If we’ve learned anything over the past six months, it’s that “doing as Reddit says” has become a much-followed investing strategies. The 10 million members of Reddit’s r/WallStreetBets community continue to challenge conventional investing wisdom and have burgeoning brokerage account balances to show for it. Even the most strident critics now pay attention to Reddit stocks.
Activity in r/WallStreetBets subgroup is back to pre-GameStop (NYSE:GME) volumes in recent weeks. Expectations on finding the next GME stock came to an end. With this year’s market nowhere near matching last year’s performance, Redditors are back to small bets. That includes mostly penny stocks and an investment size of no more than $500 to spend. From the 10 million subscribers and around 70,000 hourly active users, why should the forum members seek speculation?
The payoff for a home-run penny stock is higher than buying a widely followed mega-cap stock. For example, it takes only a trending discussion in the WSB group to move the stock in the double-digit percentage. Penny stocks that would fit these criteria may have a stock price that is $10 or less or a nano- or micro-market capitalization.
Here are seven of the best Reddit penny stocks to buy if you have $500 to spend.
- AYRO (NASDAQ:AYRO)
- Endo International (NASDAQ:ENDP)
- Monaker Group (NASDAQ:MKGI)
- OMNIQ (OTCMKTS:OMQS)
- Sundial Growers (NASDAQ:SNDL)
- UWM Holdings (NYSE:UWMC)
- Wipro Limited (NYSE:WIT)
In the table above, the stocks are sorted by overall score. Aside from WIT stock, the overall scores are low. The quality scores are low, which readers should expect — with the highest risks come the highest rewards.
Reddit liked GME stock earlier this year because of the high short interest. And while “I like this stock” is no longer a catchphrase in the forum, the short-squeeze strategy may pay off with Ayro stock. Short interest is 16.9% as the electric vehicle bubble continues to deflate.
In the first quarter, Ayro posted revenue rising 437% year-over-year to just $788,869. It lost $5.5 million, or a loss of $3.8 million on an adjusted EBITDA basis. The firm has no meaningful debt and $91.5 million in cash. Ayro’s electric vaccine vehicle (“EVV”) launch is a potential positive catalyst. The firm is expanding its Gallery Carts to increase access to the Covid-19 vaccine and testing.
CEO Rodney Keller highlighted its Club Car, marketed as 411x, on the conference call. He is bullish on its prospects because the company already received a blanket purchase order. The Club Car should see a sharp increase in order volume this year. Federal agencies are considering this vehicle. Ayro demonstrated the vehicle in cities such as Atlanta, Orlando, and Dallas.
Endo International (ENDP)
Source: OleksandrShnuryk / Shutterstock.com
With short interest of 10%, Endo’s market capitalization of $1.3 billion would disqualify ENDP stock as a true penny stock. Still, the shares are trading at half price and could deliver the biggest return on the $500 invested.
In the first quarter, Endo posted Q1 revenue falling from $820 million last year to $718 million. It posted mixed sales performance, which would explain the stock’s recent drop. Revenue from branded pharmaceuticals rose only slightly, led by specialty products and Xiaflex. Conversely, revenue from sterile injectables weakened. Adrenalin sales fell by 48% Y/Y while Vasostrict utilization related to Covid-19 rose by 10% Y/Y.
In the generics segment, Y/Y revenue fell by 28%. Endo blamed ongoing competitive pressure and the impact of Covid-19. As the pandemic shows signs of slowing, thanks to vaccination, ENDP stock may see a rebound in generics.
On Wall Street, the average price target is over $8.00, implying a return of around 50% (per TipRanks).
Monaker Group (MKGI)
Monaker’s stock offering of May 13 sent shares sharply lower. It sold 3.23 million shares for $2.50 each, raising $8.1 million. The firm raised the funds to pay back some promissory notes held by Streeterville Capital. It intends to use some of the funds for capital to International Financial Enterprise Bank (“IFEB Bank”).
The company is mid-pivot from being an online marketplace for the alternative lodging rental market to “a technology solutions company building a digital business ecosystem of digital advertisers, consumers, video gamers and travelers.”
