Reddit’s Roaring Rocket
Howdy, Great Ones! Are you ready for another foray into the great wide open?
Today, we’re talking “meme” stocks again. Specifically, Rocket Companies (NYSE: RKT), the parent company of Rocket Mortgage, Rocket Loans and Quicken Loans.
Now, as we all know, mortgages and loans are terribly exciting — emphasis on the terrible. If you could found a business on watching paint dry or grass grow, it’d be more exciting than investing in the mortgage and loan business.
Case in point: RKT went public in September. Despite all the hype surrounding the Rocket Loans app and how easy it now is to put yourself in massive debt with just the flick of a finger, RKT shares only gained a mere 9.9% through the end of February.
Think about that. A mere 10% gain (rounded up) in five months for an IPO in this speculative market. It snowed heavily here in Kentucky, and my grass grew more than that. (I’m not mowing the yard in March, damn it.)
Then on Monday, Rocket took off like a … well, it took off like a rocket. RKT spiked more than 70% in just two days!
Was there a sudden surge in smartphone-initiated mortgages or loans? Nope.
Did Rocket inherit a fortune? Find buried pirate gold? Uncover the lost city of Atlantis? Nope, nope … aaaand nope.
The only real bit of news was Rocket’s rather impressive fourth-quarter earnings report on February 25 — which included a special dividend of $1.11 per share. Immediately following the report, RKT jumped more than 15% — basically what you’d expect from impressive post-IPO earnings these days.
But more than 70%. In two days? That’s meme stock territory.
And that’s exactly what happened. Short interest spiked in the wake of RKT’s post-earnings rally, according to S3 Analytics — about 47.9 million RKT shares, or 45.8% of the stock’s public float, to be precise.
Reddit investors noticed and went full GameStop (NYSE: GME) on Rocket. The rest, as they say, is history.
Many Wall Street talking heads are worried that meme stocks like Rocket or GameStop and the retail traders that chase them will break the market.
I guess Wall Street would know, considering it did the exact same thing on a much larger scale back in 2000 … and 2008. You can pretty much just list any correction in history, and you’ve got an example.
However, I highly doubt Reddit retail traders have that kind of power. Will they mess with a few stocks here and there? Sure.
But break the market? No way. What really concerns Wall Street is if Reddit’s retail traders break short selling.
As of right now, any heavily shorted stock is fair game for the GameStop/Rocket treatment. And why should anyone stop them? It’s a free market. Short sellers know what they’re getting into. Hedge funds are keenly aware of market risk, and if they aren’t, maybe they shouldn’t be hedge funds.
I realize I’m ranting at this point, so let me give you one piece of advice on the meme stock front: Don’t chase these stocks. Period. RKT is down nearly 20% from its post-squeeze high. GameStop is worth about a quarter of its recent peak.
If you happen to be in the trade before it moons, bully for you. If not … best to sit this one out. This goes for GME just as much as it goes for RKT.
And before you ask, trying to figure out the next meme stock before it’s a meme stock can be just as futile. Let’s simplify things, shall we? It turns out, all you need is one trade.
ONE trade, ONE ticker. ONCE a week.
Mike Carr has spent the last year designing the perfect strategy. (Hey, everyone spends lockdowns their own way, don’t judge.) But this is a strategy so simple, you can make the same trade on the same ticker symbol once a week and target potential gains of 100% or more each time.
The Good: Low Orbit Opportunity?
Regular Great Ones know that I’m not that big a fan of Virgin Galactic (NYSE: SPCE). I have my reasons, including the fact that Virgin’s rockets have trouble reaching the bare-minimum definition of “space.”
Still, the company is well-capitalized and will figure it out eventually. And then, space tourism will really be a thing.
My issue has always been SPCE’s valuation, and the past two months have taken quite the edge off that concern. SPCE is down more than 40% from its February highs and now trades for a more reasonable $34.
That valuation, however, is too low for Bank of America’s Ronald Epstein, who lifted his SPCE price target from $35 to $50. Still no word from Epstein’s mother, though. (Welcome Back Carter? Anyone? Anyone? Bueller?)
Do I believe that SPCE is worth $50? Maybe once it sorts its rockets out — test flight delays are killing investor sentiment on Virgin Galactic right now. It might even be worth more than $50 if the company can fully execute on its space tourism plan.
In other words, if you’re a Virgin bull, now is probably a good time to buy. As for me, I’m still in “wait and see” mode.
After all, there are much better space investments to be had right now. Click here to find out more!
Bad: Not So Spicy After All…
If you’ve lost touch with the frontlines, let me tell you, the chicken sandwich wars continue to rage.
