Reddit stocks: what meme stocks are trending?

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 18, 2022, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded. 

Please note that Reddit Stocks is taking a break and will be back on Wednesday May 25.

  1. Advanced Micro Devices
  2. Tesla
  3. Walmart
  4. GameStop
  5. Home Depot
  6. Twitter
  7. NVIDIA
  8. Apple
  9. AMC Entertainment
  10. Target

 

US big box retailers remain in play today and we have seen some perform better than others during the first quarter of 2022 as the inflationary environment starts to take its toll even on the largest companies boasting the greatest scale and buying power.

Target headlined the calendar today and is down over 22% before the bell and at an 18-month low after warning that the rise in costs will have a bigger impact on its margin that previously expected, causing profits to halve in the first quarter and miss expectations. It said it now expects costs to be over $1 billion more this year than first thought. It reaffirmed its sales guidance for the year but said its operating margin will now be closer to 6% rather than 8% of above it was originally targeting. The weaker outlook, twinned with the 52% drop in net profit to $1.01 billion in the quarter, overshadowed the fact sales growth of 4% came in better than forecast.

That followed on from Walmart’s disappointing results that plunged the stock to its lowest level in 14 months yesterday. That came after the retailer cut its full year expectations this week as margins come under pressure from rising costs for everything from fuel to labour. It warned EPS would fall around 1% over the full year, having previously forecast a mid-single digit increase. The stock fell 11% yesterday and is down a further 1.9% this morning at $128.90.

Lowe’s also reported this morning and is down 2.9% after sales declined more than expected in the quarter, while earnings also missed forecasts. Revenue fell to $23.7 billion from $24.4 billion the year before and comparable sales were down 4%. That missed the $23.9 billion and 3.3% decline in comparable sales pencilled-in by analysts. Notably, while sales to professional tradespeople rose 20%, sales to the general public fell 3.8%. EPS of $3.21 also fell short of the $3.24 forecast. The company reiterated its full year outlook and said comparable sales could fall or rise by 1% this year.

While Lowe’s reaffirmed its outlook for this year, Home Depot rose its outlook this week. The company revealed demand remains strong despite higher prices in the inflationary environment. Its ability to pass on higher costs to customers, partly thanks to the fact it sells to a greater proportion of professional tradespeople than the likes of Lowe’s, helped it protect profitability and post earnings that beat forecasts and the company said it now expects comparable sales to grow 3% over the full year, having previously said it was targeting mild positive growth. Shares are giving back some of the gains booked this week and is down 1.9% in premarket trade today at $295.20.

The board of Twitter issued a statement to Bloomberg News that said it plans to enforce the agreement to be bought by Elon Musk for $44 billion as it believes it is in the best interest of shareholders. Musk has put the deal on hold until he can clarify how many bot and spam accounts are on the platform, stoking fears he could walk away from the deal or try to renegotiate a lower price. That comes after he waived his right to conduct due diligence, when this sort of issue would have typically been addressed. ‘We intend to close the transaction and enforce the merger agreement,’ the Twitter board said in the statement. Increasing doubt over the deal has sent Twitter shares back below where they sat before Musk got involved with the company and are down 0.6% in premarket trade today at $38.10, compared to the $54.20 per share offer currently in play.

Tesla shares are down 1.7% this morning at $748.81. Musk has continued to be busy on Twitter and announced yesterday that Tesla plans to hold its ‘AI Day #2’ on August 19, when we will get our first glimpse at the new Tesla Bot. Musk also shrugged off questions about the fact Tesla bonds are rated as junk. ‘Tesla doesn’t need debt, so the rating doesn’t impact us, but it is silly’, he tweeted. The company sits just one step below an investment-grade status after having its rating boosted by Moody’s back in January. There was also supportive news out of China that subsidies for electric vehicles that were set to expire this year could be extended in an effort to support economic activity. Still, concerns linger over the Covid-19 disruption hitting the automotive and tech markets in the country. Piper Sandler cut its price target on Tesla this morning to $1,035 from $1,260 because of the weaker outlook for the company in China, although the broker remains confident about the long-term growth story for Tesla.

Apple shares are down 1.2% before the bell this morning. The iPhone maker has delayed its plans to require staff to come into the office three times a week, sticking with a two-day rule for now, and has reintroduced the need to wear masks in common areas and across its store network. Meanwhile, Vietnam’s prime minister has called on Apple to use more suppliers in the country following a meeting with CEO Tim Cook.

