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 16, 2022, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.
- AMC Entertainment
- Advanced Micro Devices
- Ryder System
Twitter shares are down 2% this morning at $39.91 and trading just above where they sat before Elon Musk made his $54.20 per share takeover offer for the social media company at the start of April. That comes after Musk put the deal ‘temporarily on hold’ as he awaits more information on how many bots are on the platform, although he has said he remains ‘committed to the acquisition’. That has cast fresh doubt about the deal being completed at all or, if it does, whether Musk will look to renegotiate the price tag following the steep fall in the share price over the past six weeks. Notably, Musk would have to pay a $1 billion break-fee if he was to walk away from the deal.
Meanwhile, the Tesla share price – which has become entwined with that of Twitter ever since Musk sold off shares in the electric carmaker and pledged even more toward securing debt for the $44 billion takeover, is down 0.1% at $768.70 – and the stock is still down over 29% since the offer was launched. A report form Reuters, citing an internal memo, suggested the carmaker has delayed its plans to restore production at its plant in Shanghai to pre-pandemic levels as fresh Covid-19 disruption continues to weigh on output. It said Tesla will continue to run a single shift this week and produce around 1,200 units each day before ramping up to 2,600 from May 23, having previously said it would do this from today. There was also news from Chinese regulators that said Tesla is recalling 100,000 cars in the country due to problems with the touchscreen display, which also prompted it to recall around 130,000 vehicles in the US last week.
Rivian shares are down 1.1% before the bell at $26.40 after a new filing on Friday revealed Ford sold another 7 million shares in the electric vehicle startup for $26.88 each. That follows on from the sale of 8 million shares last week for $26.80, which reset the valuation of the company. That leaves Ford with around 86.9 million shares in Rivian, making it the fourth largest shareholder. Ford has started selling shares after the pair decided not to work together on an electric vehicle and competition intensifies as Ford’s F-150 electric pickup truck goes up directly against Rivian’s R1T. That comes at a time when Rivian is trying to ramp-up output after the first vehicles rolled-off the production line last year, although a shortage of parts and other supply chain disruption means its plant will only produce around 25,000 vehicles in 2022 – just half what its factory is capable of. Rivian has also had to recall around 500 R1Ts over problems with the airbag, adding to the woes as it tries to ramp-up.
Meme stock favourites remain volatile after suffering during the heavy selloff last week. Retail traders are thought to have significantly underperformed the S&P 500 since January 2020, when the original trading frenzy in meme stocks erupted, thanks to the recent selloff as appetite for riskier assets has waned this year. GameStop shares are up 0.7% in premarket trade today at while AMC Entertainment is up 2.7% after the largest public pension in the US, known as Calpers, revealed it bought more shares in the cinema chain (as well as the likes of AMD and Block) during the first quarter of 2022 to signal it sees significant upside from current levels. Calpers has bought AMC shares for three consecutive quarters and now has 775,392 of them in total.
With that in mind, AMD shares are down 0.7% before the bell while its rival NVIDIA, which is due to round-off the earnings season for chipmakers with results due out early next week, is down 0.6%.
Ryder System shares are down 0.8% this morning at $83 after announcing on Friday, when it jumped over 17%, that it has received an ‘unsolicited indication of interest’ from HG Vora Capital Management, which is looking to buy the company, which rents, leases and sells trucks, for $86 per share to value the company at around $4.4 billion. Ryder has said it is evaluating the deal. HG Vora already owns a 9.9% stake in Ryder and has said the price tag could be adjusted ‘if our due diligence supports a higher valuation’.
Apple shares are down 0.7% this morning following the rebound we saw on Friday. Still, shares have now closed down for seven straight weeks amid a broader decline among Big Tech as concerns over an economic slowdown continues to rattle confidence. Figures out of China that showed smartphone shipments dropped over 40% year-on-year to just 21.5 million handsets in March is also adding fresh concerns this morning and highlighting the significant headwinds in the country, which is suffering from fresh Covid-19 lockdowns.
