Reddit stocks: what meme stocks are trending?
Joshua Warner October 22, 2021 9:45 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 October 22, 2021, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.
- Digital World Acquisition Corp
- Advanced Micro Devices
Snap has been the most-discussed stock overnight after releasing third quarter earnings yesterday. Revenue rose 57% to $1.07 billion and adjusted Ebitda jumped 209% to $174 million. Revenue was in-line with guidance but just shy of analyst expectations, but earnings were well ahead of the $136.9 million forecast. Daily active users jumped 23% from last year to 306 million, also ahead of the 302.1 million expected by Wall Street. Snap said it now has large enough scale to mitigate the challenging environment, but that failed to allay fears over Snap’s ability to target advertising following the latest changes made to Apple’s iOS. It also warned that supply chain problems and labour shortages were prompting some businesses to cut back on advertising. Snap said it is targeting $1.165 billion to $1.205 billion in revenue and adjusted Ebitda of $135 million to $175 million in the fourth quarter. A slew of brokers slashed their price target on Snap after the update. Reports suggest Snap shares plunged as much as 25% in extended trade after warning of the difficult environment, which also hit shares in Facebook and Twitter ahead of their results.
Facebook remains in play as markets eagerly await to hear if the company is planning to rebrand itself as it steps up its efforts to create a metaverse. It is expected to unveil the new name next Thursday, but there is a chance we could hear something on Monday when it releases third quarter earnings. Wall Street is forecasting third quarter revenue of $29.60 billion, which would be up from $21.47 billion the year before. That is forecast to have been driven by continued lifts to advertising prices, although Snap’s warnings will have shaken confidence. Net income is expected to jump to $9.24 billion from $7.84 billion last year, while EPS is forecast to grow to $3.17 from $2.71, according to consensus figures from Reuters.
Tesla shares jumped 3.2% yesterday to $893.53, within touching distance of the all-time high set in January. Reports surfaced yesterday that its new German plant has been hit by further delays, although the company is still confident the first car could roll off the production line before 2021 comes to a close. It also revealed that it plans to change the chemistry of the battery cell it uses in its standard-range vehicles to use more lithium and less nickel, cobalt and aluminium, in a move seen as a way of boosting profitability without raising prices. A number of brokers raised their target price on the stock yesterday following its strong set of results earlier this week. Still, the recent rally means Tesla shares trade over 17% above the average target price of $739.14 set by 41 brokers covering the stock.
Digital World Acquisition Corp is a new entrant overnight grabbing attention. The blank-cheque company, also known as a SPAC, has agreed to merge with former US president Donald Trump’s media firm named Trump Media & Technology Group. The SPAC has soared in value as investors pile-in ahead of the deal, which is underpinned by plans to rival ‘the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley’.
PayPal remains in play following reports that it plans to buy Pinterest for $70 per share, or $45 billion in total. The report from Reuters, citing unnamed sources, said the deal would represent the biggest acquisition of a social media platform ever, surpassing the $26 billion purchase of LinkedIn by Microsoft back in 2016. PayPal is thought to have been attracted by the prospect of handling the increasing amount of transactions being conducted on social platforms, allowing it to capture the fast growth in ecommerce spending. PayPal shares slipped 5.9% yesterday, building on the 4.9% decline on Wednesday when the news broke. The stock has now given back all the gains booked since May. Pinterest shares closed down 2.1% yesterday after rallying over 12% on Wednesday, with the stock trading below the rumoured offer price at $61.35.
Intel shares closed up for their sixth consecutive session yesterday and is trading at a three-month high before the opening bell, as investors reacted favourably to its latest set of results. Non-GAAP revenue rose 5% in the third quarter to $18.1 billion and GAAP EPS of $1.67 compared to $1.02 last year. The topline was just shy of the $18.2 billion revenue expected by analysts but EPS was significantly better than the $1.08 pencilled in by Wall Street. Intel said it expects to report $18.3 billion in revenue and $0.78 in EPS in the fourth quarter, representing another upgrade to guidance that was better than expected. It also revealed it has shipped its first advanced packaging chips from its new foundry service, part of its IDM 2.0 strategy that has been launched, and that it has already won some major new customers as a result. Investors were more pleased to hear that margins are expected to grow over the coming two to three years despite the huge changes Intel is making. Still, a number of brokers cut their price target on Intel after the earnings, but they still see over 4% upside from the current share price.
Notably, shares in Intel’s rival AMD rose 2.5% yesterday to close at an all-time high ahead of its quarterly results next Tuesday.
Apple was once again causing discussion yesterday on reports that the firm is in talks with the likes of CATL and BYD about sourcing battery supplies for its top-secret electric vehicle. The report said the firm has been contemplating using Japanese battery makers instead after CATL and BYD refused to build plants for Apple in the US. Panasonic Corp has been flagged as a potential alternative supplier. Notably, Apple releases fourth quarter earnings next Thursday.
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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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