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 17, 2022, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.
- Home Depot
- Advanced Micro Devices
- Nu Holdings
- AMC Entertainment
Twitter shares are losing further ground in premarket trade after Elon Musk suggested he could try to renegotiate his $44 billion takeover of Twitter and warned his acquisition of the social media platform ‘cannot move forward’ until CEO Parag Agarwal proves that spam and bot accounts represent less than 5% of its user base. ‘My offer was based on Twitter’s SEC filings being accurate,’ Musk tweeted. That came after Agarwal tweeted said internal estimates over the past four quarters have been below 5% but said that ‘we don’t believe that this specific estimation can be performed externally, given the critical need to use both public and private information (which we can’t share)’. Agarwal added: ‘We shared an overview of the estimation process with Elon a week ago and look forward to continuing the conversation with him, and all of you.’ Musk, which sent a single poop emoji in reply to Agarwal’s claim that the figure cannot be estimated externally, responded by stating that Twitter should ‘welcome external validation if their claims are true’ and asked how advertisers know what they’re getting for their money. Twitter shares are trading down 2.3% in premarket trade at $36.59 – below where they sat before Musk tabled his $54.20 per share offer. Doubt that the deal will go through at the current price tag, or at all, has never been higher. Musk, speaking at the All-In Summit 2022 conference in Miami, was asked if the Twitter deal could be viable at a different price and said ‘it is not out of the question’. ‘The more questions I ask, the more my concerns grow’, he added.
Meanwhile, Tesla shares, which have become somewhat entwined with that of Twitter since Musk sold-off a chunk of his holding in the electric vehicle maker and pledged more toward debt to help finance his Twitter takeover, are up 2.4% before the bell at $742. Tesla’s website was updated yesterday and said it has stopped taking orders for its new Cybertruck outside of North America. The company has had to delay the launch and is expected to start producing it next year, but Musk said last week that it has ‘more orders of the first Cybertruck than we could possibly fulfil for three years after the start of production’. That comes after the company confirmed that it was delaying the ramp-up at its plant in Shanghai by one week as Covid-19 and supply chain problems continue to cause disruption across the country, and reports that it is recalling over 230,000 cars in the US and China due to problems with the central touchscreen.
Rivian shares are up 2.5% this morning at $25.49 after being rattled by Ford’s decision to offload a significant chunk of its stake in the electric vehicle startup. Ford sold 7 million shares for $26.88 late last week, having already sold 8 million shares for $26.80. That has reset the valuation of Rivian, although some believe it has presented an opportunity after filings revealed CEO Robert Scaringe bought 41,000 shares at $25.78 per share yesterday. The Wall Street Journal reported that Rivian is suing one of its key suppliers that provides it with seats and said a dispute over pricing could hamper its ability to produce its Electric Delivery Van, which its shareholder Amazon has already ordered 100,000 of.
Home Depot shares are up 3.2% in premarket trade today after the big box retailer raised its full year expectations as DIY demand remains strong despite higher prices in the inflationary environment. Same-store sales rose 2.2% in the first quarter and this was below the 2.7% pencilled-in by analysts, but EPS of $4.09 came in much higher than the $3.68 forecast as it protected profitability by passing on higher costs to consumers, around 40% to 45% of which are thought to be professionals. Home Depot said it now expects comparable sales to grow 3% over the full year, having previously said it was targeting mild positive growth. That was also more than double the 1.4% rate Wall Street had anticipated this year.
Nu Holdings is up 9.9% before the bell and rebounding from fresh all-time lows after beating expectations and delivering the strongest quarter in the company’s history. The Brazilian fintech firm said it reached nearly 60 million customers and saw activity levels hit record highs of 78% in the period. It added 5.7 million new clients in the quarter and average revenue from each one more than doubled year-on-year. Revenue more than tripled as a result to $877.2 million, smashing the $624.1 million forecast by analysts. Its net loss narrowed to $45.1 million from $49.4 million. Some analysts have suggested the company could be proving to be an outlier in Brazil as it is avoiding a steep rise in defaults thanks to its focus on low-risk and low-yielding credit cards.
Meme stocks continue to prove volatile. GameStop shares are up 1.9% today after announcing yesterday that Nir Patel will become the new chief operating officer of the video games retailer at the end of this month. He will be joining from his role as chief executive of a privately-owned national retailer named Belk, which boasts 300 stores across the US. He has previously held senior roles at other retailers Kohl’s and Lands’ End. He will be paid a $200,000 salary and be eligible to earn $3.4 million in bonuses.