Burger King, Shake Shack, Boston Market and the like have all entered the fray anew, with chicken sandwich launches comin’ out the wazoo. Center in the fight lie Popeye’s, Chick-fil-A and of course Wendy’s (Nasdaq: WEN).
Last month, Wendy’s launched a new Jalapeño Popper Sandwich, and as the chain’s head of marketing noted: “Consumers are looking for flavor, and unfortunately there’s boring and bland options out there from our competition.”
Well, excuuUUuse me with my mystery white-meat McChicken…
Wendy’s has hyped up its place as the supposed sultan of chicken sandwiches, but its spicy Twitter memes may just be dreams if its recent earnings are anything to go by.
Wendy’s walked away from the earnings confessional with a double miss. Per-share earnings only reached $0.17, missing estimates by a penny. Revenue totaled $474.3 million, whereas analysts expected an even $477 million.
Both earnings and revenue were up from last year, but just barely. Then again … who expects drive-thrus to really shine amid the pandemic? Even the Golden Arches saw earnings fall year over year in its report.
With much of the workforce remote, you don’t have nearly as many office workers stopping by Wendy’s or McDonald’s on the way home. You have fewer folks out and about stopping for quick bites. And who wants to leave home and go out to Wendy’s of all places when you can just get something delivered for like … twice the price?
WEN dropped 5% on the news today, yet the company still expects global growth between 6% and 8% for 2021, whereas analysts only expected 3.4% growth. It’s not the spiciest of surprises, but we’ll see if Wendy’s can pull through to the next earnings window.
The Ugly: FUBAR’d Fubo
I like streaming companies and streaming investments. If you read yesterday’s Great Stuff, you know that Roku (Nasdaq: ROKU) is my top pick in the sector. For streamers with actual content, Disney+ (NYSE: DIS) is the way to go.
But all of my favorite picks in the sector are missing one major element: live sports.
Fubo TV (NYSE: FUBO) really, really wants to be the company that fills that void. It has considerable potential in that regard, with live streaming sports already on the platform. However, last night’s quarterly report casts some serious doubts on Fubo’s execution as a streaming company.
There was really only one bright spot in Fubo’s fourth-quarter data dump: Subscribers rose 73% to 547,880 in 2020. It was an impressive gain for a little-known streamer, beating Wall Street’s expectations.
It’s all downhill from there, though. Fubo lost $2.47 per share versus expectations for a $0.73 loss. Revenue jumped a whopping 98% to $105.1 million and beat expectations … but there’s a problem here.
Typically, I see spending as a good thing for a growing company. You drop some cash, add subscribers, improve your business … in the end, it’s all good. Those missed earnings expectations turn out to be a boon for investors in the long run, especially if revenue is growing at a healthy clip.
There are some hitches in Fubo TV’s giddyap, however. The company expects first-quarter revenue of $101 million to $103 million, which is above Wall Street’s expectations. But, Fubo sees first-quarter subscribers in the 520,000 to 530,000 range. No, your eyes do not deceive you: 530,000 is less than 547,880.
In short, Fubo expects to lose subscribers this quarter. When you’re posting losses and not showing results, maybe you need to reconsider where you spend that cash. It raises concerns about Fubo’s leadership that I hope the company corrects going forward.
As the only investable live sports streamer, this is Fubo’s game to lose.
Everyone’s talking ‘bout meme stocks and dream stocks, these stocks and free stocks … but all Great Stuff is saying is: Give this poll a chance!
Anyway… We’ve talked up a number of meme stocks from GME to RKT in recent weeks — and we’ve recommended none of them officially for Great Stuff Picks, mind you.
Judging by your emails, I know more than a few of you got swept away with the hype … while an equal number joined us in bemoaning the death of valuation, fundamentals and any reason behind market movements.
So, I want to catch up with you and your personal trading style. Are you hellbent on a future where fundamentals actually mean something? Have you long given up on figuring out technical shmechnicals and just buy whatever hype Jim Cramer buys into?
Whatever thought process you go through when buying a stock, I want to hear about it in this week’s poll. So, click that icon below right now and let me know!
I know, I know … you’re a complex trader with a sophisticated multipronged approach or what have you, and none of the above answers quite scratched your strategic itch.
If you’ve more to say about why you buy the stocks you buy, by all means, lemme hear it!
GreatStuffToday@BanyanHill.com is the spot for all your trading thoughts. Send some Greatness our way, and you may just find your email featured in tomorrow’s edition of Reader Feedback!
Until next time, stay Great!
Editor, Great Stuff