This may well go down as the wildest year on record for the stock market. The uncertainty and panic caused by the coronavirus 2019 disease (COVID-19) pandemic torpedoed shares in the first quarter, and then saw them rally furiously in the second quarter. Honestly, no one has any indication what will happen in the very near future.
While volatility is often a great thing for long-term investors, given that it allows the purchase of large stocks at a discount, it also has a bit of a dark side.
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You see, we’ve been witnessing the rise of the “Robinhood investor” for the past few months.
Robinhood is an online investment platform that has been particularly successful in attracting millennials and / or beginners. There is absolutely nothing wrong with encouraging younger investors to get involved in the stock market. In fact, it’s a fantastic thing when you consider that the earlier people start investing for their future, the greater the chance they have of securing their financial freedom.
However, Robinhood has not given its young and / or novice investors the tools they need to succeed. As a result, it is giving rise to an army of day traders and risk takers who only seem to care about penny stocks and what is hot right now.
Although much of Robinhood’s Leadboard (that is, a ranking of the most common stocks on the platform) reads like a somewhat avoidable list, there are a few gems mixed in. If you’re looking for a great place to park your park money for years to come, consider buying the following three popular Robinhood supplies – because if you do not, you will probably regret it.
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Fisa
One Robinhood scholarship that you kick yourself for not buying is payment facilitator Fisa (NYSE: V). Since the year began, the number of Robinhood members holding Visa in their accounts has more than doubled to about 98,400, as of last weekend.
While there is no question that Visa will go to war for a few quarters if the US and the world economy navigate through a COVID-19-induced recession, Visa has shown that it is more than capable of delivering superior returns to its shareholders more to deliver years than not.
A major key to Visa’s success is its dominant stake in the United States. Between 2008 and 2018, Visa expanded its share of credit card-based network purchase volume in the US from 42% to 53%. That is a very enviable position to be in an economy that counts on consumption for about 70% of the gross domestic product. As the clear cashless choice among buyers in the US, Visa has not had much trouble growing its bottom line every year with a double-digit percentage.
But Visa is also looking for opportunities abroad. In 2016, it acquired Visa Europe and gave its global trading network a major impetus. It also has ample opportunity to expand its payment infrastructure in Africa and the Middle East to continue to grow at double digits.
Best of all, this is a company that focuses solely on the payment side of the equation. Since Visa does not lend money directly, it is almost not affected as much as loans are disbursed. This is a big reason that their profit margin is normally above 50%.
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Alphabet
Another great stock that you will not regret buying that has become especially popular with Robinhood investors is Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), the parent company behind Internet search engine Google and streaming platform YouTube. Ownership in the A-shares (GOOGL) has more than tripled in 2020 to nearly 107,000 Robinhood accounts.
Similar to Visa, alphabet is not unforgivable for some coronavirus-related cravings. In fact, the advertising kingpin reported its first year-on-year sales decline (in Q2 2020) since going public back in 2004. When a recession hits, it is not uncommon to see companies scale their advertising spend to save money.
But let us avoid the facts here: No search platform is more popular on the planet than Google. GlobalStats indicates that Google was responsible for between 92% and 93% of all internet searches worldwide over the next 12-month period. That’s a crazy number of eyeballs that businesses can potentially reach with Google’s targeted advertising.
In addition, it is important to put economic growth into perspective. Even though economic contracts and recessions are irreversible, the US and the world economy spend much longer periods of time expanding than they contract. This simply means that the ad market spends most of its time expanding. This points well to the long margins of the Alphabet, especially as traffic purchase costs stabilize or decrease over time.
One last note would be to not overlook Google Cloud. YouTube’s viewership rightly gets a lot of attention, but Google Cloud delivered 43% year-over-year growth at the end of June, with the segment accounting for $ 3 billion in quarterly sales for the first time ever. Cloud revenue yields significantly better margins than ad-based revenue, suggesting that a significant uptick in Alphabet’s cash flow may be on the horizon.
Berkshire Hathaway CEO Warren Buffett. Image Source: The Motley Fool.
Berkshire Hathaway
Investors will probably regret not buying in conglomerate Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). Over the course of six months, the popularity of Berkshire Hathaway on Robinhood has grown from less than 39,000 members holding their supply to more than 100,100, as of this past weekend.
If you’re wondering about “Why Berkshire Hathaway,” look no further than its CEO, Warren Buffett. The Oracle of Omaha track record speaks for itself: a compounded annual return of 20.3% for Berkshire Hathaway’s share over the past 55 years. In other words, an investment of $ 100 for 55 years ago should be more than $ 2.7 million by December 31, 2019. Returns make a lot of calls on Wall Street, and Buffett’s opportunity to select companies with sustainable competitive advantages is virtually unmatch.
Investors are also big fans of Berkshire Hathaway because of its tie-ins to the US and global economy. The vast majority of Buffett’s investment capital is tied up in information technology, banking stocks, and consumer buttons, all of which are cyclical sectors as well as industry. Buffett has long acknowledged that investors are not betting against America. Berkshire Hathaway’s portfolio is a testament to that dissertation. And, as mentioned, periods of expansion of the US economy tend to last significantly longer than periods of contraction or recession.
Berkshire Hathaway has also been historically cheap for much of 2020. The last time Buffett’s business was consistently valued at less than 30% above its book value was in 2012. As a result of this valuable decline, Buffett and his right-hand man Charlie Munger had OK aggressive stock purchases. By the first six months of 2020, Buffett had already repurchased $ 6.8 billion worth of Berkshire Hathaway common stock.
History has shown that it has never been a bad idea to ride Buffett’s jacket to big wins.
