Reddit stocks: what meme stocks are trending?
Joshua Warner May 27, 2022 12:45 PM
Reddit has become a hub for social-media driven traders and investors that have proven their ability to move the markets, injecting huge volatility into stocks like GameStop and AMC. But what stocks are grabbing attention on Reddit today?
Top Reddit stocks to watch
Below is a list of the top 10 most mentioned US stocks on the WallStreetBets thread on Reddit over the last 24 hours on May 27, 2022, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.
Please note that Reddit Stocks will be taking a break and will be back on Monday June 6.
- AMC Entertainment
- Advanced Micro Devices
Meme stocks remain highly volatile as retail traders bet that stocks like GameStop and AMC could experience a short-squeeze as borrowing costs rise. Data rom S3 Partners suggest the cost to borrow incremental shares to short sell recently hit an annualised interest rate of almost 40%, up from just 6% earlier this month.
With that in mind, S3 Partners said short interest in GameStop is equal to around 24% of its free float at present. GameStop shares are up 3.3% this morning at $132.70. Notably, volatility in the stock has spiked ahead of ahead of quarterly earnings next week. Wall Street forecasts the video game retailer will report 4.5% year-on-year growth in revenue in the first quarter to $1.33 billion, marking a severe slowdown compared to when the topline returned to growth last year. The adjusted loss per share is expected to balloon to $1.16 from $0.45 the year before. The board has remained quiet about its turnaround strategy and has not been providing any forward guidance, but investors will be wary of how demand will fare if consumers tighten their belts this year, especially after some other companies in the gaming market, including Sony and NVIDIA, cutback expectations amid widespread supply chain disruption. Any update on newer initiatives, such as its NFT marketplace, could help provide a new catalyst.
Meanwhile, cinema chain AMC Entertainment, which has now given back virtually all the gains booked since the original trading frenzy in meme stocks happened back in May 2021, is up 1.2% at $12.38.
Costco shares are down 1.3% before the bell at $459 as the company faces a tough environment in the near-term, plagued by inflation, supply chain disruption and a shift in demand. The big box wholesaler said comparable sales rose 10.8% in the first quarter, ahead of the 9.4% pencilled-in by analysts. Revenue rose 16% to $51.61 billion and also beat the $51.50 billion estimate. EPS rose to $3.04 from $2.75 and came in just ahead of forecasts. Management said that it is starting to see a shift in where customers are spending their money, including a fall in the number of items people put in their basket, but has not seen any reduction in overall trade. Still, analysts were largely impressed that it managed to offset a squeezed margin with a tight control over costs and its ability to manage rising prices. Still, the uncertain outlook prompted a number of brokers to cut their target price on the stock this morning, including JPMorgan to $525 from $587, Jefferies to $560 from $670, Credit Suisse to $550 from $570 and Citigroup to $510 from $590.
Workday shares are down 9% in premarket trade at $153.10 after missing expectations in the latest quarter as companies delayed software deals, prompting brokers to lower their forecasts on the stock. A fourth consecutive quarter of faster growth in subscription revenue was overshadowed by the fact billings and its backlog both came in lower than anticipated as some large deals were pushed into the second half of the financial year, prompting fears the challenging economic outlook could cause problems for other parts of its pipeline going forward. Overall revenue rose 22% in the first quarter to $1.43 billion and met forecasts, but adjusted EPS fell more than anticipated to $0.83 from $0.87. A number of brokers lowered their price target on the stock this morning, including JPMorgan to $235 from $280, Piper Sandler to $230 from $360, Barclays to $208 from $238, Jefferies to $200 from $220 and Credit Suisse to $230 from $300.