While markets chase fintech giants and cryptocurrency exchange stocks, IFEB is a potential growth asset for Monaker. This is a chartered financial enterprise entity that caters to high net worth individuals. It also appeals to entrepreneurs. With many of the latter having a high net worth in Silicon Valley, MKGI stock may break out next.
In April, Monaker’s shareholders approved its acquisition of HotPlay, an in-game advertising technology firm. Reddit members who buy $500 worth of MKGI stock have plenty to gain if the company’s revenue grows again. Simplywall.st noted that Monaker did not post positive earnings since 2019.
MKGI will change its name and stock symbol to “NextPlay Technologies, Inc.” and “NXTP” respectively, and will still trade on Nasdaq.
Though Simplywall.st warns that OMQS stock has a fair value below $5.00 based on future cash flow, Redditors cannot ignore OMNIQ’s performance since February.
Omniq broke out to the upside when the company announced a $6.8 million purchase agreement from a leading specialty retailer. The company, a provider in supply chain and artificial intelligence-based solutions, will supply mobile computerized solutions to the client.
Omniq had a record $24 million in new orders at the time of the announcement. That is worth around half of the stock’s market capitalization. With bookings at two times its market capitalization, this stock does not have that much risk. On May 13, Omniq posted revenue growing by 43% Y/Y to $19.8 million. CEO Shai Lustgarten highlighted the 100% Y/Y increase in AI-based technology contracts. It lost 70 cents a share in the quarter.
Source: Jetacom Autofocus / Shutterstock.com
Sundial Growers traded at nearly $3.00 at the height of the market’s February peak. The company posted a few key positive achievements in the first quarter that markets are overlooking.
In the first quarter, Sundial posted a positive EBITDA of $3.3 million despite revenue falling by 29% Y/Y to $11.7 million. Government subsidies worth $2.2 million accounts for much of the positive EBITDA. Still, those figures are despite government-mandated closures driven by Covid-19. As lockdowns ease, SNDL stock will benefit from revenues recovering.
On May 5, Sundial Growers announced the acquisition of Inner Spirit Holdings and Spiritleaf Retail Cannabis Network. The deal cost $131 million. CEO Zach George said that “Sundial’s capital base will enable us to support continued expansion and deepen the capabilities of the Spiritleaf retail brand.” Spiritleaf’s retail network grew in the last two years to become Canada’s biggest single-brand retailer. It has 86 stores across the country. In 2020, it served 2.3 million guests.
No one on Wall Street rates SNDL shares as a “buy.” By investing $500, the downside is minimal while the upside depends on markets buying up the stock in droves.
UWM Holdings (UWMC)
The short interest on mortgage-maker UWM Holdings is 15.6%, a profitable bearish trade ever since the stock peaked at around $14.00.
In the first quarter, the indirect parent of UWM posted net income of $860 million. Loan volume topped $49.1 billion as originations grew by 16% Y/Y.
The firm forecast Q2 production to be in the $51 billion – $55 billion range.
On its conference call, CEO Mat Ishbia mentioned a UWMC stock buyback of up to $300 million to maximize shareholder returns. Concurrently, it will sustain its leadership through its technology and services. And while competitors may try to beat UWM on lower margins, it may grow by acquiring companies. As it integrates those acquired firms having margin compression, profits increase as margins expand.
According to Simplywall.st, UWMC stock has a fair value of almost $40.00.
Wipro Limited (WIT)
Wipro Limited is on a sustained year-long uptrend with more potential gains ahead. The information technology, consulting, and business process services company acquired Ampion on March 31. Ampion is a positive catalyst that exposes Wipro to the growing Australian market.
Wipro pivoted by investing strategically to gain agility, scale, and localization. For example, Ampion localizes Wipro to the New Zealand and Australia market. Plus, as a ‘Top Employer’ in Australia for two straight years, the acquisition should reward shareholders.
In the fourth quarter, Wipro posted Q4 revenue growing by 5.8% to $2.2 billion. It earned 7 cents a share. For Q1, Wipro forecast revenue from its IT Services business to be in the range of $2.195 billion to $2.238 billion. The sequential growth of 2% to 4% gives the company room to beat expectations.
On Wall Street, analysts are bearish on WIT stock. Per TipRanks, the average price target is $4.59. Redditors betting against Wall Street would get a big reward if the stock continues its march higher.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
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