A year after Redditors grouped to squeeze institutional short-sellers, the subgroup still has plenty of buying ideas. Once members on WallStreetBets warm up to Reddit stocks mentioned in the forum, others who like the stock buy start positions in them too. This echo chamber cycle is not without risks. An anonymous penny stock pumper could create bots to flood the forum. They could mention the same stock ideas to trick investors. Fortunately, Reddit has moderators who look for posts promoting risky stocks. Furthermore, the subgroup banned the discussion of cryptocurrencies and special purpose acquisition companies (SPAC). This lowers the chance of Reddit stocks including highly speculative instruments that will get pumped and then dumped.
According to the quant scores from the Stockrover research library, Apple and Microsoft have the highest quality scores. Reddit recognized stocks offering only wishes (ContextLogic stock) or four-leaf clovers (representing Clover Oncology stock) would only keep falling. Conversely, those two firms may outperform the index as investors flee to safety.
For February, Reddit has seven mega-capitalization stocks for readers to add to the buy list. For the most part, they have a mix of strong quality and growth scores. The companies are:
- Apple (NASDAQ:AAPL)
- GameStop (NYSE:GME)
- Robinhood (NASDAQ:HOOD)
- Microsoft (NASDAQ:MSFT)
- Netflix (NASDAQ:NFLX)
- SoFi Technologies (NASDAQ:SOFI)
- Tesla (NASDAQ:TSLA)
Reddit stocks: Apple (AAPL)
Apple not only earns strong profits from iPhone sales, but it also has multiple catalysts this year and beyond. The mere mention of Apple entering the electric vehicle, virtual reality, or the metaverse market will lift the stock.
While long-term investors would hold AAPL stock through its volatility, Redditors may trade the stock swings.
Apple does not need to offer eye-opening innovations on its iPhone. Its incremental updates in the chip processor, graphics, display, and camera quality are enough to justify the iPhone’s price. Once new customers join Apple’s platform, they will buy apps on the App Store. They may also sign up for services such as Apple TV+, Fitness+, and Apple Arcade.
The more Nasdaq corrects on fears of overvaluation, the more value Apple gets for conservative investors. Speculators will sell shares in companies that earn no profit. As they rotate from growth to value, they will build a position in Apple.
On Wall Street, the average price target from among the 29 analysts is around $192.18 (according to Tipranks). Apple’s earnings per share will grow by at least 15% in the next five years. This would support that price target.
GameStop (GME)
Reddit’s WSB gained notoriety when the group bought GameStop to squeeze institutional short-sellers in 2021. “Gorillas will hold strong” on GME stock as bears fail to learn their lesson. The short float is around 15%.
In the third quarter, GameStop’s $1.39 a share GAAP loss on revenue of $1.3 billion is hardly inspiring. Still, the gaming retailer ended the quarter with $1.413 billion in cash and cash equivalents. It has barely any debt, except for $46.2 million in a low-interest, unsecured term loan. Armed with liquidity, the company has many ways to pivot the business. For example, GameStop hired more than 20 people who are reportedly focused on NFTs (non-fungible tokens).
NFTs are arguably the biggest bubble in financial markets or the next generation for facilitating transactions. GameStop will need to evaluate NFTs fit in its gaming business.
Investors should watch out for GameStop’s core business deteriorating. In Q3, inventory ballooned to $1.141 billion, up from $861 million last year. The company front-loaded investments in inventory so it would meet increased customer demand. Given the ongoing supply chain issues, strong sell-through should lift the company’s revenue this year.
Reddit stocks: Robinhood Markets (HOOD)
Redditors have a mixed opinion on Robinhood. They may easily share screenshots of trades, gains, and losses from their Robinhood app. Yet last year, Robinhood did not help retailer investors. They prevented users from buying GME stock.
On Jan. 13, The Verge reported that Robinhood had to pay a trader almost $30,000 for restricting trades on certain stocks. With the past behind it, the subgroup might bet that HOOD stock will stop falling. Shares are well off the intra-day $85 high in the days following its initial public offering (IPO) last year.
Fundamentally, Robinhood is in trouble. Its stock trading app has no moat. Competitors already offered similar no-fee trades. The trading app needs to differentiate its offering by entering new markets. For example, on Jan. 20, 2022, Robinhood announced Crypto Wallets. It will roll out the service to the first 1,000 customers on the top of the Wallets waitlist.
