As a conservative investor, I have a grudging admiration for the small army of retail traders that are making their dreams come true. I’m talking, of course, about the group of day traders who have made a habit of finding low-priced stocks (particularly those with high short interest) and attempting to send them “to the moon.”
They are called meme stocks, casino stocks, or Reddit stocks (named for the website where some of these traders congregate). It all means the same thing. And as much as I say I admire the traders who have profited from these stocks, I do it from a safe distance.
Many of these stocks were penny stocks. And they were penny stocks for a reason. No amount of speculative rocket fuel is going to change that. But if you look at some of these stocks as objectively as possible, there may be hope.
And in this special presentation, we’re going to look at seven Reddit stocks that might just have a chance to have a life beyond this current mania phase.
Quick Links
- Palantir Technologies
- ContextLogic
- BlackBerry
- Clover Health
- Clean Energy Fuels
- Wendy’s
- Rocket Companies
#1 - Palantir Technologies (NYSE:PLTR)
The first stock that cracks this list is Palantir Technologies (NYSE:PLTR) which went public via a direct listing in late 2020. The “big data” company is controversial for a couple of reasons.
First, the company exists in the tech sector and has been affected by the general souring on tech stocks in the first quarter of 2021. And more importantly, investors are cautious because Palantir generates a large portion of its business from government contracts via its Gotham software product.
However, Palantir is working to make inroads in its commercial business via its Foundry software product. Foundry will provide a central operating system for an organizations’ data. According to Palantir this will have applications ranging from health care to manufacturing. To help market Foundry, Palantir has increased its sales force. The company is also increasing its partnerships to expand its distribution channels.
If you were in on Palantir stock when it went public, you’re sitting on a gain of over 150%. However, if you waited until the beginning of 2021, your gain is only about 3%.
About Palantir Technologies
Palantir Technologies Inc builds and deploys software platforms for the intelligence community to assist in counterterrorism investigations and operations in the United States, the United Kingdom, and internationally. The company provides Palantir Gotham, a software platform which enables users to identify patterns hidden deep within datasets, ranging from signals intelligence sources to reports from confidential informants, as well as facilitates the handoff between analysts and operational users, helping operators plan and execute real-world responses to threats that have been identified within the platform.
Read More - Current Price
- $62.11
- Consensus Rating
- Reduce
- Ratings Breakdown
- 2 Buy Ratings, 8 Hold Ratings, 6 Sell Ratings.
- Consensus Price Target
- $31.71 (48.9% Downside)
#2 - ContextLogic (NASDAQ:WISH)
ContextLogic (NASDAQ:WISH) went public via a traditional initial public offering (IPO) in December 2020. The stock’s launch has, thus far, been underwhelming. Perhaps the company got lost in the wash of the many special purpose acquisition company (SPAC) stocks that took the market by storm.
But when you’re considering Reddit stocks that have a chance to stick, you should add ContextLogic to your list.
The argument for WISH stock is rooted in the idea that everyone loves a great deal. ContextLogic hosts a mobile e-commerce platform (Wish.com) that focuses on extreme value. Recently investors have noticed that many stocks of value-oriented brick-and-mortar retailers are moving higher as Americans hunt for deals. This treasure hunt mentality is likely to exist in a digital space.
Wish.com connects Chinese retailers with European and American shoppers. It’s fair to say that not every product that consumers purchase are a great value, but the target audience for sites like this are aware of that and accept that risk as part of the hunt.
Further supporting WISH stock is an impressive leadership team that heralds from Google (NASDAQ:GOOGL) and Airbnb (NASDAQ:ABNB).
About ContextLogic
ContextLogic Inc operates as a mobile ecommerce company in Europe, North America, South America, and internationally. The company operates Wish, an ecommerce platform that connects consumers to merchants. It also provides marketplace and logistics services to merchants. ContextLogic Inc was incorporated in 2010 and is headquartered in San Francisco, California.
- Current Price
- $6.94
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#3 - BlackBerry (NYSE:BB)
BlackBerry (NYSE:BB) may be best known to investors as the manufacturers of the mobile devices that were all the rage in the early 2000s. The dawn of the smartphone was not kind to BlackBerry. However, the company is making a comeback due to its emergence as a potentially significant player in the areas of cybersecurity and connected vehicles.