Alibaba shares remain volatile following its quarterly results this week and are down 0.9% this morning at $93.64. The Chinese giant beat expectations in the first quarter and allayed fears that the regulatory overhaul will continue to plague Chinese stocks and concerns that consumer spending is tightening, especially amid fresh Covid-19 lockdowns across the country. The company said it would scale back its ambitions in areas that are not creating long-term value and told investors that the Chinese government has been ‘clear’ that it wants to support the platform economy. The firm said it isn’t providing guidance for the new financial year, but said it expects Alibaba to continue generating cashflow. Citigroup cut its target price on the stock to $176 from $177 and Barclays to $161 from $170 this morning.
NVIDIA shares remain in play following a mixed update earlier this week that saw the company deliver record sales and better-than-anticipated earnings but a disappointing outlook plagued by disruption caused by the isolation of Russia and Covid-19 lockdowns in China. Brokers continued to cut their view on the stock yesterday, with Cowen & Co slashing its target to $265 from $350, BofA Global Research to $270 from $320 and Morgan Stanley to $182 from $217. NVIDIA shares are up 0.4% before the bell at $179.30.
Meanwhile, fellow chipmaker AMD is up 0.5% after completing its $1.9 billion acquisition of Pensando yesterday, expanding its portfolio of data centre products. Pensando’s products are already used by big names such as Goldman Sachs, IBM, Oracle and Microsoft. It said the data centre market ‘remains one of the largest growth opportunities’ for the company.
Tesla shares are up 1.3% in premarket trade today. Credit Suisse became the latest broker to become more cautious on what the company can achieve this year as supply chain problems, particularly for its Shanghai plant suffering amid lockdowns and restrictions, continue to cause concern. It said it expects Tesla to deliver 240,000 to 250,000 units in the second quarter of 2022, down from its previous estimate of 295,000. That comes after Jefferies trimmed its full year production estimates by 5% earlier this week amid the loss of output in China and a slow start at its new plant in Texas. The auto industry regulator in China also said yesterday that the latest Covid-19 disruption has depressed sales across the country, including in areas not directly under lockdown.
Apple shares are up 0.2% before the bell. It too is thought to be struggling with the supply chain problems spawning from China, which could hamper its growth ambitions this year. Media reports yesterday suggested the company will produce around 220 million iPhones this year, roughly level with 2021. That would be markedly below the 240 million units that Wall Street expected it to make before the year is out.Amazon shares are up 0.6% this morning. Cowen & Co said that the selloff in Amazon shares this year has been overdone considering the strength of cloud computing unit Amazon Web Services, and suggests the current valuation completely disregards any contribution from its vast ecommerce operation, advertising services and subscriptions. The company held its annual general meeting this week that saw investors approve plans to conduct its 20-for-1 stock split next week, which won’t impact the overall value of the company but will reduce the cost of each individual share. You can read more about the Amazon stock split here.
Other US stocks to watch before the bell
Markets remain unconvinced that Elon Musk is committed to completing his $44 billion takeover of Twitter despite him securing another $6.3 billion in equity financing toward the deal. Twitter shares are down 0.4% before the bell today at $39.35 – largely where they were before Musk revealed his stake in the company – and way below the $54.20 offer price. That suggests markets believe he could try to renegotiate the price tag or pull out of the deal altogether. Some Twitter shareholders are suing Musk and alleging he manipulated the share price lower and benefited from deciding to delay disclosing his original stake.
Gap shares are down over 18% this morning at $9.08 and trading at its lowest level in a year after slashing its full year expectations as demand starts to come under pressure as the cost-of-living crisis prompts consumers to scale back discretionary spending. It said adjusted EPS is now set to be $0.30 to $0.60, which was way below the $1.34 pencilled-in by analysts. JPMorgan downgraded the stock to Underweight from Neutral this morning and trimmed its target to $9 from $11, while Morgan Stanley moved the stock to Underweight from Equalweight and made a deeper cut to its target to $8 from $13.
That followed on from an equally dismal update from American Eagle Outfitters, which also cut its forecasts for the rest of the year after its CEO admitted it was ‘too optimistic’ at the start of 2022. The stock is down over 14% today at $12 and trading at its lowest level in around 10 months. JPMorgan downgraded the stock to Neutral from Overweight this morning and cut its target price to $15 from $20.
