When the curtain closes in 2020, some investors will be sad to see it leave. The coronavirus 2019 disease pandemic (COVID-19) has led to the most volatile stock market in history. During the first quarter, the comparison S&P 500 lost 34% of its value in less than five weeks. This was followed by a savage low-level attack on March 23, as well as more than 30 new all-time levels of heavy technology Nasdaq composite.
Interestingly, volatility can actually be a great thing for long-term investors, as it usually gives them an opportunity to buy into great businesses as a discount.
However, there may be a dark side as well.
Over the past two months, we have witnessed retail investors of the online investment platform Robinhood batch on some of the most risky names on Wall Street. Anything that goes faster seems to be the scent of the week for many of these mostly young and / or novice investors.
But if there is good news, it is that many of these millennial / novice investors have also been spreading to proven and real businesses in recent months. By this I mean that Robinhood’s presidency (i.e., its most held shares) has begun to be complemented by established and / or high-growth businesses.
Here are five stocks Robinhood Investors just can’t stop buying over the past month.
Although Robinhood investors are known for tracking penny stocks and dark companies, there is no stock on the platform that has been added to more portfolios over the past month than apples (NASDAQ: AAPL). Nearly 162,000 net members own a stake in the tech box, and Apple has launched the third-most-held share on the entire platform, just after General Electric and ford.
Aside from the fact that Apple has been ready to rally since the end of March, investors have probably taken the most out of the company brand. Apple has an almost identical pursuit of the cult waiting on the edge of their seats to buy new products. This tremendous loyalty has played a key role in keeping customers within its ecosystem of products and services, which is a big reason it is able to generate such a powerful cash flow year after year.
Apple’s innovation is also very important to its success. CEO Tim Cook is confident that Apple can become a service-oriented company. In recent quarters, real estate and service revenue have grown by a double-digit percentage, which is great news considering that service revenue generates softer margins than product sales.
Robinhood investors may not get enough from electric vehicle (EV) manufacturer Tesla (NASDAQ: TSLA), with a network of nearly 142,000 members adding stock to their portfolios over the past month. Despite its nominally high share price, partial share ownership has allowed Tesla to become the eighth stock held on the platform.
“Why Tesla?” the argument basically applies to EV since the future of the transportation industry. Although EVs represent only a small portion of total sales in the US, EV sales have increased by at least 22% on a year-over-year basis, with the exception of 2015 and 2019. Since Tesla has the advantage of the first move in EV spaces, at least in terms of mass production, and the successful construction of a charging network across considerable parts of the US, seems to have a good hit for it achieved profits in the following years.
Of course, if $ 271 billion is a reasonable market capitalization for a company that does not yet generate a generally accepted accounting principle (GAAP) of full-year profit, and whose CEO (Elon Musk) is usually unable to meet the start-up dates of the protected product is another story.
Another well-known company that Robinhood investors have recently amassed is tech stocks Microsoft (NASDAQ: MSFT). The second largest company in the US by market cap has added its shares to the nearly 124,000 net accounts of Robinhood members over the past 30 days. Microsoft sits behind Apple as the fourth most held enterprise on the platform.
The beauty of owning Microsoft is all to the limits. This is a company that is still reaping significant benefits from its legacy software products (Windows and Office), but has also seen significant growth and extremely high margins from new innovative offerings. In the recently completed quarter, which I might add was negatively impacted by COVID-19, Microsoft managed to provide 50% constant currency growth for one year, for Azure.
Beyond its borders, Microsoft is probably the safest stock in the world to invest in. Standard & Poor’s credit rating labels is one of the only two publicly rated companies by AAA, suggesting it has maximum confidence in Microsoft’s ability to pay its bills. On a general basis, Microsoft also pays more dividends each year than any other public company in the United States.
The fourth most popular stock added over the past month is the biotech enterprise in the clinical phase modern (NASDAQ: mARN), which saw about 110,000 Robinhood members net add the company. Since its inception, Moderna’s ownership of Robinhood has grown from nearly 5,600 members to nearly 320,000.
Unlike some of the other names listed here, Moderna is a perfect example of Robinhood investors pursuing a hot history rather than a secure business model. Moderna is one of a handful of biotech stocks to get a big raise because of its research on coronavirus vaccines. In July, Moderna announced the results of its dosing study in phase 1 of mRNA-1273, noting that neutralizing antibodies were observed in patients of all three dosing levels.
There is obviously a huge market for a COVID-19 vaccine, but it is unclear whether this is a market that can only be owned by a few vaccine developers. With the U.S. Food and Drug Administration just about the effectiveness of modest vaccines, it would not be surprising if numerous drug developers were eventually supplying a vaccine. That makes a $ 28 billion market cap on Moderna look very risky.
Fifth and finally, there is Amazon (NASDAQ: AMZN), which only the edges Eastman Kodak with a net of 668 accounts over the past 30 days. In total, close to 85,000 net members added Amazon shares to their portfolios, bringing total ownership to 422,000 members.
There seem to be two reasons why investors are infatuated with Amazon. First, it has to do with the apparent presence of the retail company. The Amazon market was already dominant before the coronavirus pandemic hit. Now, it has become even more of an opportunity for shoppers who cannot afford to buy at a grocery store. According to analysts at Bank of America/ Merrill Lynch, Amazon holds 44% of the entire e-commerce market share in the United States.
The other reason Robinhood investors love Amazon is because of its cloud service operations, Amazon Web Services (AWS). Sales for AWS grew by a whopping 29% during the coronavirus-affected second quarter to $ 10.8 billion, and they generated $ 3.36 billion of operating revenue of $ 5.84 billion on Amazon. Since cloud margins are significantly higher than retail and advertising revenue, AWS is Amazon’s key to rapidly growing operating cash flow.