Recent headlines suggest that the “meme stocks”/Reddit stocks trend is over. To a large extent, this is true. As the Federal Reserve moves to raise interest rates, 2021’s bubbly stock market has given way to a more cautious market in 2022. One where even members of the r/WallStreetBets community are thinking twice about holding with “diamond hands.”
Yet while we are no longer seeing speculative stocks go “to the moon,” and meme legends like AMC (NYSE:AMC) or GameStop (NYSE:GME) have made sharp moves in the wrong direction, that doesn’t mean that retail traders active on the popular subreddit haven’t stopped talking about their former favorites.
Not to mention, scores of stocks that aren’t exactly in the “meme category,” yet are widely held by retail investors. More names of the more mainstream variety have moved up the ranks in terms of conversation density (as measured by WSBTrackers.com). As for penny stocks, pot stocks, SPACs and others? Talk about them has fallen off considerably.
Investment decisions shouldn’t be made on talk alone. But checking out the WSB threads on these seven Reddit stocks, may give you an idea whether it’s time to buy, or if it’s time to sell:
- Advanced Micro Devices (NASDAQ:AMD)
- Ark Innovation Fund (NYSEARCA:ARKK)
- Microsoft (NASDAQ:MSFT)
- Matterport (NASDAQ:MTTR)
- Palantir Technologies (NYSE:PLTR)
- Peloton (NASDAQ:PTON)
Reddit Stocks: Advanced Micro Devices (AMD)
In recent days, talk about chip giant Advanced Micro Devices shot up in terms of WSB discussion. Mostly, due to the latest encouraging news about its pending deal to buy Xilinx (NASDAQ:XLNX). As InvestorPlace’s William White reported Jan. 29, Chinese regulators have given their okay for the transaction.
Along with this, AMD stock is getting ready to report earnings (after the close on Feb. 1). Given its revenue and earnings beats in prior quarters, many retail investors may be hoping that another strong quarter enables the stock, beaten down by the rate hike selloff, to begin to make a recovery.
Since late November, when it started to become clear that the Fed was going to go from dovish to hawkish, richly priced AMD has taken a sharp plunge, primarily on valuation concerns. Hitting its all-time high ($164.46) on Nov. 30, it has since plunged to around $120 per share as of this writing (a 27% decline).
The Reddit set may be correct in getting excited about this long-time winning stock. As worries about rising interest rates temporarily cool, a bit of company related news could help it see a nice spike after its continued drop. That’s not to say now’s the time to make this a long-term buy. The rate hike story is far from over, and could result in more multiple compression for this stock, which today trades for around 39.8x estimated 2021 earnings.
Ark Innovation Fund (ARKK)
Among many who capitalized on the “growth at any price” mentality that defined pandemic-era investing, Cathie Wood belongs at the top of that list. The Ark Invest founder hit big success in 2020 and 2021, as investors poured billions into her actively managed exchange-traded funds. Especially Ark Innovation, the firm’s flagship fund.
With positions in names like Tesla (NASDAQ:TSLA), Teladoc (NYSE:TDOC) and Zoom (NASDAQ:ZM), ARKK stock surged in value, in line with its top holdings. But since early 2021, when speculative frenzy in growth plays hit its peak, this ETF has experienced a steady dropped. A drop that has accelerated to the prospect of higher interest rates.
The question now is whether this decline will continue. Cathie Wood may believe the tech selloff has been overdone. According to her, the types of stocks Ark’s funds invest in are due for a rebound. Recent discussion on WSB suggests many Reddit traders believe the same. Even so, it won’t be Wood, nor the legion of investors in her ETFs that will decide whether this popular fund sinks or soars from here.
Instead, it’ll depend on whether the market goes back to its 2020/2021 investing style, instead of continuing to shift back towards a more old-school style (fundamentals/valuation focused) in 2022. If you believe the former, the takeaway may be to buy ARKK. If you don’t think this will happen, or lack confidence that it will happen? Skipping on it is the better move.
Reddit Stocks: GameStop (GME)
Obviously, you can’t talk about meme stocks/Reddit stocks without mentioning the one that kicked off this investing phenomenon. The “meme team” made history, when they sent GME stock from around $10 to as much as $483 per share. In turn, squeezing the shorts, and beating Wall Street’s so-called “smart money” at their own game.
Flash forward a year later, and GameStop has given back the majority of its meme-fueled gains. Now, back to double-digit prices, it appears more likely that the meme bubble that inflated it last year will continue to deflate. This of course hasn’t stopped the stock from still being one of the most talked about on Reddit.
Sure, conversation about it isn’t as sky-high as it was in February of last year, when the popular forum was patting itself on the back for sending shares in the video retailer rocketing higher. Yet as the stock that put this platform on the map, the meme stock community is again celebrating the anniversary of its stunning victory.