Bitcoin’s plunge to around $35,000 may have permanently scared cryptocurrency investors. The coin needs a consistently high daily volatility for Robinhood to earn revenue from cryptocurrency transactions.
Microsoft (MSFT)
Among the FAANGM stocks, Microsoft and Google are cash flow generators. Microsoft is more compelling because it has a metaverse strategy. Google is mulling virtual reality (VR) headsets. After it failed to release a consumer product with Google Glasses in the last decade, Microsoft is more compelling.
On Jan. 18, Microsoft announced it would acquire Activision Blizzard (NASDAQ:ATVI). The eye-popping cost of $68.7 billion in an all-cash transaction. This purchase is a good deal for Microsoft and its shareholders. This will not dilute shareholders. Microsoft gets many blockbuster titles, too. This includes Warcraft, Diablo, Call of Duty, Candy Crush, and Overwatch.
Microsoft accelerated its metaverse strategy with Activision. It immediately added popular content that will push it ahead of competitors. For example, Sony’s (NYSE:SONY) bland statement about the deal shows how Microsoft benefits from owning Activision. Hopefully, Microsoft will continue to support Activision’s games on the Sony PlayStation platform. Everyone benefits when companies support cross-platform game development, especially customers. Simplywall.st calculated MSFT stock is worth almost $400 a share.
MSFT has plenty of upside.
As shown on the right, the site calculated MSFT stock value based on a perpetual growth rate of 2% and a discount rate of 6.3%.
Reddit stocks: Netflix (NFLX)
Before Netflix fell by around 22% after its earnings report, investors thought that the streaming giant had pricing power. Netflix announced it would immediately raise prices for new subscribers. This is the third price hike since 2019.
In the fourth quarter, Netflix posted 8.28 million net additions, sharply ahead of the 4.38 million in Q3. With 221.84 million global paid memberships, the company only grew its customer base by 8.9% year-over-year. Free cash flow of negative $569 million is a concern. By using $403 million for operations, investors expect heavier expenses will weigh on profitability for 2022.
For the upcoming first quarter, Netflix expects to add only 2.5 million subscribers. Now that the stock price reflects the lower expected growth, traders could bet that the company exceeds estimates. The firm may expand globally to outflank competitors like Disney’s (NYSE:DIS) Disney+. Furthermore, the American market is not saturated. Many viewers are still consuming content from cable television. As cable cutting accelerates, customers might sign up for a Netflix account before prices rise again.
SoFi Technologies (SOFI)
Post-SPAC, Sofi is a Reddit favorite. For months, the group waited for the fintech to receive its Bank Charter. That happened on January 18, 2022.
Sofi said it received regulatory approval to become a national bank. The company will contribute $750 million in capital. It will maintain its Golden Pacific Bancorp community bank business and footprint. This includes GPB’s three physical branches.
Although investors expected the Bank Charter, markets may value SOFI stock like a bank. This would suggest downside valuations ahead. Still, SoFi’s Galileo provides a software solution to help the company sell many digital banking products. Sofi will need to post growing product sales per customer added. As long as customer growth increases, Sofi stock has a good chance of performing well in February.
As a bank, Sofi needs to offer customers competitive rates. It might undercut established banks to take market share.
Reddit stocks: Tesla (TSLA)
Tesla’s breakout that began in 2020 rewarded many Redditors who bought bullish options. Importantly, Tesla raised the price of full self-driving software to $12,000 (per CEO Musk’s tweet on Jan. 17). This signals the view that the EV giant is a software company that justifies some of its excessive valuations.
Speculators may guess that Tesla stock performs, thanks to a combination of the ability to raise software prices and exceed deliveries. On Jan. 2, Tesla posted Q4 vehicle production of 305,000 vehicles. Model 3/Y accounted for most of the deliveries: 296,850 out of 308,600. If the EV giant wants to retain a lead in the luxury EV market, it will need to sell more Model S units. Otherwise, companies like Lucid Group (NASDAQ:LCID) could build their brand name in the space.
Tesla is an enigmatic stock that will rally more than bears expect and fall when bulls least expect it. CEO Musk has a strong Twitter following. He may tweet about cryptocurrency and send its value higher. As long as he still has that influence, consider TSLA stock a Reddit favorite for February.
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.
