With U.S. equities nearing record highs, the meme craze has returned. Meme stocks are those that grabbed immense interest of retail traders due to the hype surrounding them on online forums like Reddit, Twitter and Robinhood irrespective of their fundamentals, leading to a surge in both volumes and share prices. Thus, these stocks are considered highly speculative.
Essentially, stocks of struggling companies possessing significant short interest are targeted by the social media forums. Retail investors bet on them to squeeze short sellers, primarily hedge funds, out of their positions. When the prices of these stocks start rising, short sellers start buying them to reduce their loss. This pushes up these stocks further.
However, investors should take caution while investing in such stocks as these are risky choices and could result in heavy losses. This is because when the excitement surrounding such a stock cools down, a freefall in share price may follow and investors can end up losing their money.
Investors seeking to capitalize on the meme stock fervor while avoiding any adverse circumstances could look at the hot Reddit stocks that have strong fundamentals like double-digit estimated earnings growth for this fiscal year. Below we have highlighted four such stocks that are the most-talked over on the Reddit platform lately and have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Corsair Gaming Inc. CRSR
This video game hardware maker is the latest meme stock on the Reddit forum WallStreetBets, which predicts that it will "swallow the gaming industry and be a millionaire stock maker.” According to Quiver Quantitative, the stock was mentioned nearly 2,960 times on the platform over the past seven days and has gained nearly 15% so far this month.
Corsair went public in September 2020 and has benefited from the stay-at-home trend during the pandemic. Its gaming keyboards, mice, headsets, controllers and capture cards are popular brands in the esports industry. Higher demand for video games is expected to result in higher revenues and profits for the company. Per the industry-tracking firm The NPD Group, consumer spending across video game hardware, content and accessories spiked 3% in May from the year-ago level.
Revenue and earnings per share for the company are expected to grow 18.6% and 13.1%, respectively. It currently carries a Zacks Rank #2 and has a Growth Score of A.
ClevelandCliffs Inc. CLF
This largest flat-rolled steel producer in the United States is also among the most-discussed stocks on the forum this month. A Forbes article stated that the company has been the focus of 5% of the mentions on the subreddit. A forum on WallStreetBets claims that ClevelandCliffs is being shorted and is undervalued at a time when steel prices are rising. The stock is up about 14% so far this month and has the potential for a near-term upside as the company is expected to benefit from higher commodity prices.
The stock has an estimated growth rate of a whopping 237.8% for revenues and more than 1000% for earnings per share for this year. It has a Zacks Rank #3 and a Value Score of A.
AMC Entertainment Holdings Inc. AMC
Shares of this movie theater has been a prominent name on Reddit this year. After calming down for a few months, the stock regained attention over the past few weeks on the meme craze as it was mentioned nearly 3,370 times on the platform over the past seven days and has gained nearly 126% so far this month. The solid trend is likely to continue given that the stock has solid estimated revenue growth of 89% and earnings per share growth of 80% for this year.
Additionally, economic reopening and new movie releases should fuel the stock’s growth in the coming months. AMC Entertainment currently has a Zacks Rank #3 and a Momentum Score of B.
Tilray Inc. TLRY
After the Reddit-driven short squeeze in January, WallStreetBets users again turned their attention toward this cannabis stock. One Reddit user wrote in a post last week that Tilray "is a movement," adding that the company has "fantastic stats" and is "a worthy opponent to AMC" as a meme stock. Per Quiver Quantitative, the cannabis stock was mentioned 922 times on WallStreetBets over the past five days. Shares of TLRY are up just 7.8% so far this month, suggesting that the stock rally is yet to start.
Investors should note that Tilray has emerged as the world's largest cannabis company following its blockbuster merger with Aphria in May. The Canadian cannabis producer has an estimated revenue growth rate of 49.9% and earnings per share growth rate of 84.3% for this fiscal year (ending May 2022). The stock has a Zacks Rank #3 and a Growth Score of A.
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