above the consensus loss estimates of 21 cents.
Investors will need the Nasdaq to climb to new highs to give FSLY stock a strong lift. Fastly’s average enterprise customer spend is rising but needs to accelerate. That would lead to at least a break-even quarter next year.
Lordstown Motors (RIDE)
Shares of Lordstown Motors peaked at above $31 in February. Short-sellers are circling the stock with a nearly 22% short float. Famed short-seller Hindenburg said this electric vehicle (EV) maker is a special purpose acquisition company (SPAC) with no revenue or sellable product.
Given the fundamental weakness, investors should look at the upside in RIDE as a near-term short-squeeze trade only.
In the fourth quarter, Lordstown Motors lost $101 million. However, it had a healthy cash balance of $630 million. The stock has two upcoming events in 2021 that may lift the stock. First, its timeline to start production is September 2021. Second, the company said customers expressed strong interest in its electric vehicle pickup truck. RIDE stock will get a lift if its clients announce a purchase commitment for its EV truck.
On Wall Street, five analysts have an average price target of $22.60, representing upside of 152% from current levels.
Tesla (TSLA)
As expensive as Tesla stock seems, the company is not yet in the $1 trillion market capitalization club. It should be.
The stock backed off from the $900 level reached in January. The bearish short float is now in the negligible territory. By contrast, it gets nearly daily bullish coverage, thanks to ARK Invest setting a $3,000 price target by 2025 for TSLA stock.
Investors should not rely on an exchange-traded fund (ETF) firm to believe Tesla will go to $3,000. ETFs seek growing investment inflows. Still, many EV firms are coming online and threatening Tesla’s market share. But since the U.S. government is committed to helping American EV firms globally, Tesla stands to grow the fastest.
Tesla is the incumbent EV brand in the U.S. It has economies of scale, a nationwide charging network and diverse factories located worldwide. No other EV company has the brand recognition that Tesla enjoys. They will have to spend billions to build an international presence. Any misstep from Tesla’s competition could put them out of business.
The Trade Desk (TTD)
TTD stock peaked at almost $973 but fell after posting Q4 results in February.
Chief Executive Officer and cofounder Jeff Green said that 2020 was a uniquely challenging year. He also said the company won more share, thanks to CTV and audio. This resulted in an incredible $4.2 billion in ad spend on its platform last year.
In Q4, revenue grew by 48% year-over-year to $319.9 million. It earned $3.71 a share, easily beating estimates by $1.83. Investors ignored the company’s strong first-quarter guidance. TTD expects revenue in the range of $214 million to $217 million. The forecast assumes the economic recovery continuing from the Covid-19 pandemic.
Since the U.S. is aggressively vaccinating the population, TTD’s forecast appears conservative. When it reports results next month, a guidance raise may send the stock back to past highs.
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.
