Today, the modern way of investing in seems to have one key trend to monitor: stocks that move not on fundamentals, not on top catalysts — such as earnings surprises or developing new products and services — but based on social media hype, and mentions from top social media influencers.
Should you consider investing in stocks that let us say are trending in social media forums or are mentioned by social media influencers? If you love speculation and you are ok with its high risks, then you may like this investment craziness.
But, why craziness? Well, because there is no compelling argument in favor of these stocks that move on social media mentions. Their fundamentals are poor, their prospects are not exciting now, and are mostly overvalued.
Overall, I would like to see a high-quality stock with great fundamentals and being undervalued to become a trending stock in these social media platforms, or being supported by a top social media influencer. However, chances are this will seldom happen.
Why? Because I believe that there is a lot of stock price manipulation on social media. And high-quality stocks are not in the need of being discovered from forums or influencers, as these stocks move up or down for what matters most in stocks, fundamentals, valuation, and prospects.
Thus, if you think that high-sorted stocks are a category of stocks that could provide quick profits by creating a social mention and a FOMO (fear of missing out) effect by penalizing Wall Street for sorting these stocks, then this is a naïve investment approach and a very risky one — and for sure a not sophisticated one. These stocks that have surged based on a massive short-squeeze have witnessed in the past selloffs for a strong reason. Guess what these reasons are? Poor financial performance.
With all of that in mind, here are four stocks that place their bets for now on top social influencers:
Now, let’s dive in and take a closer look at each one.
Stocks Moving on Social Media Hype: GameStop (GME)
The notorious tweet Elon Musk made on Jan. 26 “Gamestonk!!” sent shares of GameStop surging and closed at $147.98, gaining 92.7% on the previous day’s close of $76.79. The stock is now floating near $200 and is up 855% in 2021. A madness about this stock that sent its market capitalization to unbelievable levels not justified by the true fundamentals of the company.
I have written articles on GME stock. This one titled “GameStop Serves Food for the Bears” and another one titled “11 Reasons to Avoid GameStop Stock Despite the Hype” — both earlier in the year. Thus, as you understand, I am not optimistic about the stock. And I understand the fact that Elon Musk supported the stock as he is a billionaire, he has tons of money to play with, and his character seems to like controversy. Can Elon Musk tweet again about GME stock? I do not know.
However, what I do know is that in the absence of true catalysts GME stock price surge in 2021 could soon move lower when excitement based on emotions cools off.
For TSLA stock and the social media buzz for it, I will mention not Elon Musk again, but another influencer: Cathie Wood. Back in March 2021, an article on Barron’s mentioned that “ARK Invest founder and Tesla bull Cathie Wood has published a new Tesla target price. It’s a doozy.”
In the article, the author explains that Wood expects Tesla to hit $3,000 per share in 2025. In turn, this means she “expects to earn about 50% a year on average between now and 2025 based on Tesla’s Friday closing price of $654.87 a share.”
Now, this estimate I must say is very bold. And TSLA stock has not moved much so far in 2021 it is down 6.53%. However, shares are up a tremendous 117% over the past year. So, I understand that Cathie Wood can move TSLA stock if in the future she mentions other price targets as well. The strange thing is that I am not sure whether other institutional investors will agree with her highly optimistic investment thesis.
Truth is that many financial analysts including myself were simply scratching their heads trying to analyze and argue why TSLA stock performed well in 2020. Perhaps the greatest argument was its inclusion in the S&P 500. But now I see very few factors that can move the stock.
The competition in the electric vehicle (EV) industry is very intense. And for me, the fundamentals and the valuation of the stock are not exciting or supportive at these price levels. So I reckon that future social media mentions may be a way to move the stock. This is because now, it lacks clear catalysts for any dramatic move to the upside. And on the downside, its lofty valuation is enough.
Stocks Moving on Social Media Hype: Sundial Growers (SNDL)
Barstool Sports founder Dave Portnoy back in February tweeted “back in $sndl cause I love the rush #ddtg” supporting SNDL stock. Now, Dave has 2.6 million followers on Twitter (NYSE:TWTR). And if we examine Sundial Growers stock price on the date of the tweet, the closing price was $2.38.
The next day, SNDL stock closed lower to $2.08 and recently it trades at 87 cents per share. So maybe this was not a good stock pick or bad timing that Dave Portnoy did. After all, on his Twitter profile @stoolpresidente, he writes “I own a ton of Penn Stock. I’m not a financial advisor. Don’t trust anything I say about stocks.”
Moreover, SNDL stock has core fundamental problems. In fact, I wrote an article earlier this year mentioning that “SNDL stock is another speculative play on marijuana with dim business prospects”.
Still, the stock is up 84% in 2021 and is up about 8% over the past 12 months. I guess the stock will need other tweets or social media mentions to try to make a bounce from these under a $1 price level.
The funny thing though that makes me wonder is why Dave mentioned SNDL stock, and on his profile, he claims he writes do not trust anything he says about stocks. It does not make any sense to me unless you want to promote some low-quality stocks.
Be aware of the risks of social mentions on stocks made by influencers. If you love the thrill of investing in the hype then there is an exchange-traded fund (ETF) that invests in stocks mentioned on social media: VanEck Vectors Social Sentiment ETF (NYSEARCA:BUZZ).
Is social sentiment a sound investment philosophy?
To me, it is not. It lacks true and solid arguments, ignores the valuation and is highly speculative. Nonetheless, some people may like it. But just be fully aware of what to expect and what are its risks.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.