A new breed of strong meme stocks is here.
Investors inclined to get the most general stock exposure possible would do so with a SPDR® S&P 500® ETF Trust (ASX:SPY). The ETF tracks the S&P 500 market index, which has increased 24% over one year. The same cannot be said of stocks that have birthed the moniker “meme stocks.”
GameStop (NYSE:GME) and AMC (NYSE:AMC) are down at -35% and -91% during the same period, respectively. However, these meme stocks were driven by social media hype during unique macroeconomic and societal conditions. The AI hype is more grounded and within the Fed’s interest rate hiking cycle.
Presently, fed fund futures are priced in the first rate cut for June at 80% probability. Making capital cheaper will unburden many equities, leaving them with higher discounted future earnings. Taking into account recent market moves, which meme stocks should investors consider?
1. Super Micro Computer
Since the coverage in October, Super Micro Computer (NASDAQ:SMCI) stock is up 144%. This includes the stock’s sharp 13% downturn on Tuesday. The culprit for the biggest drop since August is largely attributed to the CEO’s interview on Bloomberg TV. The CEO, Charles Liang, noted the following on the question of whether the company is fairly valued:
“There is a chip shortage. Once we have more supply from the chip companies, from Nvidia, we can ship more to customers.”
However, that doesn’t detract from the company’s bottom line – deploying rack-based servers to meet the supply needs of Big Tech’s data centers. Liang confirmed in that interview that the company can deliver $25 billion worth of sales. Although competing against Dell (NYSE:DELL) and HP (NYSE:HPQ), which have larger market shares at 48% and 29% respectively, Super Micro Computer has multiple wide-moat advantages.
The company offers full-stack IT infrastructure, amplified by first mover advantage in liquid cooling solutions. Unlike Boeing’s leadership, which pushes for outsourcing, SMCI’s leadership is largely made up of engineers, including the CEO himself. So far, they have successfully pushed a first-to-market approach with customized server racks.
As of the January 29th release of Q2 FY24 earnings, Supermicro increased net sales by 103% to $3.66 billion compared to a year-ago quarter. The company’s net income grew by 88% during the same period. However, due to the aforementioned supply chain issues, Supermicro decreased its gross margin from 18.7% to 15.4%.
Yet, that will likely have little impact if the AI demand continues, so Rosenblatt analysts raised the SMCI price target from $700 to $1,300 per share. Based on nine analyst inputs pulled by Nasdaq, SMCI stock is still a “strong buy.” The average SMCI price target is $734 vs the current $787.57. The high estimate is $1,040, while the low forecast is $160 per share.
2. Occidental Petroleum
When Berkshire Hathaway (NYSE:BRKa) reshuffled its portfolio in Q3 23, OXY’s share weight increased to 4.64% at an average buy price of $49.86 per share. Over one year, Occidental Petroleum (NYSE:OXY) shares have flatlined, losing 0.6% of value at the current price of $59.47 per share.
Occidental relies on oil and gas production for its income without operating refineries like Exxon (NYSE:XOM). Elevating its operations in the Permian Basin, the company is expected to deploy its take on lowering its carbon footprint with the STRATOS direct air capture technology.
The project is worth $1.3 billion and is supported by BlackRock (NYSE:BLK), aiming to capture 500,000 tonnes of CO2 annually. On February 15th, Occidental released its Q4 ‘23 earnings, showing strong operating cash flow of $3.2 billion. The company’s production volume increased to 1,223 MBOE/D from the year-ago quarter of 1,159 MBOE/D.
Occidental’s earnings per share (EPS) decreased from $12.40 in December 2022 to $3.90 EPS in December 2023, which is expected given oil and gas price fluctuations. Despite this, Occidental increased its quarterly dividend payout by 22% to $0.22 per share, now delivering an annual dividend of $0.72 at dividend yield of 1.19%.
Based on 21 analyst inputs pulled by Nasdaq, OXY stock is a “buy.” The average OXY price target is $67.6 vs the current $59.56. The high estimate is $80, while the low forecast is above the present price level at $60 per share.
3. Rivian Automotive, Inc.
Although overshadowed by Tesla (NASDAQ:TSLA), Rivian Automotive (NASDAQ:RIVN) occupies a strong market niche in large SUVs and pickup trucks. Over the years, SUVs have become increasingly popular due to their large mass helping passengers survive crashes that would otherwise be fatal.
With this physics advantage, SUVs dominate the US car market, accounting for 80% of new sales in 2022, according to the Federal Highway Administration. Rivian is yet to reveal its latest R2 model on March 7th.
Since the December coverage of Rivian, RIVN stock went down from $22.73 to $15.66, fulfilling the analysts’ low forecast. The company produced 50,122 EVs for the full year, having outpaced its production guidance of 54,000 units. Rivian will release its financial results for Q4 tomorrow, February 21st.
Twelve months ahead, based on 23 analyst inputs pulled by Nasdaq, the average RIVN price target is now lower at $22.46 but still a “strong buy.” The high estimate is $36 per share, while the low forecast is aligned with the present price of $15.89 per share.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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