At its core, BlackBerry has always been about security. And the company is partnering with Microsoft (NASDAQ:MSFT) to support its Microsoft Teams platform.
On the connected vehicle front, one challenge that faces automakers is the lack of an established Application Program interface (API) that an app developer can use for every brand. BlackBerry is helping address this issue with its BlackBerry IVY (Intelligent Vehicle Data Platform). IVY is a scalable, cloud-connected software platform that BlackBerry says will give automakers a consistent and secure tool to “read vehicle sensor data, normalize it, and create actionable insights from that data.”
BB stock is up nearly 125% in 2021. However, at one point the stock was up 281%.
About BlackBerry
BlackBerry Limited provides intelligent security software and services to enterprises and governments worldwide. The company operates through three segments: Cybersecurity, IoT, and Licensing and Other. The company offers CylanceENDPOINT, an integrated endpoint security solution; CylanceGUARD, a managed detection and response solution; CylanceEDGE, an AI-powered continuous authentication zero trust network access solution; CylanceINTELLIGENCE, a contextual cyber threat intelligence service; BlackBerry Dynamics offers a development platform and secure container for mobile applications; BlackBerry Workspaces a secure Enterprise File Sync and Share (EFSS) solution; BlackBerry Messenger (BBM) Enterprise, an enterprise-grade secure instant messaging solution for messaging, voice and video; BlackBerry SecuSUITE is a certified, multi-OS voice and text messaging solution; BlackBerry AtHoc, a secure networked critical event management solution; and BlackBerry unified endpoint management (UEM) solutions.
Read More - Current Price
- $2.32
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $3.23 (39.5% Upside)
#4 - Clover Health (NASDAQ:CLOV)
Clover Health (NASDAQ:CLOV) is a Medicare Advantage insurance company that went public in 2020 via a special purpose acquisition company (SPAC). When it comes to SPACs one rule of thumb is to bet on the jockey (i.e. the SPAC sponsor). In the case of Clover Health, the jockey was Chamath Palihapitiya who has an impressive record of bringing companies public.
If you bought into CLOV stock before it went public, you have an impressive gain of over 50%. But the company has struggled in 2021 largely due to a report from Hindenburg Research that questions the company’s business model.
As a more fundamental issue, investors are waiting to see if the company can continue on its impressive growth trajectory. Clover is forecasting its addressable market to reach $590 billion in annual spending by 2025. That’s more than double the current level. Also, because the business is trying to scale up quickly, it will take some time for the company to be profitable.
About Clover Health Investments
Clover Health Investments, Corp. provides medicare advantage plans in the United States. It operates through two segments: Insurance and Non-Insurance. It also offers Clover Assistant, a cloud-based software platform, that enables physicians to detect, identify, and manage chronic diseases earlier; and access to data-driven and personalized insights for the patients they treat.
Read More - Current Price
- $3.35
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $4.00 (19.4% Upside)
#5 - Clean Energy Fuels (NASDAQ:CLNE)
Clean Energy Fuels (NASDAQ:CLNE) makes this list as a matter of common sense. Right now a practical look at the energy sector means that fossil fuels will still be needed. But common sense indicates that renewable energy sources are on the rise and will continue to be one of the driving narratives of 2021 and beyond.
That’s where Clean Energy Fuels comes in. The company provides natural gas fueling stations for commercial vehicle fleets. It will be interesting to see how this works out as several electric vehicle companies are looking to enter this space as are hydrogen fuel companies.
However, this is a long-term story. Clean Energy Fuels has been in business for a long time and is not yet profitable. And thus far in 2021 we’ve seen another example of the market rushing to buy into a clean energy narrative that is not quite ready for primetime.
Unlike many Reddit stocks, analysts are generally bullish on CLNE stock. Although it has received one sell rating from the six analysts that cover it, the consensus is that the stock is a buy with a price target that suggests the stock can move 40% higher.