Dell shares are up 9.7% before markets open today after beating expectations in the latest quarter as big businesses continued to buy hardware as more workers shift toward a hybrid way of working. Dell reported a 16% rise in revenue to a new record of $26.1 billion and adjusted EPS jumped 36% to hit an all-time high of $1.84, with both beating market forecasts. Its outlook for the current quarter was also rosier than anticipated.
Joby Aviation shares are down 0.5% this morning, having jumped over 8% yesterday after securing a key certification from aviation regulators in the US, marking a major milestone as it tries to get its all-electric vertical take-off and landing aircraft up and running. It is hoping to launch its air taxi service in 2024.
Broker rating changes
CVS Health has been downgraded to Market Perform from Outperform by Bernstein, which reiterated its $112 target price. The pharmacy giant is down 1% this morning at $96.80.
Citigroup has been downgraded to Neutral from Outperform by Credit Suisse and had its target price of $58 reiterated. The bank is down 0.6% before the bell at $53.77.
Urban Outfitters has been downgraded to Equalweight from Overweight and had its price target cut to $25 from $34 by Morgan Stanley after reporting results earlier this week. The retailer is down 2.2% today at $20.39.
Boston Scientific has been upgraded to Buy from Hold and had its target price reiterated at $48 by Needham. The medical devices maker is up 1.8% before the bell at $40.88.
HCA Healthcare has been upgraded to Outperform from Market Perform and had its target price reiterated at $271 by Bernstein. The health care facility operator is up 0.9% today at $213.76.
Macy’s has been upgraded to Equalweight from Underweight and had its target price raised to $22 from $20 by Morgan Stanley following a better-than-expected update this week. The retailer is down 0.9% before the bell at $22.71.
Roku has been upgraded to Hold from Sell by Pivotal Research, which reiterated its target price at $80. The streaming stock is up 1.6% in premarket trade today at $89.92.
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The Reddit frenzy
Retail investors realised their potential power in early January 2021 when a loosely-coordinated strategy was formed on Reddit’s WallStreetBets chatroom to buy shares and out-of-money call options on stocks that were being targeted by short-sellers to push the price higher. The idea was to create a short-squeeze.
What is a short-squeeze?
A short-squeeze does what it says on the tin – it tries to squeeze short-sellers out of their positions. Short-sellers, mostly big institutional investors and hedge funds, bet that the price of a stock will fall but, as retail investors pile in and push the share price higher, they are forced to start buying the stock to try to limit their losses. The buying by the big players only fuels the share price higher.You can read more about short-squeezes and how they can be predicted here.
David vs Goliath
The fact many of the stocks being targeted are fundamentally flawed or failing adds increased risk into an already volatile picture. GameStop is an out-of-favour retailer that sells physical video games during a time when games are mostly being bought online, while others like Blackberry are also laggards from the past.
With this in mind, it is unsurprising they were in the crosshairs of short-sellers that look for failing companies to bet against.
But why are retail investors banding together to buy shares in flawed companies? This disconnect is partly explained by a growing resentment among the smaller players in the market, which disagree with the idea of large institutions profiting from a company’s failure through short-selling practices, creating what has been described as a ‘David vs Goliath’ battle.
It is important to note that not all the most actively-discussed stocks on Reddit are struggling or being targeted by short-sellers. Many of the most mentioned stocks, like Apple, are simply popular among the community.
Reddit stocks and volatility
The stark movements in stocks like GameStop has demonstrated the power and influence that social media-driven investors and traders can have on the market, having injected severe volatility into several stocks. Volatility presents opportunities for traders, and it doesn’t get more volatile than Reddit stocks right now – even during a pandemic.
For example, we saw GameStop - the first heavily-shorted stock to be targeted by social media-driven investors - go from below $19 at the start of 2021 to a new record high of over $347 by January 27, and the share price has remained highly volatile ever since.
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