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 September 29, 2021, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.
- Lucid Group
- Tesla
- TMC Metals
- Palantir
- Camber Energy
- Dole
- SmileDirectClub
- ContextLogic
- GameStop
- Virgin Galactic
Lucid Group shares closed up over 7% yesterday after it started production of its electric cars, with CEO Peter Rawlinson confirming still expects to produce 577 cars before the end of the year and remains on course to produce 20,000 vehicles in 2022 and 50,000 in 2023. The firm has enough funding to see it through until the end of next year, but it will not wait until then to secure more cash. It also said that it expects the chip shortage to ease over the next year but that it is taking action to mitigate any disruption. Deliveries of the Lucid Air are set to start in late October, with over 13,000 reservations currently on its books. Expectations for the Lucid Air Dream Edition are high after it became the first electric car to boast a range of over 500 miles on a single charge, outdoing the existing leader – Tesla.
Tesla remains in play as this is set to be the most intensive week of deliveries on record for the electric carmaker. Yesterday, German officials said consultations on Tesla’s new plant are still ongoing and that a decision on approval cannot be pre-empted after media reported that it set to secure conditional approval.
TMC Metals shares sank another 17% yesterday to hit fresh all-time lows since going public through a SPAC deal earlier this month. The company confirmed yesterday that it has launched a $75 million, multi-year deep-sea research programme to establish the environmental baseline of its ambitious project and to understand the impact its operations would have on sourcing battery metals from the sea floor. It is hoping to tap the ‘world’s largest untapped deposit of battery metals’.
The reversal in Palantir shares looked to be confirmed yesterday after falling 3.2%, markings its third consecutive day of losses and ending the day at its lowest level in over one month.
Trading in Camber Energy shares had to be halted due to extreme volatility yesterday, with the stock rising by over one-third at one point. The stock gave back much of those gains in late trade to close up 11.8%.
SmileDirectClub slid 8.4% yesterday to hit their lowest level in over three weeks. The company said this morning that the Federal Trade Commission has taken action to prevent the Alabama Board of Dental Examiners from ‘impeding clear aligner platforms or dental professionals affiliated with them from providing clear aligner therapy through remote treatment’. ‘SmileDirectClub is grateful for the actions of the FTC to preserve competition and we are pleased that the FTC’s proposed Consent Order will allow the company to expand freely in the state of Alabama and further our mission of democratizing access to premium, affordable, safe and effective oral care,’ the company said.
ContextLogic shares closed down 3.6% yesterday to mark yet another all-time low. The stock has now lost over 80% of its value since the start of February.
Virgin Galactic is a new entry overnight, having closed down 3.6% yesterday to mark its lowest level since late May. The company announced that it has been cleared to fly FAA-licensed spaceflights after regulators examined problems with its Unity 22 spaceflight, specifically with air traffic control clearances and real-time mission notifications. The FAA has now accepted the corrections Virgin Galactic has introduced to rectify the issues. It is now focused on getting ready for Unity 23.
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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.
