I must admit, when I was given this assignment my first thought was I’m the last guy to be talking about Reddit stocks. I think the attention being paid to Reddit and meme stocks is a bunch of hokum.
The arguments abound whether the meme stock frenzy is a permanent part of the investing landscape.
“This is not going to end well,” Former E*Trade CEO Karl Roessner told CNBC in early June while discussing the AMC rally. “I think historically we’ve seen this in the past, but I do believe this group has staying power.”
However, if you’re a value investor, the mere presence of this kind of retail investor is music to your ears. While the sheep are out buying GameStop (NYSE:GME), you can pick up shares in some of America’s better companies that trade at a discount.
That’s not easy when the Cyclically Adjusted PE Ratio (CAPE) of 38.11 is at the second-highest level on record — the highest was in December 1999 — with no end in sight to the multiple’s upward trajectory.
With that in mind, I’ve rated the top 10 Reddit stocks — based on the number of comments made on r/WallStreetBets — from best to worst as a long-term buy:
- Tesla (NASDAQ:TSLA)
- KB Home (NYSE:KBH)
- Palantir Technologies (NYSE:PLTR)
- Clean Energy Fuels (NASDAQ:CLNE)
- BlackBerry (NYSE:BB)
- Workhorse Group (NASDAQ:WKHS)
- AMC Entertainment (NYSE:AMC)
- ContextLogic (NASDAQ:WISH)
- Globalstar (NYSEAMERICAN:GSAT)
- Clover Health (NASDAQ:CLOV)
Reddit Stocks to Buy: Tesla (TSLA)
Say what you will about Elon Musk, but there’s no question he’s built one heck of a company. Soon, Tesla will have a fourth factory open in Berlin. Even though the original opening date of July 1 is no longer on the table due to myriad reasons, it will ultimately produce millions of electric vehicles (EVs) for willing European buyers.
The company has added a battery cell production component to the plant outside Berlin. It will produce 500 million cells annually representing 50 gigawatt hours (GWh) of energy, 25% higher than Volkswagen’s (OTCMKTS:VWAGY) planned facility a couple hundred miles away.
Across the pond in Texas, the company’s fifth so-called Gigafactory is getting closer to being ready for production. This plant will produce an updated version of the Model Y using “mega casting” technology to speed up the production process while delivering a lighter vehicle at the same time. It currently uses this technology at its plant in Shanghai.
Tesla has a free cash flow (FCF) margin of 22.3% based on $35.94 billion in trailing-12-month revenue.
KB Home (KBH)
The largest homebuilders in America are having trouble keeping up with demand at the moment. At least for now, KB Home is meeting the demand from customers, 64% of which were first-time buyers in the latest quarter.
“Operationally, our divisions are doing an excellent job of navigating this environment of demand strength and well-publicized supply chain constraints as we effectively balanced pace, price and starts to optimize our assets and manage our production,” said KB Home CEO Jeff Mezger in the Q2 2021 conference call.
KB Home is so busy that the number of homes started in Q1 2021 and Q2 2021 was equivalent to 75% of the number of homes started for 2020. As a result, it expects to deliver $6 billion in housing revenue in 2021 at the midpoint of guidance, with operating margins between 11.5% and 12.0%.
KB Home has an FCF margin of 6.5% based on $4.78 billion in trailing 12-month revenue.
Reddit Stocks to Buy: Palantir Technologies (PLTR)
Palantir has been a public company for less than a year. The provider of data analytics software platforms for government agencies, corporations, and other large institutions, sold no shares last September when directly listed on the NYSE.
The reference price was $7.25. PLTR stock is up 277.7% through the start of June 29.
Not only is it growing its business — in the latest quarter, its U.S. commercial revenue grew 72% year-over-year while its U.S. government revenue jumped 83% YOY — it is also busy investing in other tech companies looking to go public.