AMD shares are down 1.5% in premarket trade at $100.98 after jumping 8.7% yesterday on an upgrade from Piper Sandler, which admitted that the drivers that prompted it to last downgrade the stock were not playing out as planned. The broker upgraded AMD to Overweight from Neutral and bumped-up its target price to $140 from $98. Piper Sandler said AMD’s core businesses are performing well and its growth catalysts remain intact over the medium-to-long term and that fears over a slowdown in the PC market and a lacklustre boost from its acquisition of Xilinx had dissipated.

NVIDIA followed its rival higher yesterday when it rose over 5% and continues to track its peer by trading down 1.4% today at $179.30. That comes after Susquehanna cut its price target on the stock this morning to $280 from $320. Chipmakers have come under severe pressure since peaking at all-time highs last November, but NVIDIA has underperformed after sliding 44% since then compared to the 33% decline seen in AMD shares.

Backers of meme stocks have something to celebrate after filings revealed that Bridgewater Associates, one of the largest hedge funds in the world, has unveiled it has a stake in both video game retailer GameStop and cinema chain AMC Entertainment, signalling that appetite for riskier assets is returning. GameStop is down 2.4% today at $98 while AMC is up 0.5% at $12.96. GameStop announced this week that its new COO, Nir Patel, will join the company at the end of this month while AMC revealed yesterday it had a 6.8% passive stake as of April 13 in National Cinemedia, which provides the advertising and marketing materials seen before movies are shown in theatres.

 

Other US stocks to watch before the bell

Cisco reports after markets close today and is down 0.8% before markets open. Supply chain pressure and rising inflation could weigh on Cisco’s growth in the third quarter of its financial year and there are fears that the chip shortage could be delaying Cisco’s ability to secure new customers and result in a more cautious outlook. Revenue is forecast to grow 4.2% in the quarter to $13.3 billion, toward the upper-end of its 3% to 5% target, and adjusted EPS is expected to rise 3.9% and hit the middle of its guidance range at $0.86. Notably, Jefferies has said it has turned bullish on US hardware stocks like Cisco, IBM and Microchip Technology following the heavy selloff seen in 2022.

JPMorgan is up 0.2% this morning after shareholders showed their disapproval over a $52.6 million stock option awarded to CEO Jamie Dimon that was given to him last year when he agreed to stay on for five more years. An advisory vote held on Tuesday saw only 31% of the votes cast go in favour of the executive pay awards made for 2021. For context, Reuters said JPMorgan has won over 90% approval for its pay awards in eight of the last 12 years.

Netflix shares are down 1.2% before the bell after announcing it has laid off around 150 workers as it grapples with a slowdown in growth. That is thought to represent around 2% of its workforce in the US and Canada. That comes after Netflix announced it lost subscribers for the first time in over a decade and warned it would lose 2 million more in the current quarter.

 

Broker rating changes

Cardinal Health has been upgraded to Outperform from Neutral and had its price target raised to $68 from $55. The healthcare service company is up 0.7% today at $57.10.

Expedia has been upgraded to Buy from Neutral by Redburn. The online travel hub is trading marginally lower before the bell at $122.72.

Endeavour Group has been upgraded to Buy from Neutral and had its price target lowered to $29 from $30 by Goldman Sachs.

Monster Beverage has been upgraded to Outperform from Market Perform and had its price target raised to $110 from $100 by Bernstein. The energy drinks maker is up 1.2% in premarket trade at $90.30.

Penn National Gaming has been upgraded to Buy from Hold by Jefferies. The casino and racetrack operator is up 3.2% today at $31.91.

Welltower has been upgraded to Outperform from Neutral and had its price target raised to $100 from $92 by Credit Suisse. The real estate investor is up 0.9% this morning at $90.48.

Carrier Global has been downgraded to Neutral from Buy and had its price target cut to $50 from $70 by BofA Securities. The refrigeration specialist is down 2.7% today at $39.11.

Gingko Bioworks has been downgraded to Underperform from Neutral and had its target price slashed in half to $3 from $6 by BofA Securities. The biotech firm is down 3.3% before the bell at $2.65.

Prescription glasses seller Warby Parker has been downgraded to Neutral from Buy and had its price target cut to $18 from $34.

 

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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.

 

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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