Are you content to own stocks that hammer out slow and steady progress? Or do you prefer taking a swing on story stocks creating a buzz? If it's the latter, there's a good chance you've checked out popular internet bulletin board Reddit in search of investment ideas ... or at least stumbled across a stock being fervently discussed by select users on the website.
If such a search isn't your thing, though -- but high-risk, high-reward trading is -- here's a rundown of three buy-worthy stocks that are currently being heavily discussed on Reddit.
Image source: Getty Images.
1. DraftKings
DraftKings (DKNG 2.79%) is the prototypical discussion board stock in that the small company is growing revenue like wildfire, yet remains deep in the red. Such stocks are usually built around an idea that's marketable enough (fantasy sports and sports betting, in this case). But, given the possibility that the company may never actually turn a profit, interested parties turn to the internet to make the bullish case that most of Wall Street won't.
The thing is, most of Wall Street as well as most of Main Street may be underestimating this company's ultimate potential.
Sports betting is estimated to be a business worth anywhere from $150 billion to $200 billion per year, depending on which analysis you read. It's only worth about $2 billion in the United States, according to Gabelli Securities, which is DraftKings' core market. Gabelli believes the U.S. market will swell to more than $10 billion by 2028, though, as more states legalize app-based betting on sports.
DraftKings is certainly savvy when it comes to positioning itself to win at least its fair share of that growing business, too. For example, certain customers of DISH Network's SlingTV are able to access DraftKings' betting app directly from the streaming television service's interface.
And that's just one way the company is connecting with an increasing number of consumers. It's going to take some time (measured in years) for DraftKings to reach critical mass, but the market could readily reward progress made along the way by continuing to pump up the stock's price.
2. Walt Disney
Whereas DraftKings is a name one could reasonably expect to be a hot topic at Reddit, blue-chip company Walt Disney (DIS 0.82%) isn't. Yet, there it is. Disney is one of the website's most talked-about tickers of the past few days.
That's probably got a lot to do with the media giant's recent earnings report, which was anything but thrilling. The company fell short of analysts' sales and earnings, but worse than that, Disney+ subscriber growth slowed to a crawl. The flagship streaming service now boasts 118.1 million subscribers, up only 2.1 million from the previous quarter's headcount, versus expectations for the addition of about 10 million paying customers. For a company that just a little over a year ago prioritized streaming above all of its other entertainment efforts, it's an alarming shortfall. That's why Disney share prices have fallen more than 11% since the company posted the numbers just a little over a week ago.
The sharp selling, however, may also be too shortsighted.
While it may well take Walt Disney longer than its initial 2024 target to amass at least 230 million paying members, that's hardly a foregone conclusion. The company also announced a little less than a year ago it was planning 10 new Star Wars and 10 Marvel-branded series to be offered via Disney+. As this programming makes its way to the platform, so too should new viewers. This month's stumble just makes the stock a better buy.
Image source: Getty Images.
3. Big 5 Sporting Goods
Finally, add Big 5 Sporting Goods (BGFV -2.51%) to your list of stocks the Reddit crowd is buzzing about that you might actually want to buy.
As the name suggests, Big 5 is a sporting goods retailer. The pandemic actually gave the company something of a boost, with last year's sales slightly edging out 2019's top line as consumers clamored for things to do outdoors, away from crowds. Indeed, things were so solid for the retailer last year that this year's sales are no longer quite keeping up with last year's revenue. Third-quarter revenue, for instance, was actually down 5% year over year despite the return toward normalization. Look for more of the same, too. Analysts expect revenue to slide to the tune of 3% next year, prompting a 27% setback in per-share earnings. Given this headwind, it's not surprising that any of this year's accelerated rally efforts have petered out and unwound pretty quickly.
Still, this is a name worth a speculative shot for one overarching reason -- it's a short-squeeze candidate. As of the latest look, a little more than 39% of the stock's float is currently held as a short position, which is an enormous proportion.
See, these short trades can only be closed out by buying the stock back to cover these short positions. It's just a matter of when and at what price. Investors may be digitally congregating at Reddit to coordinate an effort to start a rally that scares all of these short-sellers into a sudden surge in buying that then becomes a self-fueling advance.
It's certainly not a long-term reason to own a stock. The fact that we've seen Big 5 shares log three outsized (albeit short-lived) surges just since May, however, suggests traders intend to keep working toward a more prolonged short-squeeze rally.
