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?

Stocks (2)

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 20, 2021, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.

  1. Blackberry
  2. Tilray
  3. Tesla
  4. Netflix
  5. GameStop
  6. Alibaba
  7. SmileDirectClub
  8. Facebook
  9. ContextLogic
  10. Coinbase

 

Blackberry shares jumped 14% yesterday to $11.51, marking its best one-day gain since early June and pushing the stock to its highest level since early September. The move was in typical meme stock fashion, with no fundamental news driving the stock higher.

Tilray shares soared 15.8% yesterday, regaining all the ground it has lost during the selloff in October. The company announced that it has appointed Blair MacNeil as the president of Tilray Canada. He is leaving his role as the general manager of Bacardi’s Canadian business. However, the share price gain was predominantly driven by positive mentions on CNBC yesterday, which countered a target price cut to $22 from $27 by Jefferies.

Tesla is in play today ahead of its third quarter earnings today. The electric carmaker delivered a record 241,300 cars in the period, supporting the view that Tesla is mitigating the supply crunch in chips far better than its rivals, many of which have had to make significant cuts to production as a result. Wall Street is expecting total revenue of $13.50 billion in the third quarter which, if achieved, would mark a new record and be up from $8.77 billion the year before and from $11.96 billion in the second quarter. Analysts also expect adjusted EPS to hit a new quarterly record by rising to $1.50 from $0.76 the year before. Notably, Tesla’s goal to deliver at least 750,000 cars this year looks conservative considering it has already shipped 627,000 cars in the first nine months. Tesla shares have rallied over 50% since early June and are not far off the all-time highs we saw back in January.

Netflix is on the radar today after the streaming giant beat expectations yesterday. The company added 4.4 million new subscribers during the quarter, well ahead of the 3.7 million forecast by analysts and marking the best quarter of 2021 so far. That was largely put down to the huge success of South Korean series Squid Game. Revenue rose to $7.48 billion from $6.44 billion the year before and EPS jumped to $3.19 from $1.74. The topline was bang on estimates but EPS was ahead of the $2.56 forecast. Netflix said its content slate will only strengthen in the fourth quarter, which should put it on course to add 8.5 million new subscribers in the final three months of 2021 – slightly ahead of the 8.4 million pencilled in by Wall Street. Netflix said fourth quarter revenue is set to rise to $7.7 billion but warned EPS will take a big hit and come in at just $0.80 due to the ramp-up in spending on content weighing on margins. Netflix shares trade within touching distance of their all-time highs before the opening bell today, but were down slightly in extended trade yesterday. A number of brokers tweaked their price targets following the results but, overall, they believe Netflix is still a Buy and is over 5% undervalued compared to the average target price of $654.98.

GameStop shares remain largely unmoved despite the release by the SEC of a long-awaited report on the meme stock trading frenzy, which said a short-squeeze was not the main driver of the surge in GameStop shares earlier this year.

Alibaba shares in the US rose over 6% yesterday to close at their highest level since early September, and were trading even higher in Hong Kong today. That has been driven by news founder Jack Ma has taken his first foreign trip in over a year with a visit to Europe after staying hidden away amid the regulatory crackdown in China. Alibaba’s Hong Kong shares have jumped over 29% since bottoming-out earlier this month but remain over one-third below the 2021-highs we saw in February.

Facebook is attracting attention after reports suggested the company is planning to change its name as it prepares to build the metaverse. This is expected to be in the same fashion as when Google changed the name of its parent firm to Alphabet. Meanwhile, UK regulators fined the company £50.5 million for breaching an order imposed during their investigation into its acquisition of Giphy, stating the failure to comply with its orders was ‘deliberate’ – a statement the company strongly denies. Facebook is likely to remain in play for the rest of the week ahead of its third quarter earnings next Monday. 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. 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.

Coinbase shares booked their fifth straight day of gains yesterday and closed at their highest level since May. The crypto space has been in focus after the launch of the first bitcoin Exchange-Traded Fund (ETF) this week, which helped push the bitcoin price to over $64,000. It was also revealed yesterday that Coinbase is set to power Facebook’s new Novi crypto wallet and has struck a new crypto partnership with the NBA.

 

How to trade Reddit stocks

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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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