Though the bull market peaked last year, meme stocks are still a hot topic in the investing community. Meme stocks are companies that garner a lot of interest from retail investors; they can be volatile and make dramatic moves up or down for shadowy reasons that don't seem connected to any news. Some of the hottest meme stocks, like AMC Entertainment, have eventually lost steam and seen their prices fall heavily, but that doesn't mean all meme stocks are doomed to the same fate.
The internet gives retail investors a collective platform to research, analyze, and discuss investing in a way that was never possible before. Sure, the masses might make a bad call now and then, but there are undoubtedly some crowd-sourced winners. Here are three meme stocks that have the potential for market-beating returns moving forward.
1. Tesla
Electric vehicle company Tesla (TSLA 0.66%) is arguably the king of the meme stocks, thanks mainly to CEO Elon Musk's social media presence. Tesla is one of the most discussed stocks on Reddit, but the business itself is no joke. Tesla brought electric vehicles into the mainstream, and competitors are now playing catch-up -- especially in the U.S., where Tesla has a dominant market share.
The automotive industry is really challenging and competitive. Ironically, Tesla is better financially positioned than arguably any of its competitors despite being one of the newest entrants to the field. The company is generating billions in free cash flow, and it also has $18.7 billion in net cash on its balance sheet, meaning there is effectively no debt on the books.
TSLA Revenue (TTM) data by YCharts
Elon Musk continues to post big goals for Tesla, remarking that it could eventually be worth more than Apple and Saudi Aramco combined. Electric vehicles are still new, and Tesla has a pipeline of future products, including the Cybertruck pickup, Semi semi tractor-trailer, and Optimus humanoid robot. Remember, that's still not factoring in future growth in autonomous driving and green energy. Tesla has many growth levers it can pull and that should power healthy investment returns moving forward.
2. Palantir Technologies
Software services company Palantir Technologies (PLTR 3.46%) is one of Wall Street's most divisive stocks, which might be why retail investors gravitate to it so much. Big banks and hedge funds typically own most of a company's shares, but they're the minority in Palantir, with just 40% ownership. The company's tight relationship with the U.S. government creates both opportunities and questions since it's not very transparent.
Just like Tesla before it, Palantir is very strong financially. The company generates positive free cash flow and carries $2.4 billion in cash against zero debt on its balance sheet. The company has a reputation for sizable stock-based compensation, a non-cash expense that kept Palantir's net income negative since it went public. Investors should look for stock-based payments to shrink as revenue grows moving forward.
PLTR Revenue (TTM) data by YCharts
Palantir's business should have plenty of room to grow in the years ahead; it makes complicated software solutions to help solve complex problems throughout the government. However, it's gaining traction in the private sector, where the long-term growth opportunity is. Palantir still has just 304 customers, so there's plenty of room for expansion both in domestic markets and abroad.
3. Meta Platforms
Social media conglomerate Meta Platforms (META 2.33%) wasn't always a meme stock. Still, CEO Mark Zuckerberg's fame and metaverse ambitions combined with a falling share price have made the stock a hot topic. Despite the stock dropping 76% from its high, it doesn't look like the sky's falling. The company's family of apps, which includes Facebook, Instagram, and WhatsApp, has a combined 3.71 billion monthly active users.
This year wasn't kind to Meta. The company's spending billions on Reality Labs (its metaverse business), and Apple's iOS privacy changes and economic concerns are hurting Meta's bread-and-butter advertising business at the same time. But Meta is a cash cow despite this cocktail of problems. It's converting $0.22 of every revenue dollar into cash profits and has nearly $32 billion in net cash. Just imagine if Meta weren't dealing with these headaches.
META Revenue (TTM) data by YCharts
Wall Street's poor sentiment toward Meta indicates that investors are skeptical of Meta's metaverse goals. But did anyone ever stop to think about the upside if Mark Zuckerberg is right about Reality Labs? Meta's investing more than anyone into the metaverse and could reap most of the reward if things work out. It's not like Reality Labs is bankrupting the company; you can see above that Meta is still financially built like a brick house. The stock seems to have more upside than downside at its current multi-year lows -- shares trade at a price-to-earnings ratio (P/E) of 8.6, its lowest ever.