US shares of Italian oil giant Eni are up 1% before the bell after announcing last week that it plans to open a rouble account this week to pay for Russian gas unless it is told otherwise by European lawmakers, stating it plans to wait until the last minute before deciding whether to go ahead with the payments. That followed reports from Bloomberg that Eni was set to make a payment due to Russian outfit Gazprom for gas supplies in May even if the initial euro payment is converted to roubles. The report said Gazprom has tried to reassure customers like Eni that they can make the payments without violating EU sanctions as Russia’s central bank is not involved. European companies have been scrambling to find a way to keep paying for gas to ensure energy supplies keep flowing without falling foul of sanctions after Russia demanded payment in roubles.
Other US stocks to watch before the bellChinese outfit Tencent Music is up 0.5% in premarket trade ahead of first quarter earnings due out after the closing bell today. The company continues to grow the number of people subscribing to its music streaming services, but it is rapidly losing users on the social entertainment side of the business that provides the bulk of profits amid tough competition from the likes of TikTok. Wall Street believes revenue will decline for a second consecutive quarter and drop over 14% year-on-year to RMB6.7 billion and that, combined with rising costs squeezing profitability, is set to see net profit plunge over 34% year-on-year to $642.8 million. You can read the full preview ahead of the Tencent Music earnings here.
JetBlue has formally launched a hostile takeover offer for Spirit Airlines just days after it turned down an offer from its larger rival. JetBlue’s offer of $30 per share was rejected but the company has now said it was willing to ‘negotiate in good faith a consensual transaction at $33, subject to receiving necessary due diligence’. Spirit rejected the $30 offer over fears the deal will be blocked by regulators, with JetBlue hoping the combination will allow them to better compete with the so-called Big Four airlines in the US. Importantly, Spirit Airlines is pushing ahead with a deal to merge with Frontier Group worth just $21.66 per share, but it thinks this is more likely to be consummated. JetBlue shares are down 0.6% this morning while Spirit Airlines is up over 17% at $19.90.
McDonalds shares are down 0.5% this morning after the fast-food giant confirmed late last week that it will exit the Russian market by selling its business, bringing an end to its 30-year presence in the country. The company is thought to have around 847 restaurants in the country, which were closed back in March. It will book a non-cash charge of between $1.2 billion to $1.4 billion once the sale is completed.
Broker rating changes
Marathon Petroleum has been downgraded to Neutral from Buy by Goldman Sachs, but it raised its price target on the stock to $102 from $90.
Nielsen has been downgraded to Market Perform from Outperform by BMO Capital, which cut its price target to $28 from $34.
Switch was downgraded to Neutral from Outperform by Credit Suisse this morning and had its target price of $35 reiterated, while Raymond James downgraded the stock to Market Perform from Strong Buy.
Twilio has been downgraded to Neutral from Outperform by Baird and had its target price trimmed to $120 from $155. The stock is down 2.7% this morning at $107.75.
UPS has been downgraded to Neutral from Overweight by JPMorgan and had its price target cut to $202 from $229. The delivery outfit is down 0.9% before the bell at $176.50.
Netflix was upgraded to Outperform from Neutral and had its price target reiterated at $280 by Wedbush. The streaming giant is up 1.5% today at $190.50.
SoFi has been upgraded to Overweight from Neutral by Piper Sandler despite cutting its target price to $10 from $12. The fintech stock is up 4% before the bell at $7.02.
JPMorgan upgraded a number of Chinese stocks this morning. Alibaba has been upgraded to Overweight from Underweight and had its price target raised to $130 from $75. Fellow Chinese stock Baidu was also upgraded to Neutral from Underweight and had its price target raised to $125 from $90. JPMorgan also upgraded Bilibili to Neutral from Underweight and bumped-up its target price to $19 from $15, as well as Baozun to Neutral from Underweight with a price target of $8 from $5. JD.com, which reports results tomorrow was upgraded to Neutral from Underweight and had its price target raised to $58 from $40.
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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.You can read more about short-squeezes and how they can be predicted here.
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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