While online broker Robinhood is potentially getting ready for an initial public offering (IPO), investors using its trading app are also making headlines with their portfolio choices. It has now become a common practice to check the most popular shares held by these retail investors. Today, we’ll look at seven top Robinhood stocks for October.
The list of Robinhood favorites has 100 names, ranging from darlings of Wall Street, to penny stocks, to exchange-traded funds (ETFs). One common denominator is possibly the volatility of a lot of these shares. These investors seem to be enjoying the daily dose of adrenalin rush. They also do not shy away from controversial names like Nikola (NASDAQ:NKLA), which is reportedly under investigation by the Securities and Exchange Commission, as well as Canada-based marijuana stocks, which have lost their luster in the past quarters.
The Street may debate the appropriateness of some of the names favored by Robinhood traders. However, the brokerage has made a difference to the investing world in 2020. Jim Kyung-Soo Liew and Ahmad Ajakh of the Finance Department at the Johns Hopkins Carey Business School call Robinhood “a pioneer in the Fintech space, with their mobile application platform that enabled investors to buy and sell stock without paying commissions. Other brokerages, such as Fidelity, Charles Schwab and JP Morgan Chase, followed suit, reducing their commission to zero.”
With that background, here are seven Robinhood stocks for investors to keep on their radar screens in October:
- BP (NYSE:BP)
- Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (NYSEARCA:GUSH)
- Invesco S&P 500 High Div Low Volatility ETF (NYSEARCA:SPHD)
- Nike (NYSE:NKE)
- Snap (NYSE:SNAP)
- Sony (NYSE:SNE)
- SPDR S&P 500 ETF Trust (NYSEARCA:SPY)
Robinhood Stocks: BP (BP)
September saw the price of oil slide. Both the international benchmark Brent crude and West Texas Intermediate (WTI) are slightly over $40. Early in August, market participants were wondering if $50 could be a possibility in the coming weeks. Now, $35 or even $30 feels more likely. By comparison, in 2014, Brent was flirting with $120 and WTI was over $105.
Such volatility affects the share prices of oil majors like BP, whose fortunes are closely linked to the price oil. Until earlier in the year, it had been one of the most profitable companies in the sector. But BP’s fall from grace has been rather rapid, affecting portfolios of long-term shareholders. The pandemic has meant a new normal for citizens worldwide. As a result, the demand for oil has decreased drastically.
Early in the summer, BP reported a loss of $16.8 billion for the quarter, compared with a profit of $1.8 billion for the same period a year earlier. London, U.K.-based oil giant also cut its dividend in half.
Management is working to make BP a more integrated energy company as opposed to simply an oil major. CEO Bernard Looney has set the strategy as reducing the oil and gas output by 40% over the next decade. Instead the focus will now be on electricity generation and clean energy.
Year-to-date (YTD), BP is down over 50%. As a result, the stock is on the radar screen of Robinhood investors. Short-term, we’d not yet be buyers of the shares while a further decline toward $17 is still on the cards. However, long-term investors may consider buying the dips.
Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH)
Expense Ratio: 1.04%, or $104 per $10,000 invested annually
Our next discussion focuses on a leveraged ETF (LETF), i.e., the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares. The fund seeks daily investment results of 200% of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. Components of the fund include both some of the global energy giants and several smaller players. Some of the portfolio companies are ConocoPhillips (NYSE:COP), EOG Resources (NYSE:EOG), Hess (NYSE:HES), and Marathon Petroleum (NYSE:MPC).
Leveraged ETFs are usually marketed as bull or bear. Thus market participants can take a direction on either side of a trade. With GUSH, Robinhood investors are making a big bet on increased prices in big oil. On the other hand, GUSH’s respective inverse ETF is the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 2X Shares (NYSEARCA:DRIP).
The emphasis here is on “2X,” or leveraged, and “daily.” Leverage gives the potential for amplified gains, albeit at an increased risk. The daily rebalancing is one of the most important characteristics of LETFs. As a result, they are more appropriate for short-term trading, but not long-term investing.
GUSH’s fund managers clearly state, “The funds should not be expected to provide two times or negative two times the return of the benchmark’s cumulative return for periods greater than a day.” Like other leveraged funds, GUSH uses derivative instruments to amplify the returns the underlying index. In other words, it has high-risk characteristics.
A 2X LETF like GUSH is set up to be constantly 2X leveraged on a daily basis. This 2X long oil LTEF needs to buy every day when underlying asset prices go up, and sell when they go down. However, that means the compounding effects of daily returns work against long-term investors. Thus the fund is an inappropriate long-term holding. This is a short-term trade.
