The imaginary battle between meme stock investors on Reddit and hedge fund short-sellers ended in June. Most notably, GameStop (NYSE:GME) faded in the last few weeks. If the trend is going to continue, Redditors will need to come up with a new list of favorite meme stocks.
The phenomenon is simple. Once a meme stock catches on, investors unwilling to research its fundamentals will buy the stock. GameStop is the best example of the meme stock phenomenon. The phrase, “Can’t Stop, Won’t Stop, GameStop,” attracted speculators in January, March and again in June. Now that the short float is falling, Redditors are looking for the next short-squeeze trade.
The next big meme stocks may ride on companies that reported strong quarterly results. For example, users on Reddit’s r/WallStreetBets forum shared option trades that soared after social media companies reported their earnings. These seven companies could join the list of meme stock favorites:
- Cleveland-Cliffs (NYSE:CLF)
- Marin Software (NASDAQ:MRIN)
- PubMatic (NASDAQ:PUBM)
- Roblox (NYSE:RBLX)
- Roku (NASDAQ:ROKU)
- Snap (NYSE:SNAP)
- Virgin Galactic (NYSE:SPCE)
These stocks have a wide range of Stock Rover scores, particularly on quality and overall ratings. Snap and Roku score well overall, while Snap still has a good value score of 73 despite last week’s rally. Roku has the best quality score. Its gross margin is above that of the industry and the S&P 500 index. Conversely, weak value scores for Roku and Roblox will deter speculators from buying them. A memorable meme will catch a stock buyer’s attention more than quantitative stock scores.
Meme Stocks: Cleveland-Cliffs (CLF)
Cleveland-Cliffs dipped below $20 shortly after posting quarterly results on July 22. The largest flat-rolled steel producer will benefit from the growing automotive industry. Electric vehicles (EVs), the electric grid and sustainable energy all need Cliffs’ products.
It is fully committed to environmental, social and corporate governance (ESG) policies. This includes aggressive greenhouse gas emissions reduction.
In the second quarter, Cliffs posted revenue of $5.045 billion, up more than 360% year-over-year (YOY). Adjusted EBITDA topped $1.8 billion for the first six months of the year.
In the second quarter, Cliffs posted diluted earnings per share of $1.42. The company forecasts Q3 adjusted EBITDA of around $1.8 billion and free cash flow of $1.4 billion.
The smart money realizes that Cliffs will make $20 billion in revenue annually. It will become debt-free in the next year. Additionally, CEO Lourenco Goncalves said that steel demand is excellent. It is negotiating its contract businesses with many clients from several sectors. This will lead to higher contract prices later this year and through to 2022.
CLF stock is more than a meme trade. Its fundamentals suggest a strong upside ahead.
Marin Software (MRIN)
The short interest of 21.5% on Marin Software shares will surely benefit bearish hedge funds. But the stock will continue as a meme favorite. The company provides enterprise marketing software for advertisers and agencies.
MRIN stock could see a boost from the company’s preliminary Q2 results, including net revenue of $6.1 million. It estimates a loss between $3 million and $3.3 million. This is an improvement from the $4.5 million loss Marin saw in Q2 2020.
On July 22, Marin announced the publication of three new customer case studies that show “the benefits of using MarinOne across multiple marketing channels.” MRIN stock could also rise if the company continues to report similar data.
Investors who prefer to avoid nano-capitalization companies may want to look at Digital Turbine (NASDAQ:APPS) or Magnite (NASDAQ:MGNI) instead. Both companies are bigger and have a wider customer base. They are less risky and their stock is less speculative.
Furthermore, the trading momentum in MRIN stock may fade faster than expected. This could send shares back to the $2 pre-breakout level.
Meme Stocks: PubMatic (PUBM)
Bears have a short interest of nearly 37% on PubMatic. The company recently posted revenue and adjusted its EBITDA above guidance. It also raised its financial outlook.
In the first quarter, PubMatic posted GAAP EPS of 9 cents. Revenue grew by 54.1% YOY to $43.6 million. For the second quarter, it expects revenue of up to $46 million, or growth of up to 75% YOY. It forecasts adjusted EBITDA in the $14 million to $15 million range at a 31% to 33% margin.
For the full year of 2021, PubMatic raised its outlook. It now expects revenue of $195 million to $200 million. Its positive net income suggests significant upside potential ahead.
