Here’s my Reddit stock watchlist as a long-term investor

The popularity of Reddit stocks has introduced a new generation of investors to the stock market. The largest subreddit with an investing focus, Wall Street Bets, has accumulated 10.9m member so far.

With its focus on short-term, and highly risky strategies, many Redditors have made themselves small fortunes. But for every Reddit winner, I suspect that there are many more losers. In the aftermath of the GameStop debacle earlier this year, the media was awash with stories of people who had sustained big losses. 

I subscribe to The Motley Fool style of investing — buying and holding for the long term — and I think some Reddit stocks have great fundamentals. So for the purposes of this rundown, I’m ignoring any social media hype. Instead, I’m asking myself a single question: on fundamentals alone, would I buy any Reddit stocks and hold them for the next five years and beyond?

The Reddit stocks I’d buy

The start of this list may surprise some readers. Alphabet (Google), Apple, and Amazon all regularly feature on Wall Street Bets. I’ve written about the merits of all three recently. Alphabet is the market leader for internet search. And in its recent Q2 earnings, it reported $61.9bn in revenue, 62% higher than in Q2 2020. A combination of its advertising business, YouTube and cloud services saw its profits double compared to a year ago. It’s a strong buy for me.

Apple is the most valuable company in the world with a market cap in excess of $2.3trn. And the launch of its new flagship iPhone 13 Pro could send profits soaring further. Meanwhile, Amazon is the biggest e-commerce company in the world. And at $3,355 today, its share price has fallen 10% since July. I think that makes it a good time for me to buy the dip. However, all three stocks depend on high consumer confidence, so are susceptible to a market crash.

Redditors also back the two biggest cinema chains in the world, AMC and Cineworld. A month ago, I was sceptical about both stocks. But the majority of adults are now vaccinated across the US, UK and Europe. And with the Delta variant seemingly under control (if still a worry), I’m less concerned about more lockdowns and further cinema closures. And I think many consumers will be tempted by the rapid release of many blockbuster films that were delayed by the pandemic. 

They both have substantial debt though, as well as a battle against streamers like Netflix and Disney for their customer’s disposable income.

Other stocks on my watchlist

UWM Holdings is the largest wholesale mortgage lender in the US, which just had “its best quarter of all-time.” It reported loan originations of $59.2bn, a 90% increase compared to Q2 2020. Of course, an interest rate rise would hit the company hard. But at $6.80 a share right now, it’s lost half its value since last year. And for a growth stock with strong fundamentals, that’s an attractive buy-in point for me.

Then there’s SoFi, the US based online personal finance provider that specialises in refinancing loan products. I think its prospects look good, especially as US graduates now owe $1.6trn. Its share price has been volatile, but the company mission of helping customers reach financial independence is striking the right chord. Of course, there’s nothing to stop its competition from entering the student loan market.

And I’m also keeping a close eye on Blackberry and Nokia. The former is a market leader in cybersecurity, Internet of Things connectivity, and driverless car software. Meanwhile, Nokia is taking over an increasing number of European 5G infrastructure contracts previously held by Huawei. While I already hold Blackberry stock, I’m expecting both share prices to fall once the Reddit crowd moves on to their next target. At that point, I think I’ll be increasing my position.

The Reddit stocks with too much competition

There are other Reddit stocks I won’t be buying. I could  be wrong about them all, of course and they could have golden futures.

Robinhood is a popular ‘free’ trading app. It had a rocky IPO back in July, and I think its fundamentals are on thin ice. That’s because it derives 80% of its revenue from payment-for-order-flow (PFOF). It’s a controversial practice banned in the UK because it creates a conflict of interest that often harms consumers financially. And there’s a real possibility that US regulators will also ban PFOF, which would crash the Robinhood share price. The other popular Reddit FinTech stock, Wise, is also too risky for me. Wise has become popular for its low-fee money transfers. But market giant PayPal could steal its market share by matching its fees. And it could do this at any time.

Microvision is popular for its laser scanning technology which it claims will be the best on market when adapted for driverless cars. If the technology lives up to this promise, the stock could be very valuable. But I think fully driverless cars are some way off. And between now and then, I think Microvision will be checked by larger competition.

A larger competitor is the problem for ContextLogic (Wish). At only $6, down from a high of $32 in February, its share price is in trouble from falling revenue. It also reported fewer customers signing up to its app in its latest update. I worry about its survival chances in the e-commerce space when the competition is Amazon.

And those with profitability issues

Then there’s Virgin Galactic, which made headlines recently for its first successful space mission. I don’t doubt that the company has the technology to start space tourism, but most analysts agree that it’ll struggle to maintain profitability for now. And with the likes of Tesla fighting for limited market share, I’m staying away. 

And Clover Health is a Medicare Advantage health insurance company. While I generally like insurance companies, I’m giving this one a miss. Its revenue model depends on Medicare continuing in its current form. There’s been multiple legal attempts to scrap it, and I think that long term there’s a fair chance Medicare will be reformed. That makes it too high-risk for me.

Finally, there’s GameStop. In Q2, it brought in $1.18bn in revenue, beating analyst expectations. And because of share sales earlier this year, it ended the quarter with no debt and a cash balance of $1.78bn. But since 2018, it’s shut over 1,000 stores, and reported losses of over $1bn. There could be a turnaround story from its activist Chairman, Ryan Cohen. But at $192, its price is too high for me to justify the risks.