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 January 21, 2022, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded. 

  1. Peloton
  2. Netflix
  3. SoFi Technologies
  4. Tesla
  5. GameStop
  6. Lucid Group
  7. NVIDIA
  8. Advanced Micro Devices
  9. Microsoft
  10. Apple

 

Peloton shares collapsed 24% yesterday to close at $24.22 - their lowest level since March 2020 -after warning it was set to cut the size of its workforce and ‘resetting’ production levels following a drop in demand for its in-home exercise equipment. CEO John Foley said the firm was ‘still in the process of considering all options’ to make the business more flexible. However, he denied reports that it was halting production after CNBC said the firm was going to cease production of its Tread treadmill for six weeks. ‘We are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company. This includes gross margin improvements, moving to a more variable cost structure, and identifying reductions in our operating expenses as we build a more focused Peloton moving forward. This work is still underway and we expect to have more details to share when we report earnings on February 8, 2022,’ Foley said. It said it expects to report revenue of $1.14 billion in the last three months of 2021 and a net loss of $423 million. That would compare to the $1.06 billion in revenue and $63.6 million profit booked the year before. Brokers slashed their target prices on the stock this morning. Cowen & Co cut its target to $40 from $100, Credit Suisse to $40 from $40, while Telsey Advisory Group and MKM Partners both cut their targets to $30 from $70. Peloton shares are trading over 4% higher in early premarket trade today at $25.31.

Netflix shares also plunged in after-market hours and are trading over 20% lower in premarket trade today at $102.25 after an extremely disappointing outlook overshadowed a solid set of results late yesterday. The streaming giant added 8.3 million subscribers in the final quarter of 2021, just below forecasts, and warned it only expects to add 2.5 million in the first three months of 2022 – way below the 6.4 million pencilled in by analysts. Revenue rose 16% from last year to $7.7 billion and met expectations while EPS of $1.33 grew from $1.19 and came in much better than the $0.80 guided by the business. It expects to generate revenue of $7.9 billion and EPS of $2.86 in the first quarter of 2022. It said it also expects to generate positive free cashflow in 2022 and beyond. It also tried to sweeten shareholders by saying it will return some cash to shareholders through buybacks if it has excess cash above its minimum thresholds as it unleashed a wave of new proposals to be made to its voting structure at its next annual general meeting. A number of brokers slashed their price target on the stock following the disappointing outlook, including Pivotal Research to $550 from $750, Evercore ISI to $525 from $710, Cannacord Genuity to $600 from $750, and Piper Sandler to $562 from $705.

SoFi shares continue to rebound from all-time lows after announcing this week that it has been given regulatory approval to become a national bank. Shares are trading up 0.4% higher before the bell today, having already rallied over 24% since the news broke. The company said it has been able to secure the approval thanks to acquisition of Golden Pacific Corp, which is expected to close in February. SoFi is set to contribute $750 million in capital to pursue its banking plan. Volumes came in just shy of a record 269 million shares yesterday, up from the 187 million traded on Thursday after the news announced. For context, the highest single-day trading volume in the last year was previously 72 million.

Tesla shares are trading marginally lower in premarket trade today as they continue to struggle in the new year and have now lost almost 17% since the start of 2022. It has been leading other electric vehicle stocks lower, with Lucid experiencing a volatile start to the year but trading 0.9% higher before the bell today. Two lawmakers in the US warned Tesla’s decision to expand into Xinjiang in China, where Western governments are concerned with the Chinese government’s treatment of Uyghur Muslims, is ‘misguided’ after the electric carmaker opened up a showroom in the region. Democrats Bill Pascrell and Earl Blumenauer, who both head subcommittees responsible for the oversight of trade, said the move ‘sets a poor example’. There was news that Tesla has applied for a new trademark for a new suite of audio equipment, such as headphones, according to Electrek.

How low can GameStop shares go? The meme stock favourite has closed down for six consecutive sessions and closed at its lowest level in almost a year yesterday at $102.58 – far from highs of $481 seen during the trading frenzy in early 2021.

Semiconductor stocks have led the rout in tech stocks in 2022, with both NVIDIA and AMD continuing to trend lower and now trading around 19% lower than at the start of the year and sitting at three-month lows. NVIDIA is down 2.1% before the bell today while AMD are trailing 1%.

Microsoft remains in play ahead of quarterly earnings next week, hot on the heels of its agreement buy Activision Blizzard in a deal valuing the video games maker at $68.7 billion, or $95 per share, marking its biggest acquisition ever. That is some 45% above where Activision shares closed last Friday, but there is no doubt Microsoft is capitalising on Activision’s share price weakness considering the stock had lost almost 30% in value over the 12 months before the announcement was made. Activision Blizzard shares were trading at an all-time high of $104 less than a year ago, before sentiment was hurt after the company was hit by a lawsuit filled with allegations of sexual harassment and issues with gender pay gaps. The news has propelled Activision shares higher but has failed to act as a catalyst for Microsoft, which currently trades at a 3-month low. Microsoft is buying Activision Blizzard to accelerate growth in its gaming division and to acquire key building blocks as it develops a metaverse, which has emerged as the next big race in the tech sector. Wall Street forecasts Microsoft will report an 18% rise in revenue to $50.74 billion from $43.08 billion the year before. While that expansion would be impressive, it would mark the slowest rate in topline growth in 12 months. Adjusted EPS is expected to climb to $2.27 while reported EPS at the bottom-line is seen rising to $2.32. Both metrics came in at $2.03 last year. Although EPS growth is forecast to slow to 18% this year from the 40% jump expected in the 2021, that would be considerably better than the tepid single-digit growth forecast for Apple, Alphabet and Meta in 2022.

Apple shares are trading at their lowest level in six weeks, having lost 9.6% since the start of the year, and look set to book further losses with the stock down 0.8% before the bell today at $163.26. Wells Fargo raised its target price on the stock this morning to $205 from $165. The iPhone maker comes into play next week when it releases fourth quarter earnings.

 

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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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