If the curtain closes in 2020, some investors will be sad to see it go away. The 2019 coronavirus disease pandemic (COVID-19) has led to the most volatile stock market in history. In the first quarter was the benchmark S&P 500 lost 34% of its value in less than five weeks. This was followed by a brutal rally of the March 23 riots, as well as more than 30 new heights of technology-heavy Nasdaq Composite.
Interestingly, volatility can actually be a big thing for investors in the long run, because it usually gives them an opportunity to buy as a discount in large companies.
Image Source: Getty Images.
However, it can also have a dark side.
Over the past few months, we have witnessed retail investors from online investment platform Robinhood in some of the most risky names on Wall Street. What moves the fastest seems to be the taste of the week for many of these most young and / or novice investors.
But if the good news is, many of these millennial / novice investors have come to visit companies in recent months. By this I mean that the Leaderboard of Robinhood (that is, the most held stocks) is starting to fill up with established and / or high-growth companies.
Here are the five stocks that Robinhood investors just couldn’t stop buying last month.
Image Source: Apple.
Call
Even though Robinhood investors are known for chasing penny stocks and obscure companies, there is no stock on the platform that has been added to more portfolios over the past month than Call (NASDAQ: AAPL). Nearly 162,000 net members have an interest in the tech kingpin, and Apple has vaulted to the third most held on the entire platform, just behind General Electric en Ford.
Besides the fact that Apple has been almost rallying since the end of March, investors are likely to be most taken by the company’s brand. Apple has an almost cult-like following of customers waiting on the edge of their seats to buy new products. This incredible loyalty has played an important role in keeping customers within their ecosystem of products and services, which is a big reason why it can generate such robust cash flow year after year.
Apple’s innovation is also very important for its success. CEO Tim Cook is adamant that Apple could become a service-oriented company. In recent quarters, wearables and service have grown by a double-digit percentage, which is great news when you consider that service generates juicy margins rather than product sales.
The Tesla Model 3. Image Source: Tesla.
Tesla
Robinhood investors absolutely can not get enough from electric car manufacturer (EV) Tesla (NASDAQ: TSLA), with a net of nearly 142,000 members adding the stock to its portfolios last month. Despite its nominal high share price, ownership of fractional shares has allowed Tesla to become the eighth most held on the platform.
The “Why Tesla?” argument essentially suggests that EVs are the future of the transportation sector. Although EVs represent only a small fraction of total sales in the US, EV sales have grown by at least 22% on an annual basis since 2011, with the exception of 2015 and 2019. Since Tesla has first advantage in the EV space , at least as far as mass production is concerned, and it has successfully built up a charging network in key parts of the US, it seems to have a good shot at profit in the coming years.
Of course, if $ 271 billion is a reasonable market cap for a company that still generates a generally accepted accounting principle (GAAP) for the full year of profit, and whose CEO (Elon Musk) simply can not meet set product launch timelines, is a another story.
Image Source: Getty Images.
Microsoft
Another popular company that Investors Robinhood has recently stacked is tech stock Microsoft (NASDAQ: MSFT). The second-largest company in the U.S. by market cap has added its reserves to nearly 124,000 net worth of Robinhood members in the past 30 days. Microsoft is behind Apple as the fourth largest company on the platform.
The beauty of owning Microsoft is all in the margins. This is a company that still makes significant rewards from its legacy software products (Windows and Office), but has also seen significant growth and exceptionally high margins from its innovative new cloud offering. In the recent quarter, which I might add was negatively impacted by COVID-19, Microsoft managed to deliver 50% year-over-year constant currency growth for Azure.
Aside from its margins, Microsoft is arguably the safest stock in the world to invest in. Credit rating agency Standard & Poor’s labels it as one of only two AAA-rated public companies, suggesting that it has the utmost confidence in Microsoft’s ability to pay its bills. On an aggregate basis, Microsoft also pays more in dividends each year than any other public company in the United States.
Image Source: Getty Images.
Modern
The fourth most popular stock added in the past month is clinical-stage biotech company Modern (NASDAQ: MRNA), which saw close to 110,000 net Robinhood members add to the company. Since the beginning of the year, Moderna’s ownership of Robinhood has grown from about 5,600 members to nearly 320,000.
Unlike some of the other names mentioned here, Moderna is a perfect example of Robinhood investors chasing a hot story instead of an insecure business model. Moderna is one of a handful of biotech stocks to get a big lift because of its coronavirus vaccine research. In July, Moderna announced results from its Phase 1 dosing study of mRNA-1273, noting that neutralizing antibodies were observed in patients from all three dosing states.
Undoubtedly, there is an enormous market for a COVID-19 vaccine, but it is unclear if this is a brand that can be owned by only a few vaccine developers. With the U.S. Food and Drug Administration only fishing for modest vaccine efficacy, it would not be surprising if multiple drug developers end up delivering a vaccine. That makes a market capitalization of $ 28 billion on Moderna terribly risky.
Image Source: Amazon.
Amazon
Fifth and actually there is Amazon (NASDAQ: AMZN), which only emits Eastman Kodak by a net of 668 accounts in the past 30 days. In total, close to 85,000 net members added Amazon stock to their portfolios, bringing the total ownership to 422,000 members.
There seem to be two reasons why investors are confused with Amazon. First, it has everything to do with the visible retail presence of the company. The Amazon market was already dominant before the coronavirus pandemic came. Now it has become even more of a go-to option for consumers who cannot shop in a supermarket. According to analysts at Bank of America/ Merrill Lynch, Amazon holds 44% of all e-commerce stock in the United States.
The other reason that Robinhood investors love Amazon is because of their cloud service operations, Amazon Web Services (AWS). Sales for AWS grew by as much as 29% during the coronavirus-affected second quarter to $ 10.8 billion, and they generated $ 3.36 billion of Amazon’s $ 5.84 billion in operating revenue. Since cloud margins are significantly higher than retail and ad-based revenue, AWS is Amazon’s key to rapid cash flow growth.
