3 Popular Reddit Stocks to Liquidate Before Another Market Selloff

Market participants appear pleased with the U.S. government’s stimulus measures and improving economic data. Consequently, the stock market is continuing its incredible rally this year, except for a few short-term pullbacks. However, as consumer spending steadily returns to pre-pandemic levels, rising inflation has started to worry investors…

Though the Fed views any rise in inflation as temporary, economists fear that  rising inflation might force the central bank to tighten its policies earlier than expected. Adding to this concern, some retail investors are speculating that wealthy investors have started to take profits now, ahead of the government’s proposed increase in capital gains taxes. As such, some investors are rotating away from equity to safer and fixed-income assets. Consequently, overheated stocks, especially in the tech space, have already started witnessing a correction.

The short squeeze frenzy triggered by  millennial investors on Reddit’s r/wallstreetbets (WSB) chatroom has piqued the interest of  retail investors and Wall Street analysts  in following the stocks discussed on the forum. Because WSB favorite stocks usually possess weak fundamentals, analysts are pessimistic on the prospects for Palantir Technologies (PLTR – Get Rating), DraftKings Inc. (DKNG – Get Rating), and Virgin Galactic Holdings Inc. (SPCE – Get Rating). We believe a much-anticipated market sell-off may bring them back to earth soon. So, it’s wise to get rid of these stocks now.

Palantir Technologies (PLTR – Get Rating)

PLTR is a data analytics company that builds and deploys software platforms for the intelligence community in the United States. The company primarily serves the U.S. government, and has partnerships with several military and civilian federal agencies in addition to some commercial customers. PLTR’s stock went public via a direct public offering (DPO) and its market debut came on September 30, 2020, 17 years after the company was founded.

On May 7, the United Kingdom’s Royal Navy renewed its contracts with PLTR for its Foundry platform, to be used across a broad spectrum of areas from strategic workforce planning to supply chain management to  COVID-19 response. Furthermore, the U.S. Coast Guard also extended its commitment to use PLTR’s software, earlier this month as the data management, analytics, and operations tool for its response to the pandemic.

In the first quarter, ended March 31, 2021, PLTR reported $341.2 million in total revenue, increasing 49% year-over-year. It U.S. government revenue soared 83% year-over-year, driven by a surge in the demand for AI-supported defense and healthcare data analytics. Revenue from its  U.S. commercial segment also improved 72% year-over-year. However, the company is still not generating profits despite operating for nearly two decades. Its loss from operations came in at $114,014. Also,  PLTR reported a net loss of $0.07 per share, and the company is not expected to be profitable for a few more years.

PLTR’s Demo Event hosted in April did not fail to impress the Street. The company showcased the application of its platforms across various industries and customers. COO Shyam Sankar recently commented that PLTR is pioneering micro models for Apollo for Edge AI. However, some of its pre-IPO government contracts, especially the one with Immigration and Customs Enforcement (ICE) to track undocumented immigrants, is still controversial. Hence, it is too early for investors to incorporate the success of PLTR’s commercial business in its share price yet.

PLTR made its debut at $10 per share, which remained more or less flat over the following months. However, the stock started rallying in November and hit an all-time high of $45 per share in January, thanks to the attention of Reddit. Unfortunately, PLTR has lost 22.3% over the past three months to close Friday’s trade at $20.75. The correction could be in-part attributable to the recent high-growth tech sell-off. In terms of forward P/E, PLTR is currently trading at 145.80x, 493.1% more expensive than the 24.58x industry average. Hence, the stock is still largely overvalued and might soon witness further weakness in the near-term.

PLTR’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

PLTR also has a D grade for Value, Stability and Sentiment. In the 12-stock, F-rated Software – SAAS industry, it is ranked #10.

In total, we rate PLTR on eight different levels. In addition to the POWR Ratings grades I’ve just highlighted, you can see the PLTR’s ratings for Value, Momentum and Quality here.

Click here to check out our Software Industry Report for 2021

DraftKings Inc. (DKNG – Get Rating)

The legalization of digital sports betting and gambling is an emerging trend in the United States. Several states have been crafting and approving legislation. As such, Boston-based online sports platform DKNG, which allows users to play daily fantasy games and win cash prizes,  is taking huge advantage of the burgeoning shift in attitude by  various  states toward legalizing sports betting.

Currently,  DKNG operates in 13 states in the United States. In fact, the Ohio Senate Select Committee on Gaming has recently written a bill to legalize sports betting in the state, which it is expected to finalize l by June 30. DKNG completed a first-of-its-kind content distribution, monetization and sponsorship agreement with a content company, Meadowlark Media, earlier this month, and expanded its sports entertainment footprint. And on April 15, DKNG became an…

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