About Clean Energy Fuels
Clean Energy Fuels Corp. provides natural gas as alternative fuels for vehicle fleets and related fueling solutions in the United States and Canada. It supplies renewable natural gas (RNG), compressed natural gas (CNG), and liquefied natural gas (LNG) for medium and heavy-duty vehicles; and offers operation and maintenance services for public and private vehicle fleet customer stations.
Read More - Current Price
- $2.62
- Consensus Rating
- Buy
- Ratings Breakdown
- 4 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $5.38 (105.2% Upside)
#6 - Wendy’s (NASDAQ:WEN)
Wendy’s (NASDAQ:WEN) is a recent entry into the Reddit stock mania and I have no idea why the company has drawn this kind of interest. But the goal of this presentation is not to explain why a stock is a meme stock, but if it has a chance to be more.
Wendy’s does, because it already has. In the last five years, WEN stock is up over 135%.
The pandemic came at an inopportune moment for Wendy’s as the company was just beginning to get its breakfast menu seeded into consumers’ minds. With the marketing spend that promoted its breakfast menu earlier in 2021, it’s clear that Wendy’s sees this as critical to its near-term growth.
As the economy reopens, the company will likely see a return to pre-pandemic revenue. Nevertheless, the stock had done virtually nothing this year before being driven higher by the Reddit crowd. That doesn’t mean they’re wrong. But you may want to wait for Wendy’s to prove it to you before taking a bite on WEN stock.
About Wendy's
The Wendy's Company, together with its subsidiaries, operates as a quick-service restaurant company in the United States and internationally. It operates through Wendy's U.S., Wendy's International, and Global Real Estate & Development segments. The company is involved in operating, developing, and franchising a system of quick-service restaurants specializing in hamburger sandwiches.
Read More - Current Price
- $17.92
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 14 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $20.36 (13.6% Upside)
#7 - Rocket Companies (NYSE:RKT)
The last company on this list is Rocket Companies (NYSE:RKT). This is the parent company of Rocket Mortgage which was a disruptive presence in the mortgage lending industry. The company went public via a SPAC in 2020, but as of this writing, RKT stock is nearly flat for 2021.
One reason is competition. The company is a leader in the online mortgage space, but the moat is shrinking. However, there are more immediate threats. For starters, according to the National Association of Realtors, existing-home sales fell 2.7% in April. Investors have to wonder if this is the beginning or the end of the urban flight that occurred during the pandemic.
The potential for rising interest rates also has to be a concern. And even more worrisome, and perhaps more likely, is the possibility that the Federal Reserve could pare back its purchasing of mortgage-backed securities. That could send mortgage rates significantly higher which would be a further crimp on new home buying and refinancing.
But this is a presentation about the long term. The housing market is notoriously cyclical but Rocket Companies has the balance sheet that will allow it to have staying power.
About Rocket Companies
Rocket Companies, Inc, a fintech holding company, provides mortgage lending, title and settlement services, and other financial technology services in the United States and Canada. It operates through two segments, Direct to Consumer and Partner Network. The company's solutions include Rocket Mortgage, a mortgage lender; Amrock that provides title insurance, property valuation, and settlement services; Rocket Homes, a home search platform and real estate agent referral network, which offers technology-enabled services to support the home buying and selling experience; and Rocket Loans, an online-based personal loans business.
Read More - Current Price
- $13.68
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 7 Hold Ratings, 5 Sell Ratings.
- Consensus Price Target
- $15.13 (10.6% Upside)
So did the Reddit crowd get it right with these stocks, or did they just get lucky? In the end, it really doesn’t matter. The takeaway from this presentation is that speculative investments can be profitable.
However, the advice to “know what you own” is critical if you’re thinking about dabbling in these risk/reward stocks. The seven stocks in this presentation provide an educated guess about companies that have a sustainable business model.
Does this mean that any of these companies are sure things? Of course not. Many of these companies have not been trading publicly for very long. And to enter the market at the end of a year which has no historical comparison from a stock market standpoint is the reason for caution.
But if you have an appetite for risk and some “blow money” to invest, these stocks could deliver a fun and profitable ride even as the meme stock trade may wind down.
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