PubMatic is taking steps to improve its cash flow. As stated in its Q1 earnings call, the company will invest in automation, focus on profitable customers and optimize its software and hardware infrastructure.
Just like MRIN stock, a short squeeze would lift PUBM stock. PubMatic has a good chance of becoming one of the next big meme stocks that gives bearish hedge funds a headache.
Electronic gaming firm Roblox has a very strong community of developers. Its user base is willing to spend more on the platform. The short interest is 7.5%.
Online mobile gaming spending is unlikely to fall as pandemic-related restrictions ease. And with variants and the upcoming flu season, a potential return to stricter mitigation policies will not hurt Roblox’s strong growth either.
People who are hooked on the Roblox metaverse platform will not quit. They still need entertainment. Gaming has increased in popularity during the pandemic, so Roblox players may be less likely to cut it from their budget.
RBLX stock briefly traded for more than $100 in early June before tumbling. The stock is not relatively expensive compared to Electronic Arts (NASDAQ:EA). It is also worth more than Take-Two Interactive (NASDAQ:TTWO), and for a good reason. Take-Two relies on decade-old titles for revenue.
Conversely, Roblox has many gaming experiences available. Developers are more than willing to share profits, which is a win-win scenario for everyone.
Meme Stocks: Roku (ROKU)
Roku stock soared by almost 11% on July 23. The rise may have been a delayed response to the company’s announcement that users can stream full coverage of the Tokyo Olympics on Roku devices.
This can be a turning point for Roku. Sports events often attract strong viewership, so the offering could increase usage of Roku’s streaming channels. Additionally, the company may cross-sell its paid services to that audience and attract more advertisers long after the Olympic Games streaming.
Roku’s offering will also remind viewers of the benefits of watching TV on-demand. Besides being free, the viewing experience is superior to cable or over-the-air services. For example, viewers may choose when to watch the content.
In the long term, Roku will establish itself as the leading over-the-top media service provider. Other platforms will have a hard time competing as Roku takes a slice of the market share and wins a loyal user base in the process.
After Snap posted earnings on July 22, the stock rose nearly 24% by market close the next day. But meme stock traders who missed the rally can still buy SNAP stock and potentially profit.
Snap posted second-quarter revenue of $982 million, an increase of 116% YOY. Adjusted EBITDA improved by 223% YOY to $117 million. Most importantly, daily active users increased 23% YOY to 293 million. CEO Evan Spiegel said, “we grew both revenue and daily active users at the highest rates we have achieved in the past four years.”
Investors can bet on positive user growth momentum for the rest of the year. Those who are bored with other social media may spend more time on the Snapchat app instead. And now that Snap is firmly bigger than Twitter (NYSE:TWTR) by market capitalization, the gap may widen.
The internet could easily create any catchy meme on the blowout results. This would fuel buying momentum, potentially leading to a stock double within 12 months. Conversely, value investors may question SNAP stock’s market capitalization of more than $100 billion against its quarterly diluted net loss per share of 10 cents. But that may not matter to meme stock investors.
Meme Stocks: Virgin Galactic (SPCE)
Virgin Galactic rallied from a $15 bottom in May to a peak around $55 in late June. The stock fell after Jeff Bezos’ Blue Origin flight reached a higher altitude.
To be clear, the difference does not justify the recent drop in SPCE stock. Besides, Virgin Galactic was the first in the space race. It will also usher in a new era of high-speed travel.
Also, Virgin Galactic has an edge over Blue Origin on space travel tourism. In the former’s ship, tourists may easily remove the seatbelt and experience free-float in a more spacious cabin. The Virgin Galactic flight is a more gradual rise, too. Conversely, Blue Origin’s ship is more like a traditional rocket. The passenger must fight G-forces from ground zero.
The markets are not tired yet of aerospace, defense and space exploration stocks. With its tourism-friendly approach to space travel, SPCE shares can easily become one of the next big meme stocks.
Thomas Yeung is an expert when it comes to finding fast-paced growth opportunities on Reddit. He recommended Dogecoin before it skyrocketed over 8,000%, Ripple before it flew up more than 480% and Cardano before it soared 460%. Now, in a new report, he’s naming 17 of his favorite Reddit penny stocks. Claim your FREE COPY here!
On the date of publication, Chris Lau 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.
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.