It doesn't take an investor long to learn that successful investing is a lot more than a popularity contest. Blindly following the herd and buying shares of frequently discussed stocks is a surefire way to rack up big losses.
But that doesn't mean that all popular stocks are poor investments. While many "meme stocks" that are the subject of hot chatter on social media sites represent extremely risky propositions, others are valid choices for patient investors. So while Rivian Automotive (RIVN 7.03%), the ARK Innovation ETF (ARKK 3.22%), and IBM (IBM 0.98%) have achieved meme status based on how many people are talking about them, they're also viable options with ample long-term potential.
1. Rivian
Few industries charge up investors' excitement as much as electric vehicles (EVs). The number of EVs on American roadways has soared recently, mainly due to Tesla. With shares of Tesla soaring more than 4,000% over the past decade, many have searched for the next EV stock that can deliver similar returns. And they've found that potential in Rivian, a manufacturer of electric pickup trucks.
NASDAQ: RIVN
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Rivian has been moving in the right direction with its first production vehicle, the R1T. Consumer Reports called it "the most cutting-edge pickup truck the industry has seen in a very long time, with a shockingly wide repertory of capabilities." Legacy and upstart EV automakers are racing to provide vehicles to drivers, and Rivian's ability to distinguish itself bodes well for the company's prospects.
Driving hard toward ramping up production with a new factory in Georgia, Rivian forecasts producing 200,000 units of the new R2 at the plant in 2026 -- half of the overall capacity of 400,000 units per year. For context, Rivian produced about 25,000 vehicles in 2022.
Rivian has generated lots of talk and it's worth a look.
2. IBM
IBM is another name circulating on social media. Interest in artificial intelligence (AI) has soared recently with interest in ChatGPT leading investors to search for ways to gain exposure. There's no available ChatGPT stock, but there are other approaches to AI -- like IBM.
Thanks to IBM's innovation with Watson, a cutting-edge AI platform, many investors recognize the company as an ideal AI choice. Watson-based solutions are used by a variety of industries including healthcare, the financial sector, and travel. According to the company, 70% of global banks use it.
NYSE: IBM
Key Data Points
Far from the company of your grandparents' youth, IBM says that its portfolio is built around the hybrid cloud and AI, "the two most transformational technologies of our time." Management's strategy of transitioning the focus to these two areas is paying off. In 2022, the company reported free cash flow of $9.3 billion and is positioned well for continued success.
The company is also expanding its AI offerings to attract more customers. In 2022, for example, the company acquired Envizi. Pairing its AI solutions with Envizi's software, IBM is able to offer customers more complete management solutions regarding assets and supply chains. By acquiring software companies to enhance its leading AI offerings, IBM will be able to continually expand its AI portfolio, positioning it well to grab a greater slice of the massive market opportunity. In its 2022 annual report, IBM estimated that "AI is expected to unlock $16 trillion in value from the global economy by 2030."
Investors have a great opportunity to pick up shares of IBM now while they're in the bargain bin. Since the start of 2023, shares have dipped more than 10%, underperforming the S&P 500, which has climbed more than 6%.
3. ARK Innovation ETF
For a more conservative approach to meme stocks, there's the ARK Innovation ETF, which owns shares of about 30 companies. According to wsbdaily.com, a website that tracks stocks discussed in online investing communities, the ETF was one of the most frequently referenced stocks on Reddit's Wall Street Bets board as recently as late April.
NYSEMKT: ARKK
Key Data Points
One of Cathie Wood's most popular funds, the ARK Innovation ETF provides exposure to various disruptive companies. And where there's disruptive innovation, there's a strong chance that investors will find successful stocks.
The ETF counts some of the most innovative companies among its holdings. At a 9.7% weighting, Tesla is the largest holding in the exchange-trade fund, while Roku is the second largest at 7.7%.
It's not just EV stocks and streaming platforms that figure prominently. As of March 31, cloud computing represented the largest technology in the ETF, followed by digital media and e-commerce as the second and third largest.
While the ETF has the potential to provide outsize returns, investors must have the resolve to withstand near-term volatility. With the fear of a recession looming, many investors have broadly eschewed growth stocks and sought to fortify their portfolios with more conservative investments -- a dynamic that doesn't bode well for an ETF replete with more speculative holdings. The ETF, consequently, has take a bit of a downturn over the past year. Nonetheless, over the long term, the ARK Innovation ETF provides patient investors the chance to reap handsome rewards from the innovative companies it owns shares of.
Should these stocks make their way into your portfolio?
For those with an ample tolerance for risk, Rivian warrants strong consideration. It may be on a bumpy road (and the stock might break down completely), but there's considerable reward potential should enough drivers choose to park Rivian's pickups in their garages.
Those with a more conservative bent will want to pay closer attention to IBM, a popular blue chip stock, and the ARK Innovation ETF, which offers broad exposure to a wide range of disruptive companies.
