Meme stocks, popular with retail investors, can be good long-term investments if you ignore the hype around companies and look at their financials and long-term business prospects. There are a lot of definitions for meme stocks, but for me, they represent stocks that have outsize chatter around them.
That leaves out some retail investor favorites that would always be talked about, such as Coca-Cola (KO +0.34%), Apple (AAPL 2.15%), or U.S. Steel (X +0.00%), because they are household names.
Healthcare Realty Trust (HR 1.51%), Wingstop (WING +5.43%), and Gen Digital (GEN 1.48%) are all among the 15 most-talked-about stocks on Reddit's Wall Street Bets forum and can back up that buzz with good long-term possibilities. Two of the three also offer dividends that are better than the S&P 500 average of 1.82%.
1. Healthcare Realty Trust: Wait for it
Healthcare Realty Trust made a big move this year, merging with Healthcare Trust of America in July to form the largest medical office real estate investment trust (REIT) with 728 properties comprising 42.6 million square feet of space across 35 states.
NYSE: HR
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The combined company should benefit from increased access to capital, certain synergistic cost savings, and greater holdings diversity among its outpatient facilities and physician groups. However, in the short term, the merger has also incurred the typical costs connected with such a merger. This temporary cost, along with cutbacks in healthcare spending among some hospitals that have meant less expansion and higher borrowing costs due to higher interest rates, likely led the company's shares to drop more than 35% so far this year.
Healthcare Realty said it saw $16.4 million in general and administrative (G&A) savings through cost synergies in the third quarter. It expects that number to grow to at least $33 million in annual G&A cost savings. In the meantime, the company is profitable. In the third quarter, it reported roughly $151 million in normalized funds from operations (NFFO), down 10% from the prior quarter.
It may take a while for the company to see the cost savings it expects, but patient investors can get in while the stock is relatively inexpensive and, in the meantime, benefit from a quarterly dividend of $0.31 per share, which equals a yield of around 6.3%. It raised the dividend by 2% this year. The company's NFFO payout ratio is 79.4%, safe enough for a REIT to leave room for continued increases.
NASDAQ: WING
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2. Wingstop: Stock should fly high
Sometimes, retail investors hit the mark when they bet on a company they feel has a good product. That's the likely reason for Wingstop's popularity. The chain had, as of the third quarter, 1,898 restaurant franchises that specialize in boneless chicken wings. Most impressively, the company is on schedule for 19 consecutive years of same-store revenue growth. In the third quarter, the company reported revenue of $92.7 million, up 40.8% year over year.
Wingstop also offers a quarterly dividend, which it raised by 12% this year to $0.19 per share. It offers a yield of around 0.48% and a payout ratio of only 42%. It has raised its dividend every year since it instituted one in 2016, and it has delivered a special dividend five times since it went public in 2015.
Despite solid financials, the company's stock is down more than 9% this year. Valued at 14 times forward earnings, the stock isn't inexpensive, but it makes long-term sense to invest in a company that has grown annual revenue by 111.9% over the past five years and EPS by 73.17% in that same time frame.
While labor issues have impacted restaurants across the country, much of Wingstop's revenue comes from its royalty fees regarding its franchises. Though you can eat at a Wingstop restaurant, most of the fast-casual chain's customers do takeout and that means less square space for its stores and fewer employees are needed. It also has grown digital revenue from 25% of sales just four years ago to 60.2% of sales. With sales growth forecasts of 18% for next year, investors could see more returns to come.
3. Gen Digital: New name, expanding company
Gen Digital may be an unfamiliar name, but it really is just the latest iteration of web security company Norton Lifelock and combines the web security brands of Norton, Avast, LifeLock, Avira, AVG, ReputationDefender, and CCleaner. It began trading under the ticker GEN just last month after its merger with Avast was approved. The company's fiscal year 2023 second quarter, which ended Sept. 30, is the company's first under its new name. It reported revenue of $748 million, up 8%, year over year, with EPS of $0.12, down from $0.56 from the same period a year ago, as it is still dealing with the costs of the merger.
NASDAQ: GEN
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The company's shares are down more than 11% this year. Once the company begins to realize cost synergies and a full quarter with Avast's revenue, it said it expects third-quarter revenue to be in the range of $925 million to $940 million and EPS to be between $0.42 and $0.45. It is on track for its fourth consecutive year of increased annual revenue. Analysts expect Gen Digital's earnings will grow 13.5% annually for the next five years.
Further, Gen Digital's business has a built-in accelerator as more people do their shopping digitally. In a survey commissioned by Norton, 36% of Americans say they fell victim to a scam while holiday shopping, showing an increased need for Gen Digital's products.
Beyond that growth potential, its current dividend is $0.125 per share (2.2% yield) with a low payout ratio of 27.20, which is relatively safe.
