13 Best Reddit Stocks to Buy Now

Published on April 29, 2024 at 3:25 pm by Fahad Saleem in Hedge Funds, News

In this article, we will take a detailed look at the 13 Best Reddit Stocks to Buy Now. For a quick overview of such stocks, read our article 5 Best Reddit Stocks to Buy Now.

Millions of young retail investors turn to Reddit every day to talk or learn about the stock market. Back in the pandemic days, the rise of zero-commission stock trading apps and excessive cash allowed Redditors to build a strong investing community which went on to spar with hedge funds over shorted stocks like GameStop and AMC. Those days marked a turning point in the retail investing landscape. Data shows that millions of young Americans today use social media for investing advice. A report by FINRA Investor Education Foundation says that about 60% of investors aged 18–34 take investing advice from social media.

Can Reddit Stock Picks Beat The Market?

But with the pandemic in rear view, Wall Street has an important question to answer: does following Reddit investing threads and investing in stocks bought by retail investors on the platform actually bring any profits? A research paper titled Financial Recommendations on Reddit, Stock Returns and Cumulative Prospect Theory analyzes Reddit’s stock picks to answer this question from various angles. The paper said that investing in stocks recommended on famous Reddit investing communities like WallStreetBets, Investing and Stocks creates a portfolio with “higher average returns at the expense of higher risks than the market for all holding periods, i.e., unfavorable Sharpe ratios.”

What Happened After the GME, AMC Short Squeeze Events?

An interesting research paper titled Place Your Bets? The Market Consequences of Investment Research on Reddit’s WallStreetbets analyzed the stock returns of Reddit’s WallStreetBets forum, which rose to fame following the GameStop saga. WallStreetBets users often write posts tagged “DD (Due Diligence).” These reports often analyze stocks in detail and conclude by giving a clear buy or sell signal. These are usually serious analysis-based posts, unlike meme-like, funny posts that are now ubiquitous on the platform. The research paper analyzed 5,015 DD reports and 13,255 non-research related WSB posts issued between July 2018 and June 2021. The results show that before the GME event, WSB stock recommendations resulted in stock gains. But after the GME and AMC events, these gains fell and the platform saw a clear tilt towards volatile stocks with high short interest.

“We find DD reports are significant predictors of future returns. For example, an incremental DD buy recommendation is associated with a 5.17% increase in one-month ahead returns for the full sample and a 2.33% increase after excluding GME and AMC.”

The report also said that the success of Redditors during their battle with hedge funds over GME and AMC attracted a lot of new users, who started focusing too much on factors not relevant to fundamentals, cash flow and valuations.

“We also document a positive relation in the pre-GME period between DD reports and future media sentiment, earnings surprises, and analyst earnings forecast revisions, which points to the possibility that at least a portion of the return predictability associated with DD reports in the pre-GME period is attributable to forecasting future cash-flow news. However, in the post-GME period, the positive relation between DD reports and cash-flow news is fully eliminated, and in some cases, it even becomes significantly negative.”

However, there has been a clear and noticeable change in Redditors’ stock preferences, especially on serious, analysis-focused subreddits like Investing, Stocks, etc. Redditors no longer emphasize on investing in meme stocks. Instead, they prefer high-quality stocks with growth fundamentals, low-risk index funds and mutual funds.

Methodology

For this article we scoured investing-related subreddits on Reddit and listed down all stocks that Redditors are bullish on. From these stocks we picked 13 companies with the highest number of hedge fund investors. Why do we pay attention to hedge fund sentiment? Insider Monkey’s monthly newsletter and portfolio that focuses on activist hedge funds, insider trading and stock picks from hedge fund investor newsletters and conferences returned 199.2% between March 2017 and March 12, 2024 and outperformed the S&P 500 ETFs’ 144.9% gain by more than 54 percentage points.

13. British American Tobacco PLC (NYSE:BTI)

Number of Hedge Fund Investors: 22

Redditors like British American Tobacco PLC (NYSE:BTI) because of its dividend, low valuation multiples and stability. British American Tobacco PLC (NYSE:BTI) recently increased its dividend by 6.1%

Recently, JPMorgan published its list of European dividend stocks which have sustainable dividend yields. British American Tobacco PLC (NYSE:BTI) made it to the list.

Broyhill Asset Management stated the following regarding British American Tobacco p.l.c. (NYSE:BTI) in its fourth quarter 2023 investor letter:

“The largest detractors to performance over the quarter were LatAm airports (ASR, OMAB, PAC), Bayer, and British American Tobacco p.l.c. (NYSE:BTI). After years investing across the tobacco sector, it became increasingly clear that owning anything other than the global leader – Philip Morris – made little sense. Consequently, we liquidated our investment in British American Tobacco after deciding that the (seemingly) cheap valuation wasn’t worth the mental anguish. In a hollow victory, shortly after our sale, management promptly wrote down the value of its US tobacco brands by $31.5 billion, sending shares cratering.”