Fellow meme stock favourite AMC Entertainment is up 3.3% this morning. Analysts at Bloomberg Intelligence said AMC’s $1.2 billion in cash could be enough to fund the business through to 2026, when it expects the US box office to have recovered to pre-pandemic levels, given its debt repayment schedule and cashflow forecasts. It said AMC has around $664 million of debt due to be repaid over the next three years, providing room for it to burn through more cash if it needs to. However, it also warned that ‘much of AMC’s debt is distressed, with second-lien bonds yielding about 22% versus first-lien notes in excess of 10%’.
Apple shares are up 1.7% before markets open today but are still down over 20% since the start of 2022. Reports surfaced that Michael Burry, the hedge fund investor featured in the film The Big Short and who now runs Scion Asset Management, has bet against the iPhone maker and had bearish put options against 206,000 Apple shares at the end of March. Scion revealed it also bought shares in the likes of Alphabet and Meta during the first quarter. That comes after billionaire Warren Buffet bought $600 million worth of Apple shares during the same period. Separately, Apple said it would soon allow some third-party podcast hosting services to distribute subscription-based content through its app.
Speaking of Meta, the stock is up 1.5% this morning after numerous funds revealed they dumped shares in the company during the first quarter, including Light Street, Hitchwood Capital Management and Melvin Capital. However, others such as Coatue Management increased its stake in Meta, alongside other stocks that were largely dumped during the period such as Netflix, during the first quarter. Notably, these are backward-looking and don’t reveal current stakes or activities since the end of March. With that in mind, filings made yesterday revealed that Saudi Arabia’s public investment has bought a stake in Meta.
AMD shares are up 3.7% before the bell at $97.70 after being upgraded to Overweight from Neutral by Piper Sandler, which raised its price target on the stock to $140 from $98. That suggests huge upside potential following the heavy selloff in tech stocks this year, with the broker believing AMD’s core businesses are performing well and its growth catalysts remain intact over the medium-to-long term. It admitted that its previous expectations when it downgraded the stock were based on the belief that it would suffer thanks to a slowdown in the PC market and a lack of contribution from its acquisition of Xilinx but said this was not playing out as originally expected.
Other US stocks to watch before the bell
Walmart shares are down 6.9% and trading at their lowest level since early March after cutting its full year expectations as its margins come under pressure from rising costs for everything from fuel to labour. Walmart was expected to hold-up well in the inflationary environment because of its size and scale but it has not been immune to the surge in costs, which caused net income to plunge 25% to $2.05 billion in the first quarter. It warned EPS would fall around 1% over the full year, having previously forecast a mid-single digit increase. Revenue was up 2.4% in the latest quarter and came in higher than anticipated.
Berkshire Hathaway, run by renowned billionaire investor Warren Buffet, revealed it bought shares in the likes of Citigroup, Ally Financial, Celanese Corp, Markel Corp, McKesson Corp and Paramount Global during the first quarter of 2022, while dumping its entire stake in Verizon and exiting Wells Fargo.
Tencent Music shares are up 5.5% this morning after the Chinese music streaming giant said revenue fell 15% as expected in the first quarter, with the stock finding support after news that a top political consultative body was meeting today to discuss how to promote China’s digital economy. Intense competition in the social entertainment space meant it continued to lose users and this was the primary driver of the fall in sales. However, more people continued to subscribe to its music streaming services.
Take-Two Interactive is up 4.9% this morning despite its full year forecast disappointing the markets as demand for gaming unwinds from its pandemic-induced highs. ‘As the return to normalcy continues to unfold, the impact to our business, operations and financial results will depend on numerous evolving factors that we are not able to predict,’ it warned. It said annual sales should be between $3.75 billion to $3.85 billion, below the $3.96 billion pencilled-in by analysts. However, this could be upgraded once it closes its acquisition of Zynga.
Broker rating changes
Workday has been downgraded by UBS to Neutral from Buy. Shares are down 1.5% this morning at $173.40.
Teva Pharmaceuticals has been upgraded to Neutral from Underweight by BofA Securities, which cut its price target on the stock to $9 from $11. The pharma stock is up 2.8% today at $8.13.
Herbalife has been downgraded to Hold from Buy by Argus. The nutrition company is down 0.6% before the bell at $22.
Maxar Technologies has been downgraded to Underperform from Neutral and had its price target cut to $25 from $36 by BofA Securities. The stock is down 5.4% today at $27.50.
UMW Holdings has been downgraded to Neutral from Outperform by Wedbush and had its price target cut to $5 from $6.50.
How to trade Reddit stocks
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Follow these easy steps to start trading Reddit stocks today.
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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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