For example, it has invested in six private investments in public equity (PIPE) in the past three months. These PIPEs are part of the ongoing interest in special purpose acquisition companies (SPACs). Palantir invests in the PIPEs to gain financial returns and collaborate with these companies, which use its data analytic tools for their businesses.
I’m not 100% sold on Palantir just yet, but it’s a good long-term buy compared to some of the Reddit stocks on this list.
Palantir has an FCF margin of 9% based on $1.2 billion in trailing 12-month revenue.
Clean Energy Fuels (CLNE)
Back in February, I recommended CLNE. At the time, it was trading around $12.97. It was one of seven stocks to buy under $20. As I write this, it’s just under $11, so it’s lost ground over the past four months.
I liked Clean Energy for several reasons.
First, it provides three kinds of natural gas fuel for commercial trucks: compressed (CNG), liquified (LNG), and renewable (RNG). It’s the only fuel provider to do so. Secondly, RNG fuel enables trucking companies to deliver their services while getting close to or achieving carbon negative status. Third, it’s got fueling stations in 43 states and Canada. Lastly, it’s got deep pockets. Total (OTCMKTS:TTFNF) owns 25% of its stock.
Oh, and as I said in February, from an adjusted EBITDA basis (earnings before interest, taxes, depreciation and amortization), it makes money while also growing revenues at a steady pace.
In the meantime, Clean Energy has an FCF margin of 24.2% based on $283 million in trailing 12-month revenue.
Reddit Stocks to Buy: BlackBerry (BB)
I can remember when President Barack Obama first entered the White House in January 2009. The BlackBerry was considered the cat’s meow when it came to mobile phones. By the time he left office in January 2017, it was in the dustbin of history.
Now supplying security software to automobile manufacturers and other enterprises and governments worldwide — a research firm recently said its QNX software is installed in 195 million vehicles worldwide — the Reddit crowd have taken to the Waterloo, Ontario-based tech company.
Things have turned around for BlackBerry.
At least, enough so to provide CEO John Chen with a handsome compensation package. Proxy advisory firm Glass Lewis recently blasted the company, suggesting its compensation plan had no relation to its overall corporate performance.
As a result of the January Reddit rally, which saw BB stock move from $6.70 at the beginning of the month to a 52-week high of $28.77 by the end, Chen could receive as much as $206 million in cash and stock compensation from the long-term incentives issued in 2019.
On a GAAP basis, BlackBerry still loses money. That said, the pivot it’s made to software has given it another shot at tech stardom. We’ll see if it gain regain its former glory from the Obama years.
In the meantime, BlackBerry has an FCF margin of 9.3% based on $861 million in trailing 12-month revenue.
Workhorse Group (WKHS)
The last time I wrote about Workhorse Group was in late April. At the time, it was trading around $12.50. I argued that if it got the backlog of 8,000 commercial electric vehicle delivery trucks out the door over the next 12 to 24 months, it would have an ultra-low price-to-sales ratio of 4.2.
Long story short, if it did, its stock would be worth more than $12.50.
Well, on June 16, Workhorse officially protested the United States Postal Service awarding the estimated $6 billion contract to manufacture its next-generation delivery vehicle to Oshkosh (NYSE:OSK). The news pushed WKHS to $17.54 at the start of June 29.
InvestorPlace’s Dana Blankenhorn recently discussed Workhorse. He believes that the company was in the commercial EV game to ride on the coattails of big guns like Ford (NYSE:F) and General Motors (NYSE:GM). That’s not the craziest theory in the world.
In the latest quarter, Workhorse delivered six trucks to customers and generated $521,000 in revenue. It plans to produce 1,000 trucks in 2021. It will have to pick up the pace if it wants to reach that goal. In the meantime, investors can expect its quarterly losses to accelerate as we make our way through the year.
Workhorse has an FCF margin of -5,320.2% based on $1.83 million in trailing 12-month revenue. It is for speculative investors only.
