For Wall Street and investors, this has been a truly unforgettable year. The 2019 coronavirus disease pandemic (COVID-19) has completely changed the way we interact with each other, displacing more than 20 million workers, killing nearly 140,000 Americans, and sending the stock market into its wildest journey in history.
Generally speaking, volatility can actually be friendly to long-term investors. This is because periods of panic and increased volatility allow investors to buy large companies at a discount. Despite 37 previous fixes on broad base S&P 500 Before the COVID-19 bear market, each and every one of these corrections was eventually erased by a bull market recovery.
Of course, not all investors think long term. The online trading platform Robinhood, which is best known for attracting young and novice investors, has a list of top stakes that seems to constantly fluctuate based on the latest fashion trend.
Image source: Getty Images.
Although Robinhood investors are collectively viewed as engaging in some highly risky investment practices that have historically failed, there are pockets of promise. During the final 30-day period (ending July 18, 2020), Robinhood investors have been buying the following three high-yield growth stocks.
Amazon
The first company that catches the attention of investors is the e-commerce giant Amazon (NASDAQ: AMZN). In the past 30 days, 121,698 net Robinhood members have added Amazon to their portfolios, representing a 48.2% increase in the number of investors who had it in the previous 30-day period.
Why Amazon? One of the reasons is that it is a primary beneficiary (sorry for the appropriate pun) of the COVID-19 pandemic. With consumers forced to stay home or worried about shopping in crowded stores, Amazon’s e-commerce segment has become a big winner.
Furthermore, Amazon’s e-commerce operations dominated long before the coronavirus overturned our social habits. Analysts at Bank of America/ Merrill Lynch estimates that Amazon owns a 44% share of online sales in the United States, with Walmart occupying a very distant second place to 7%. Having this dominant market share is what allows Amazon to accumulate more than 150 million paying Prime members worldwide, and it must be essential to keep consumers within its ecosystem of products and services.
Amazon also has its not-so-secret weapon: Amazon Web Services (AWS). AWS is the company’s cloud infrastructure service that doubles the growth rate of its core operating segments, and is also responsible for the bulk of operating revenue. Since margins in the cloud are considerably higher than advertising and retail revenue, and COVID-19 is forcing companies to move to the cloud at a faster rate than ever, AWS should be a major cash flow engine for Amazon in the coming years.
The Tesla model 3. Image source: Tesla.
Tesla
The only growing stock that has been even more popular than Amazon over the 30-day period is the electric vehicle (EV) manufacturer. Tesla (NASDAQ: TSLA). A network of 181,260 Robinhood investors has added Tesla to their accounts, increasing the platform’s ownership to more than 483,000 members. In fact, Tesla has moved to the 10 most controlled stocks in Robinhood.
One of the reasons Robinhood investors seem to be in love with Tesla, aside from its surprising rebound in recent weeks, is its first-player lead in mass-produced electric vehicles. Although the electric vehicle landscape is competitive, Tesla is the first automaker to successfully build from scratch to reach mass production in more than five decades. Investors foresee a future in which an increasing number of vehicles sold are electric, and Tesla, being the true pioneer in that field, should prove to be a significant beneficiary.
Robinhood investors are also probably riding Elon Musk’s skirts. Although Elon’s comment can be edgy at times and occasionally must come with a caveat, there is no doubt that he is a visionary. It also looks pretty in-game, with a nearly 21% ownership stake in Tesla stock. Getting the founder to remain actively involved in Tesla’s future has played an important role in building trust among shareholders.
Personally, I’m not a fan of Tesla, but so far I’ve been wrong every step of the way. The electric vehicle industry seems to be in a bubble, and all industries, no matter how high growth, need time to mature. Even Tesla, after more than a decade, still has operational problems and deadline delays. Tesla may be a long-term success story, but his current assessment is a hard pill to swallow.
Image source: Getty Images.
Microsoft
Robinhood investors can’t stop buying from tech giant, either Microsoft (NASDAQ: MSFT). It is the 10th most popular ad during the final 30-day period (62,532 net additions), and has become the seventh most-maintained stock on the platform.
Investors’ love affair with Microsoft likely has to do with its exceptional margins. Despite the company’s legacy operations now growing at a slow pace, Windows’ dominance as the premier PC operating system continues to generate juicy margins.
But it’s not just the margins of Microsoft’s legacy operations that continue to generate revenue. We are talking about a company whose innovation is driving sales growth and cash flow. In particular, Microsoft has focused on the software side of cloud applications. Cloud service Azure sales soared 61% in a constant currency in the quarter ending March, while Office, Dynamics and Windows-based cloud services generated double-digit annual growth (also in a constant base currency). Similar to how Amazon is increasing its margins by focusing on high-margin cloud services, we should see that Microsoft’s already strong cash flow will increase in the coming years.
Another selling point for Microsoft is that it could be the safest dividend stock on the planet (yes, growth stocks can also be dividend stocks). It is one of only two public companies to be rated AAA by Standard & Poor’s, and ended March with more than $ 53 billion in net cash.
Seek to see Microsoft continue to deliver low double-digit sales growth for the foreseeable future.
