Thus far, 2021 has been the year of the meme stock. Retail investors have used their collective might to help power incredible gains for struggling companies including AMC Entertainment Holdings and GameStop, and some people who nabbed these unlikely winners at the right times enjoyed life-changing gains.
Investing in meme stocks is risky business, but we probably haven't seen the last of this year's explosive underdog success stories -- and it may be worth considering if approached with the right expectations. With that in mind, three Motley Fool contributors have identified a trio of companies that could beat the odds and deliver incredible performances. Read on to see why they think these meme stocks could deliver huge returns for your portfolio.
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Sprott Physical Silver Trust
Keith Noonan: Sprott Physical Silver Trust (PSLV +4.87%) is a fund that holds physical silver that's deliverable to stakeholders, and it has an outside shot of tapping into the meme magic that's powered some this year's biggest winners.
It might sound strange to think of a fund that holds silver as an explosive meme-stock candidate. Silver is often viewed as a somewhat boring investment vehicle, valued for its potential defensive characteristics in the event of a stock market or economic crash but probably unlikely to make you rich anytime soon. However, there's a short-squeeze style thesis that posits that the price of silver could rise dramatically in the not-too-distant future, and it may not be as crazy as it sounds.
The silver squeeze thesis holds that silver prices are kept artificially low through the trading of a derivative referred to as "paper silver." The amount of paper silver trading far exceeds the amount of physical silver that could be delivered at any one time, and traders can use these derivatives to take short positions against silver. Those with short positions could be forced to cover if silver prices begin to rise quickly, leading to further pricing gains.
As with the popular WallStreetBets forum on Reddit that's been credited with powering the rise of many meme stocks, silver enthusiasts have their own gathering spot on the popular discussion site -- appropriately dubbed "WallStreetSilver." With significant inflation concerns still looming, prices for many commodities rising dramatically, and a coordinated group of silver enthusiasts that continues to attract new members, it's within the realm of possibility that silver will see strong performance over the next year and beyond.
Am I all-in on the silver squeeze thesis? No, not really. The conditions and mechanics involved make it unlikely. But it's been a year that's seen the implausible become reality on many investing fronts, and crazier things have happened. I purchased shares of PSLV for my retirement account last month. If the silver squeeze never materializes, oh well. It's far from the worst thing to have some precious metals exposure in that account. If the squeeze does hit, however, maybe I'll wind up retiring sooner than expected.
BlackBerry
Jamal Carnette: Unlike other meme stocks, BlackBerry (BB 2.62%) has a viable turnaround plan. CEO John Chen has moved past the smartphone focus and pivoted the company to enterprise cybersecurity and vehicle applications. While this transition has been mostly lost on Wall Street analysts and retail investors, the intrepid investors on Reddit better understand the turnaround story.
Admittedly, business model transitions are difficult, but if anyone can pull it off it's Chen. The BlackBerry executive cemented his reputation as a turnaround specialist with Sybase, talking the company from the brink of failure to lucrative acquisition for German software giant SAP.
Chen's plans are to leverage BlackBerry's reputation for privacy and encryption into a broader suite of cybersecurity software and services rebranded as Spark. Recent ransomware hacks like the Colonial Pipeline have attracted attention from the White House. Increased spending should allow Spark to improve its fortunes even without being a market leader in this industry.
Meme-stock traders appear more interested in Chen's automobile efforts, for good reason. Earlier this year, the Big Three automakers all warned a chip shortage was threatening vehicle production. This makes sense when you consider cars are now mobile computing devices full of driver assistance and mobile entertainment systems.
That's BlackBerry's opportunity: Its QNX operating software is embedded in 175 million vehicles and that's likely only going to increase as self-driving technology moves into the mainstream. However, Chen isn't waiting for that day and has been aggressive in signing new deals to shape the nascent industry like the recently announced partnership with Amazon AWS dubbed IVY.
Finally, investors need not worry about excessive share issuance that waters down their stake while benefiting short-sellers. Chen's compensation is heavily tied to the price of the underlying stock and if BlackBerry shares exceed $30 before Nov. 3, 2023, he's in line for a $90 million bonus.
Although there are legitimate reasons share price triggers aren't ideal for executive compensation -- BlackBerry being a cautionary tale as the turnaround has yet to take hold despite the stock price exploding -- it does provide a powerful disincentive against AMC-like share issuance that hurts short-term momentum. The kids on Reddit are onto something with an investment in BlackBerry.
Palantir Technologies
Joe Tenebruso: Not all meme stocks are destined to disappoint investors. Palantir Technologies (PLTR 3.05%) is one of the most popular stocks on Reddit and for good reason. The data analytics specialist has a promising future -- one that could allow it to deliver fortune-building returns to investors who buy shares today.
Palantir helps organizations integrate, manage, secure, and analyze their enterprise data. It's perhaps best known for its counter-terrorism tools that were reportedly used by the U.S. government in the hunt for Osama bin Laden. But Palantir's AI-powered data mining solutions have applications in a wide variety of fields including clinical research, logistics, and energy management, among many others.
Palantir's revenue surged 47% year over year to $1.1 billion in 2020. The impressive growth was driven not only by new customer additions, but also by Palantir's existing client base finding new uses for its data tools. Its average revenue per customer came in at $7.9 million last year, a 41% increase from 2019.
Although Palantir is not yet profitable, it did generate positive operating cash flow of $117 million in the first quarter of 2021. Looking ahead, management expects Palantir to grow revenue by at least 30% and produce $150 million in adjusted free cash flow this year.
Harvesting actionable insights from disparate data sources should become only more important for businesses and government agencies in the coming years. Palantir stands ready to provide these increasingly vital services -- and to deliver handsome returns to its shareholders along the way.
