6 Bubble Stocks That Are Still Worth Taking a Chance On
InvestorPlace - Stock Market News, Stock Advice & Trading Tips The term "bubble stocks" might make you think of losses, but these picks are actual...
Are we in a bubble right now? Well, maybe. There is no single bubble when it comes to the markets. However, there are several prominent ones that are top of mind — and bubble stocks that are noteworthy because of them right now.
These bubbles exert constant pressure across the markets and on the economy. For instance, the United States and many of its citizens are currently saddled with student loan debt. The cost of higher education has risen about 4% to 5% per year for the past decade. That growth in cost outpaces inflation over the same period and makes the future even more uncertain.
There’s currently a health care bubble as well. Per capita health care spending is highest in the United States when it comes to the OECD (Organization for Economic Cooperation and Development) nations. U.S. citizens pay more than double what the average OECD citizen does in health care costs.
On top of that, there’s also a housing bubble. Housing costs and rents are headed upward. And on top of that? Federal debt. The U.S. has a national debt of well over $28 trillion. That’s greater than the country’s GDP. It is a complex relationship, but probably an untenable one.
My point? All of these forces combine and trickle down through stock sectors, many of which are also arguably in bubble territory. Of course, the information I just shared might have felt like a lot of doom and gloom. But the truth is there are still many bubble stocks out there that worth taking a chance on. Here are six names to consider:
- Coinbase (NASDAQ:COIN)
- Tesla (NASDAQ:TSLA)
- Uranium Energy (NYSEAMERICAN:UEC)
- Cameco (NYSE:CCJ)
- GameStop (NYSE:GME)
- AMC Entertainment (NYSE:AMC)
Bubble Stocks to Buy: Coinbase (COIN)
The thing about asset bubbles is that there is no reliable means of predicting when they’ll burst. Pundits have long been deriding the fate of cryptocurrency at large and therefore stocks based on crypto, including Coinbase. However, COIN might be one of the better bubble stocks for investors to choose.
Fellow InvestorPlace colleague Mark Hake recently pointed out that leading crypto assets like Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD) largely move the needle for COIN because they dominate trading on the platform. Hake also noted that Coinbase’s user base, or monthly transacting users (MTUs), may move prices to an even greater degree than the respective prices of BTC and ETH.
That said, MTUs and broader crypto prices are trending upward. This is clearly a positive for COIN stock. Bitcoin has appreciated rapidly from its July lows after dipping below $30,000. Recently, it even came back up to the $47,000 to $50,000 range (although it is closer to $43,000 today). Likewise, Ethereum has practically doubled in the same period.
Of course, Coinbase is currently under increased scrutiny from the U.S. Securities and Exchange Commission (SEC). But many investors believe that, as in the case with Ripple and XRP (CCC:XRP-USD), the SEC is barking up the wrong tree.
I get the feeling that the SEC is hell-bent on receiving court judgments against any crypto-related entity. Time will tell. But regardless, many analysts believe COIN is worth far more than its current trading prices.
Investors are probably well aware that the electric vehicle (EV) bubble has already popped once in 2021. That began back in the first two weeks of February. Tesla led the charge, being the EV bellwether that it is. And as it went, so went the broader EV space.
Tesla share prices dropped from close to $900 to the mid-$500s in the ensuing four-week span. Moreover, the stock’s importance to the EV space spared none of its competitors, who fell in lock step.
TSLA stock then rallied and fell again over the next two months. Finally, it rallied once more, reaching the mid-$700s where it now resides.
Investors might now point to Tesla’s trailing 12-month (TTM) price-earnings (P/E) ratio of 393.5 and dismiss it as overpriced, or bound for another decline. But that seemingly sky-high ratio is much lower than it was. At the height of EV mania, it was well above 1,000. Plus, there’s still plenty of bullish sentiment for this pick of the bubble stocks.
Yes, Tesla has only risen 9% year-to-date (YTD) while the S&P 500 has far outpaced it at over 18%. But Tesla is continuing to ramp up production and may manufacture over 1 million vehicles next year. Prices may be high now, but there’s a case for TSLA hitting $1,000 per share sometime in the future.
