Meme stocks are characterized by high short interest and retail trader-driven short squeezes thanks to their popularity on social media platforms like Reddit and Twitter. However, with most meme stocks falling significantly from their high price levels, retail traders’ interest in such speculative stocks has declined considerably of late. It’s challenging to identify correct entry points in these stocks, which makes investing in them very risky.

However, some social-media favorites possess sufficient fundamental strength to generate solid returns. We think Nokia Corporation (NOK - Get Rating) and United States Steel Corporation (X - Get Rating) are two such stocks. They could be long-term winners on the back of their improving fundamentals.

In contrast, because popular meme stocks tumbled this month on investor caution regarding the next, crucial Federal Reserve update, we think fundamentally weak meme stocks AMC Entertainment Holdings, Inc. (AMC - Get Rating) and BlackBerry Limited (BB - Get Rating) are best avoided now.

Stocks to Buy:

Nokia Corporation (NOK - Get Rating)

Headquartered in Espoo, Finland, NOK is a global technology company that offers a comprehensive portfolio of network equipment, software, services, and licensing opportunities. The company operates through four segments: Mobile Networks; Network Infrastructure; Cloud and Network Services; and Nokia Technologies.

This month, NOK declared that it is set to supply its O-RAN fronthaul multi-vendor solution to NTT DOCOMO, INC.’s (DOCOMO) 5G network following successful testing. This should enable the Japanese operator to further select independent combinations of hardware and software to optimize its network in the future. This solution is the latest milestone demonstrating NOK’s commitment to O-RAN and open networks.

NOK’s net sales increased 1.9% year-over-year to €5.4 billion ($6.09 billion) in the third quarter, ended September 30, 2021. The company’s operating profit grew 43.4% from its  year-ago value to €502 million ($566.12 million). Its profit rose 78.2% from the prior-year quarter to €351 million ($395.83 million). Also, the company’s EPS increased 100% year-over-year to €0.06 ($0.07).

Analysts expect NOK’s revenue for its fiscal year 2021 to be $25.79 billion, representing a 3.5% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. NOK’s EPS is expected to increase 37.9% in the current year. Moreover, the stock has gained 41.7% in price over the past nine months and 52.9% year-to-date.

NOK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

Also, the stock has a B grade for Value. We have also graded NOK for Growth, Momentum, Quality, Stability, and Sentiment. Click here to access all of NOK’s ratings. NOK is ranked #16 of 55 stocks in the B-rated Technology – Communication/Networking industry.

United States Steel Corporation (X - Get Rating)

Pittsburgh, Pa.-based X is an integrated steel producer that produces and sells flat-rolled and tubular steel products primarily in North America and Europe. The company operates through three segments: North American Flat-Rolled (Flat-Rolled); U. S. Steel Europe (USSE); and Tubular Products (Tubular). X also provides railroad services and real estate operations.

This month, X, Norfolk Southern Corporation, and The Greenbrier Companies, Inc. partnered to design a new, more sustainable steel gondola railcar. X developed a high-strength and lighter-weight steel using an innovative formula that reduced each gondola’s unloaded weight by up to 15,000 pounds. This reduced railcar weight should decrease carbon emission, and its improved design should extend its useful life.

For the third quarter, ended September 30, 2021, X’s net sales increased 154.9% year-over-year to $5.96 billion. The company’s net earnings came in at $2 billion, compared to a $234 million net loss in the prior-year quarter. Its EPS amounted to $6.97, compared to a $1.06 loss per share  in the third quarter of 2020.

X’s revenue is expected to increase 109.9% year-over-year to $20.44 billion in its  fiscal year 2021. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. X’s EPS is estimated to increase 427.2% in the current year. The stock has surged 32.4% in price year-to-date.

X’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Growth and Value and a B grade for Momentum.

In addition to the POWR Rating grades I have just highlighted, one can see X’s ratings for Stability, Quality, and Sentiment here. X is ranked #16 of 34 stocks in the A-rated Steel industry.

Stocks to Avoid:

AMC Entertainment Holdings, Inc. (AMC - Get Rating)

AMC is a theater exhibition company that owns and operates 1000 theatres and 10,700 screens in the U.S. and internationally. The Leawood, Kans.-based company’s brands include Amazing Theaters, America’s Hometown Theaters, and Movies with a Menu.

AMC’s total revenues increased 538.7% year-over-year to $763.2 million for the third quarter, ended September 30, 2021. However, the company’s operating costs and expenses increased 14.2% year-over-year to $908.4 million. Its operating loss came in at $145.2 million. Also, the company’s net loss amounted to $224.2 million during the period.

AMC’s EPS is estimated to decrease 217% per annum over the next five years. Also, the stock has declined 55% in price over the past three months and 108.2% over the past nine months.

AMC’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. Also, the stock has an F grade for Value and Stability and a D for Quality.

Click here to see the additional POWR Ratings for AMC (Momentum, Growth, and Sentiment). The stock is ranked #7 of 9 stocks in the F-rated Entertainment – Movies/Studios industry.

BlackBerry Limited (BB - Get Rating)

Incorporated in 1984 and headquartered in Waterloo, Canada, BB provides security software and services to enterprises and governments worldwide. The company’s segments include Cyber Security, IoT, Licensing, and Others. Its segments offer BlackBerry Spark software platform, BlackBerry QNX, BlackBerry Radar, BlackBerry IVY, software licenses, and other products.

During its fiscal second quarter, ended August 31, 2021, BB’s revenue decreased 32.4% year-over-year to $175 million. The company’s gross margin declined 43.7% from its  year-ago value to $112 million. Its operating loss increased 540.9% from the prior-year quarter to $141.

Analysts expect BB’s revenue to decrease 20.6% year-over-year to $730.14 million for its fiscal year 2022. The company’s EPS is estimated to decline 450% in the current quarter. Its stock has declined 38.9% in price over the past six months and 26.9% over the past nine months.

BB’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. Also, the stock has a D grade for Stability, Quality, and Sentiment. Click here to access the additional BB ratings (Growth, Value, and Momentum). BB is ranked #51 in the Technology – Communication/Networking industry.

NOK shares were trading at $5.92 per share on Tuesday afternoon, down $0.06 (-1.00%). Year-to-date, NOK has gained 51.41%, versus a 24.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Priyanka Mandal

Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...

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