In addition, the other takeaway from looking at recent conversations about GME stock is that there’s still some hope that the squeeze isn’t over. However, with short interest down to 15% of float, this is likely wishful thinking. So too, is the belief that the company’s digital transformation/move into non-fungible tokens (NFT) will save the day. More likely than not, shares will continue to drift down to a more rational price.
Like AMD, Microsoft is another stock that has shot up in WSB chatter, due to both recent developments and earnings. In the case of the tech powerhouse, it released results for the preceding quarter on Jan. 25. Beating on earnings, and raising its guidance, shares are starting to recover after their own recent selloff.
The selloff was fueled by the market-wide drop and Microsoft’s announced deal to buy video game giant Activision Blizzard (NASDAQ:ATVI) for $70 billion. As is typical with mergers and acquisitions (M&A) deals, while the shares in the target rally, shares in the acquirer sell off.
It’s too early to tell whether the market has overreacted, pushing MSFT stock about 11.5% from its highs. The company has had big success in areas like the cloud, and with its cloud-based applications like Office 365 and Teams. This points to it continuing to post stellar results.
Not only that, while it’s taking a big bite swallowing up Activision, I wouldn’t say that this company is biting off more than it can chew. With a $2.3 trillion dollar market capitalization, and generating more than $71 billion in annual earnings? It can easily afford this megadeal. Nevertheless, trading for around 32.7x earnings, versus solid but moderate projected earnings growth (13.8%), MSFT stock too could slip further. Rising rates may continue to impact its still-rich valuation.
Reddit Stocks: Matterport (MTTR)
Surging last fall, due to its perceived exposure to the metaverse catalyst, shares in Matterport have come back down to earth. Trading for as much as $37.60 per share, the stock has since cratered to around $8.50 per share.
Yet despite the market calming down about this provider of 3-D mapping technology to the real estate industry, this former special-purpose acquisition company (SPAC) continues to see increased chatter from Redditors. However, that’s not to say these posts are little more than hope and hype.
For instance, take a look at a recent post on Matterport stock. In the thread, the original poster provides a well thought-out thesis as to why the former hot stock could bounce back down the road. I agree this is a possible outcome for shares. Its underlying business appears to have strong prospects. The rise of the metaverse may or may not happen. Even so, there is clearly high demand for Matterport’s main service. It could continue to see high growth, as the real estate industry moves to create 3D “digital twins” of its properties with full force.
That said, while it’s much cheaper now than it was just two months ago, my reservations about it (mainly valuation-driven) still stand. Shares could continue to fall in price. Perhaps even to levels below where the aforementioned Redditor believes it will bottom out (between $6 and $7 per share).
Palantir Technologies (PLTR)
Data analytics software provider Palantir was another name that shot higher last year. In large part, it rose thanks to its status as a standout among Reddit stocks. Although this was not the only factor behind its rise, enthusiasm from meme traders likely helped it reach prices as high as $45 per share in 2021.
Today, at around $13 per share, PLTR stock is much cheaper. That may explain why it has seen a rebound in Reddit conversations about it lately. Yet that doesn’t mean it’s cheap, by any stretch of the imagination. At today’s prices, it trades for 86.6x earnings and 16.7x sales.
As I argued recently, in the long-run, it may be able to prove its skeptics, myself included, wrong. That is, if it manages to become more than just a well-connected “Beltway Bandit,” and winds up generating billions upon billions per year from a wide swath of commercial clients. If this happens, Palantir could sustain (and grow) its current valuation.
In the short-term, though, it’ll likely continue to struggle. If its possible growth challenges prove to be actual growth challenges, and as growth stocks continue to lose their appeal due to rising rates, Palantir may be at risk of dropping even more. There may be a time where this “future of data” play falls to a can’t miss price. Until then, it’s best to ignore what remains of the Reddit chatter, and hold off buying.
Reddit Stocks: Peloton (PTON)
It’s an understatement to say the situation keeps getting worse for Peloton. The at-home fitness company continues to tumble, due to discouraging news about its business. As you likely recall, its business took off during the pandemic’s “stay at home” phase.
Ever since the recovery, however, the “story” behind PTON stock has changed dramatically. No longer the high-growth play it once was, management and analysts are both walking back past projections. Due to a glut of inventory, the company has been forced to temporarily halt production of its connected fitness bikes and treadmills.
With this, it makes sense that there has been increased conversation about it lately on WSB. So, how does the Reddit crowd feel about the situation? Taking a look at posts, it appears bullish threads are being bombarded with bearish comments. By-and-large, the meme crowd has seen the writing on the wall with PTON stock.
Peloton may not be headed toward zero. In fact, as my InvestorPlace colleague David Moadel recently argued, there’s a decent chance of it being a takeover target. That’s something to keep in mind. In the event it falls to bargain basement price, that is. For now, this is one of the Reddit stocks to steer clear of. At least, until it stops trading at a big premium to other fitness equipment makers.
On the date of publication, Thomas Niel 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.