While 2020 was quite a year for electric vehicle stocks, 2021 is so far dominated by meme stocks. Earlier this year, meme stocks became popular as retail investors sent the price of GameStop (NYSE:GME) to ridiculous heights. GME stock went from $19.95 on Jan. 12 to $325 on Jan. 29.
An array of iPhone apps affiliated with meme stocks
Source: Michael Vi
This 1,529% gain over two weeks was attributed to traders in Reddit’s r/WallStreetBets forum pumping up the stock to create a short squeeze. Traders repeated this for a few more stocks before things quieted down in February. But meme stocks have recently made a comeback, with shares of companies like Blackberry (NYSE:BB) and AMC Entertainment Holdings (NYSE:AMC) soaring. These stocks are not rising due to company performance; instead, their gains result from social media attention.
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Even though major companies like Apple (NASDAQ:AAPL) had stellar earnings results, their price performance is being dwarfed by these speculative stocks. Are these companies even a worthwhile investment?
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I’d like to answer that question by highlighting two stocks that have generated strong returns thanks to Reddit: Wendy’s (NASDAQ:WEN) and Palantir Technologies (NYSE:PLTR).
Wendy’s is the world’s third-largest quick-service restaurant company, operating in three segments: Wendy’s U.S., Wendy’s International, and Global Real Estate & Development. Their restaurants offer traditional fast-food fare like sandwiches and fries, and are known for their hamburgers and Frosty desserts.
Wendy’s became a red-hot meme stock on June 8 when Reddit traders spoke favorably about the company and shares spiked 25%. Traders were drawn to the company for a few reasons, including a new salad and an expected influx of newly-vaccinated diners in their restaurants.
First-quarter results showed strong revenue, boosted by digital sales and special products like its entry in the chicken sandwich wars. WEN stock has an overall grade of B, which translates into a “buy” rating in our POWR Ratings system. The company has a Sentiment Grade of B, which means it is well-liked by Wall Street analysts. Sixteen analysts have a “strong buy” or “buy” rating on the stock.
WEN stock also has a Quality Grade of B due to a solid balance sheet. While the firm only had $316 million in cash as of the most recent quarter, it has almost no short-term debt. Plus, management is very efficient, with a return on equity of 27.8%.
We also provide Growth, Value, Momentum, and Stability grades for WEN stock, which you can find here. WEN stock is ranked No. 22 in the A-rated Restaurants industry. You can find other top stocks in this industry by clicking here.
Palantir Technologies (PLTR)
Palantir was founded in 2003 and provides organizations with platforms for data analysis, management and security. In 2008, the company released its Gotham software platform, which provides tools for government intelligence and defense analysis. Palantir expanded into commercial markets with its Foundry software platform in 2016. Foundry is meant to serve as an operating system for companies that struggle to interpret and manage data in large projects.
The company became a favorite of the r/WallStreetBets community late last year as it developed software to track vaccine distribution across the U.S. While the program wasn’t a smashing success, meme investors are still enamored with the company’s science fiction-like data analysis.
While the company has strong potential, I do have a few concerns. Palantir’s solutions may only develop into a niche market. Additionally, it is likely to face competition from larger enterprise companies and defense contractors in a few years.
PLTR stock has an overall grade of D, translating to a “sell” rating in our POWR Ratings system. The company has a Value Grade of D, as its stock looks vastly overpriced with a forward P/E of 188.68.
PLTR stock also has a Stability Grade of D, indicating that its price and growth figures are highly volatile. For the rest of PLTR’s grades (Growth, Momentum, Sentiment, and Quality), click here. PLTR stock is ranked No. 11 in the Software – SaaS industry. For top-ranked stocks in this industry, click here.
Which Meme Stock Is the Better Buy?
While PLTR stock has a lot of potential, its volatile price moments and high valuation make it a risky bet for now. I am also concerned about the stiff competition it may deal with in a couple of years. Plus, the company has a “sell” rating in our POWR Ratings system, which is not a great sign.
On the other hand, WEN stock is rated a “buy,” has strong fundamentals and is the all-around better company. This is what makes Wendy’s a strange meme stock. Most meme stocks typically have poor fundamentals and are being pushed higher by a crowd of traders. WEN stock has stronger ratings, making it a far better pick than PLTR stock.
On the date of publication, David Cohne 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.
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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