Reddit Stocks to Buy: AMC Entertainment (AMC)
AMC is a stock that I’m conflicted about.
On the one hand, I believe that Americans will return to movie theaters in large numbers come fall. That will likely return the chain to pre-Covid revenue numbers. On the other hand, it has a burdensome debt load.
Despite using the Reddit surge to raise much-needed cash to repay some of this debt — on June 3, it announced it would sell 11.55 million shares at the market to bring in another $600 million — it still has $11.05 billion owed, or 37.6% of its vastly overvalued market capitalization of $29.4 billion.
Former E*Trade CEO Karl Roessner appeared on CNBC in early June. While he commended AMC management for selling shares when prices were high, the company is not worth $28 billion.
“Absent some serious strategic undertakings by that company, it’s still just not worth what it’s trading for right now,” Roessner stated.
AMC has an FCF margin of -280% based on $449 million in trailing 12-month revenue.
ContextLogic (WISH)
In February, I wrote an article about the e-commerce site with the headline “ContextLogic Has Nothing to Do With Retail”. I didn’t understand the composition of its board. It had no retail experience on its board to oversee the CEO.
“If ContextLogic’s goal is to beat Amazon (NASDAQ:AMZN) at discount e-commerce apparel, its board of directors is a sure sign that’s not what it’s after,” I said.
I finished the article by stating I didn’t get an inspirational vibe from Context Logic’s board of directors. In the four months since, WISH has lost 49% of its value and trades well below its IPO price of $24.
ContextLogic has an FCF margin of -8% based on $2.87 billion in trailing 12-month revenue. I’m really not sure what Redditors see in this one.
Reddit Stocks to Buy: Globalstar (GSAT)
Not everyone thinks the provider of mobile satellite services is a bad bet.
B. Riley analyst Mike Crawford initiated coverage of Globalstar on June 21. The analyst gives it a “buy” rating and a $3.25 target price, double where it’s currently trading. He estimates that the company’s C-Band spectrum could be worth as much as $15 billion. Based on 1.79 billion shares outstanding, that’s $8.38 a share, considerably higher than the analyst’s target price.
From where I sit, the fact that it’s currently trading at a price-to-sales ratio of 25.39 and not making money on a GAAP basis makes it very hard for me to get behind the company.
However, Globalstar does have one big ace up its sleeve.
On page 87 of its 2020 10-K, you will see that it had $1.8 billion in U.S. net operating loss (NOL) carryforwards with less than 1% expiring before 2025. It has an additional $200 million in foreign NOL carryforwards. So, should it start generating significant profits — that’s still very much up in the air — the loss carryforwards will shield the company’s earnings from taxes for the foreseeable future.
Globalstar has an FCF margin of 18% based on $123 million in trailing 12-month revenue.
Clover Health (CLOV)
They say timing is everything.
In early June, I wrote an article about the healthcare technology company, which uses data to provide healthcare plans for more than 130,000 Americans. At the time, I felt like there was a fair bit of upside resistance at $10.
While I wouldn’t buy the money-losing stock, a patient investor with a higher than average risk tolerance would be wise to buy around $9, or hopefully less. And then came the June 8 Reddit-induced short squeeze, doubling CLOV’s share price within hours.
“By afternoon trading [June 8], Clover had already traded over 650 million shares, 30 times more than its 30-day average volume of 22 million shares, according to FactSet,” CNBC‘s Yun Li reported. “By the closing bell on Wall Street, more than 720 million shares had changed hands.”
CLOV stock closed June 7 trading at $11.92. By 4 p.m. the next day, it was over $22.
In my article, I mentioned the investing lesson a 17-year-old learned about managing your expectations when playing with real money. I really hope he was able to sell his call options in the June surge. If not, the shares have still doubled from a month ago.
Overall, it’s down slightly from its first day of trading on Jan. 8.
Clover has an FCF margin of -24.2% based on $721 million in trailing 12-month revenue.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.