Bubble Stocks to Buy: Uranium Energy (UEC)
With inflation rates a real concern in 2021, commodities are getting a lot of attention. Oil, lumber, gold and many other precious metals are garnering high levels of interest. On top of this, there’s also an ongoing shift toward clean energy — a shift away from fossil fuels like coal.
The dynamics of those two trends has created something of a bubble in the uranium sector. Of course, uranium is used as a fuel for nuclear energy. The good news? Uranium prices have now hit eight-year highs this month.
Naturally, that’s very positive for Uranium Energy. The company is a mining and exploration firm with operations across the United States as well as in Paraguay. True, UEC stock still trades in penny stock territory, with prices in the $3 range. However, uranium production is emerging as a strategic focus and now has bipartisan support for the first time in nearly five decades (Page 5).
Uranium prices were gutted following the Fukushima disaster, back when they hovered around $70 per pound. Prices follow a long cycle and hit a low in 2017 and 2018, falling to less than $30. But there’s good reason to believe uranium could now continue its predictable rise over the coming decade. This pick of the bubble stocks could easily multiply as a result.
As another uranium stock, Cameco is also one of the bubble stocks worth taking a chance on based on the current shift underlying the energy markets.
One of the most salient issues here is carbon emissions. It’s no secret that the Oil Majors are under pressure to cap their emissions. Things like carbon capture credits are becoming increasingly important. So, the overarching thrust is that carbon emissions will be more and more scrutinized for years to come. That opens a clear path for nuclear power and uranium as an energy source.
This Canadian company bills itself as a clean-air investment, a “responsible strategy to fuel clean-air nuclear energy and manage profitable growth.” Plus, the company gave CCJ stock investors a reason to remain steadfast with recent earnings results. Back in late July, the company noted the following about its second quarter:
“We ended the quarter with about $1.2 billion dollars in cash. We also successfully added an additional 7 million pounds U3O8 to our long-term sales contract portfolio, bringing the total contracted so far in 2021 to 16 million pounds.”
With prices rising, Cameco could see revenues quickly climb and future prospects brighten as well. Earlier in the year, it had to shutter operations at its Cigar Lake location due to forest fires. However, the site has since reopened. Cameco now expects the project to produce up to 12 million pounds of uranium in 2021.
Bubble Stocks to Buy: GameStop (GME)
The last two stocks on this list are some quintessential bubble stocks of 2021. First up, GameStop has been one of the most interesting market stories of the year — and an extremely polarizing one. You either love GME or hate it. But one thing is becoming more and more clear: the memesters who love this are far more resolute than the fundamentalists who don’t.
Basically, the spike GME stock saw in late January was only the beginning. Many thought the stock’s subsequent February fall (in which it dropped to around $60 and stayed there for weeks) was the end. A flash in the pan. But they were wrong.
What did the stock do? It rebounded massively, fluctuating between $150 and $250 since. Today, GME trades for around $190 per share.
Part of the reason for this is attributable to GameStop chairman Ryan Cohen and his vision for the company. It’s a tenuous one which includes turning GME into an immersive metaverse with e-commerce aspirations.
But whether that materializes moving forward is unimportant at this point. Instead, what matters is that this vision resonates with a massive cohort of backers who aren’t pulling their capital out of this pick. It’s almost as if GME has passed some unquantifiable critical mass. Its aspirations act as a siren song — and it doesn’t look like the music will stop anytime soon.
AMC Entertainment (AMC)
Last up on this list of bubble stocks, AMC is another market meme that simply defies logic.
Sure, investors can look to any number of reasons for why it’s an irrational investment to make; AMC stock currently has zero buy ratings and a target stock price of $5.44 from the nine analysts that cover it. However, retail investors have little regard for Wall Street’s opinion here. In that way, AMC is very similar to GME.
So, at some point, institutional investors have to stop looking for reasons for why AMC should fail and try to understand why it refuses to. And there’s no clear answer to that other than the idea that retail sentiment has made it too big to fail.
AMC stock has been on a volatile plateau since June. That plateau has followed a U-shaped pattern, which has been trending upward over the past month. Now, momentum seems wholly in its favor today.
Short interest sits slightly below 20%, so there’s perhaps no reason for an imminent short squeeze. But there’s also no indication for AMC to head down from here either.
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On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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