12. SoFi Technologies Inc (NASDAQ:SOFI)

Number of Hedge Fund Investors: 29

SoFi Technologies Inc (NASDAQ:SOFI) is one of the all-time favorite stocks of Reddit. Redditors are bullish on SoFi Technologies Inc’s (NASDAQ:SOFI) revenue growth in the future.

11. Owens Corning (NYSE:OC)

Number of Hedge Fund Investors: 39

Composite materials company Owens Corning (NYSE:OC) ranks 11th in our list of the best Reddit stocks to buy now. Redditors like the stock because they believe it’s undervalued, has a solid and growing business.

As of the end of the fourth quarter of 2023, 39 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in Owens Corning (NYSE:OC).

10. Crocs Inc (NASDAQ:CROX)

Number of Hedge Fund Investors: 45

Crocs Inc (NASDAQ:CROX) is one of the best Reddit stocks to buy for 2024 and beyond. Redditors think Crocs Inc (NASDAQ:CROX) is undervalued and has strong operating margins. Retail investors on Reddit also said Crocs Inc’s (NASDAQ:CROX) growth in Asia looks strong and it’s still in infancy and growth mode.

As of the end of the fourth quarter of 2023, 45 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in Crocs Inc (NASDAQ:CROX).

Patient Capital Management stated the following regarding Crocs, Inc. (NASDAQ:CROX) in its fourth quarter 2023 investor letter:

“This quarter we entered four new positions, while exiting four positions. Our largest new position was Crocs, Inc. (NASDAQ:CROX). Crocs is a well-known consumer brand in the footwear industry. Despite continual calls over the years as a fad, Crocs has shown impressive growth and staying power. Since 2017 the company has increased sales at a 20%compound annual growth rate (CAGR) while maintaining industry leading operating margins of 27%. The stock sold off recently as the HEYDUDE brand it purchased in 2022 faced challenges. A combination of market oversaturation, and still limited brand awareness has made HEYDUDE a drag on the overall business. This is more than priced in at current levels with the stock trading at a P/E of 8.5x below peers at 14.3x and their historical average of 15x since 2019. The company is making progress on fixing HEYDUDE with growth expected to return in the 2H24. Overall, we view the child piece of the core Crocs product as a consumer staple and believe people are underappreciating its staying power as well as the ongoing improvements in the HEYDUDE brand. We believe you can buy a high-quality company, at a low multiple, with top FCF yield (13%) that is committed to both debt paydown and buybacks.”

9. Costco Wholesale Corporation (NASDAQ:COST)

Number of Hedge Fund Investors: 57

Costco Wholesale Corporation (NASDAQ:COST) is one of the top stocks Redditors are recommending to buy in 2024. Some of the reasons why Redditors love Costco Wholesale Corporation (NASDAQ:COST) include dividends and solid business that remains resilient despite the broader market volatility. While discussing Costco Wholesale Corporation (NASDAQ:COST) stock in the subreddit “Stocks” a Redditor explained why he likes Costco Wholesale Corporation (NASDAQ:COST):

“Quality business. Subscription service. Huge revenue. Can turn up their prices without losing any customers probably. Good business model. Happy workers. Happy customers. Room for growth in other countries. Price to free cash flow is around 30. Not cheap, not super expensive. Don’t look at PE alone.”

Hedge funds agree with Redditors. As of the end of the fourth quarter of 2023, 57 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in Costco Wholesale Corporation (NASDAQ:COST). The biggest stakeholder of Costco Wholesale Corporation (NASDAQ:COST) was Ken Fisher’s Fisher Asset Management which owns a $1.8 billion stake in Costco Wholesale Corporation (NASDAQ:COST).

Madison Sustainable Equity Fund stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its fourth quarter 2023 investor letter:

“Costco Wholesale Corporation (NASDAQ:COST) reported solid holiday results and announced a special dividend of $15 per share. Earnings were better than expected driven by better gross margin. Same store sales were 3.9% with solid traffic. Costco also noted better discretionary trends and solid seasonal sales.”

8. Pfizer Inc (NYSE:PFE)

Number of Hedge Fund Investors: 79

Redditors think Pfizer Inc (NYSE:PFE) has not been getting much love lately because the market seems to think Pfizer Inc (NYSE:PFE) might never be able to gain back its glory days of the pandemic. But retail investors on Reddit think Pfizer Inc (NYSE:PFE) has long-term growth catalysts and the future outlook for Pfizer Inc (NYSE:PFE) looks strong. On a latest discussion thread, a Redditor commented about Pfizer Inc (NYSE:PFE):

“It’s almost entirely because their covid drug revenue is going down faster than people anticipated. The thing is, their stock price has gone down so much that it makes no sense. Their 2024 and 2025 estimates all look quite good. That’s why I’m buying more during this dip.”

Diamond Hill Large Cap Strategy stated the following regarding Pfizer Inc. (NYSE:PFE) in its fourth quarter 2023 investor letter:

“Among our bottom contributors in Q4 were BorgWarner and Pfizer Inc. (NYSE:PFE). Biopharmaceutical company Pfizer was pressured as COVID sales were slower than expected in Q4. However, outside COVID-related sales, the base business is performing as expected, and the company is starting a cost-cutting program that should restore margins to pre-pandemic levels. We continue to like Pfizer for its diversified business, strong cash flow generation capabilities and balance sheet, and solid leadership under a quality CEO.”

7. Intel Corp (NASDAQ:INTC)

Number of Hedge Fund Investors: 86

Contracts from the US government, new fabrication plants in Ohio, Germany and Israel, partnership with ARM and AI are some of the top reasons why Redditors love Intel Corp (NASDAQ:INTC).

Here is an interesting comment on Reddit that sums up long-term thesis on Intel Corp (NASDAQ:INTC):

“I think the thesis on Intel hasn’t changed since 2022. The “catalyst” will be when/if they successfully launch intel 3, 20A, and 18A and if they land some big foundry customers. That will send them back above 60

This isn’t a one day, one quarter, or even one year play. It’s a 2-3 year play, minimum. My horizon on intel is through 2030.”

Upslope Capital Management stated the following regarding Intel Corporation (NASDAQ:INTC) in its fourth quarter 2023 investor letter:

“Intel Corporation (NASDAQ:INTC) – New Long: This is not a traditional long for Upslope in any sense. Intel is outside of the box in terms of typical sector and market cap focus, and the position is really a portfolio hedge (and structured as such). The thesis is very simple: Intel is uniquely positioned to benefit in two important scenarios, both of which require “protection” for Upslope’s portfolio: a continued melt-up in technology stocks and/or rising tensions over Taiwan. Combined with expectations and sentiment around Intel that were incredibly low, this nudged me to add exposure via long-dated INTC call options. While still material in terms of delta-adjusted exposure, the position has been reduced repeatedly and is much more modest today.”

6. Paypal Holdings Inc (NASDAQ:PYPL)

Number of Hedge Fund Investors: 87

While there’s no shortage of Redditors skeptical of Paypal Holdings Inc (NASDAQ:PYPL), an overwhelming number of retail investors on the social media platform believe Paypal Holdings Inc (NASDAQ:PYPL) shares will gain value in the future. Many investors on Reddit think Paypal Holdings Inc (NASDAQ:PYPL) is going through a transition and Paypal Holdings Inc (NASDAQ:PYPL) would come back to normal in the months to come.

Hedge funds are also bullish on the stock. As of the end of the fourth quarter of 2023, 87 hedge funds in Insider Monkey’s database had stakes in Paypal Holdings Inc (NASDAQ:PYPL), up from 78 funds in the previous quarter.

Wedgewood Partners stated the following regarding PayPal Holdings, Inc. (NASDAQ:PYPL) in its fourth quarter 2023 investor letter:

“PayPal Holdings, Inc. (NASDAQ:PYPL) also contributed less to portfolio performance than most holdings during the fourth quarter. The total payment volume handled by PayPal during its most recent quarter grew +15%, which helped drive healthy revenue growth and +20% earnings per share growth. Critically, the Company’s new management team has significant opportunity to drive more revenue and earnings growth across the massive, multi-trillion-dollar payments addressable market. PayPal’s rapidly growing payment processing brand, Braintree, represents one of those revenue growth opportunities, either by raising prices, as the Company had previously used a low-price strategy to establish a beachhead in this market, or by adding value-added services. PayPal’s branded checkout remains the largest volume and profit driver for the business, and we expect this to continue to track in-line with e-commerce growth in the near term, and eventually take share as the Company rolls out new features to its over +400 million users and +30 million merchants. We added to our position with the stock trading at just 10X forward earnings estimates during the quarter because there are many more long-term growth opportunities relative to most financial companies that trade for similar multiples and compared to technology companies that trade for much higher multiples.”

Click to continue reading and see the 5 Best Reddit Stocks to Buy Now.

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Disclosure. None. 13 Best Reddit Stocks to Buy Now was initially published on Insider Monkey.

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AI Fire Sale: Insider Monkey’s #1 AI Stock Pick Is On A Steep Discount

Published on June 30, 2024 at by Inan Dogan, PhD

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A New Dawn is Coming to U.S. Stocks

Published on May 2, 2024 at by Insider Monkey Staff

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Click to continue reading…

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