The U.S. Presidential election on Nov. 3 may bring more volatility to the oil industry. As a result, GUSH may better serve the needs of short-term traders who want to make directional bets during the trading day. But I have to once again remind our readers that this is not a buy-and-hold fund.
Invesco S&P 500 High Div Low Volatility ETF (SPHD)
Expense Ratio: 0.30%
Next on the list is another exchange-traded fund, i.e., the Invesco S&P 500 High Div Low Volatility ETF. The fund provides exposure to stocks that have low volatility and high dividend yields. SPHD, which has around 50 holdings, tracks the S&P 500 Low Volatility High Dividend Index. Thus, it is a different choice than many of the growth and tech names preferred by Robinhood investors.
The stocks come mostly from large- and mid-capitalization (cap) names. Lumen (NYSE:LUMN), Iron Mountain (NYSE:IRM), Dow (NYSE:DOW), Altria (NYSE:MO) and Vornado Realty Trust (NYSE:VNO) top the list of holdings. The top 10 businesses comprise about 27% of assets.
In terms of sectoral allocation, Utilities have the highest weighting with 17.9%. Next come Real Estate (14%), Information Technology (11.7%), Communication Services (11.5%) and Materials (7.9%).
So far in the year, SPHD is down around 24%. Put another way, defensive and value stocks have been out of favor and the fund has suffered as a result. The current price supports a 12-month dividend yield of over 5.5%. The fund’s forward P/E of 14.48 and P/B of 1.70 may appeal to investors who are looking for value as well as dividends. I’d look to buy into the declines, especially around $30.
Nike (NKE)
Shareholders in Nike are having a great year, with the stock up over 24% YTD. Technically, the stock is in a bull market. Its portfolio of brands includes NIKE, Jordan, Hurley and Converse. The company’s sales channels are Nike-owned retail stores, NIKE Direct, which focuses on online sales, plus various independent distributors and licensees as well as their digital platforms.
On Sept. 22, the company reported fiscal 2021 financial results for its first quarter ended Aug. 31. Revenues came in at $10.6 billion, down 1% YoY. Diluted earnings per share (EPS) was 95 cents, up 10% YoY. The increase in EPS was achieved mainly by lower selling and administrative expenses, and not by revenue expansion.
Investors were, however, pleased to see that NIKE Brand digital sales were up 82%, with “double-digit increases across North America, Greater China, and APLA and triple-digit growth in EMEA [Europe-Middle East-Africa].” During the quarter, Nike added two business segments, i.e., maternity and yoga.
CEO John Donahoe sounded optimistic on the upcoming quarters while he commented “…In this dynamic environment, no one can match our pace of launching innovative product and our Brand’s deep connection to consumers. These strengths, coupled with our digital acceleration, are unlocking NIKE’s long-term market potential.”
As a result of the run-up in price, NKE stock has become richly valued. Its forward P/E and P/S are 49 and 5.35, respectively. Similarly, its short-term technical indicators and charts point to an overbought picture. Although a stock can stay overbought for a long-time, I’d rather wait for a pullback in price, ideally toward the $110-level or below, before committing new capital into the brand.
Snap (SNAP)
Santa Monica, California-based Snap describes itself as a camera company. Its flagship product, Snapchat, a camera application, allows users to communicate through short videos and images known as “Snaps.” Teens comprise its major demographic group. Its advertising products include Snap Ads and Sponsored Creative Tools.
Earlier in the summer, the company announced Q2 results. Revenue came in 17% higher year over year at $454 million. However, net loss was $326 million, worse than -$255 million in the prior year. Furthermore, management is having a difficult time generating free cash flow. Investors were pleased to see Daily Active Users (DAUs) grew by 17% YoY. “On average, Snapchatters opened Snapchat over 30 times every day in Q2 2020,” the release said. However, most of the growth is coming from outside the U.S., where advertising and revenues are not as robust.
Although CEO Evan Spiegel sounded upbeat about how the company has handled the current business environment, management was unable to provide an outlook for the rest of the year. After all, it is a tough advertising environment. Analysts are also concerned about the fact that Snap is yet to report a profit. In fact, it is not even close to breaking even.
YTD, SNAP stock is up over 60%. Its forward P/E and P/S stand at 286 and 17.9. These are extremely rich levels even for a growth company. I’d rather look elsewhere in the market.
Sony (SNE)
The next stock on our list is the Tokyo, Japan-headquartered multinational Sony. The company was founded in 1946. Fifty years ago, it became the first Japanese firm to be listed on the NYSE. It is also number 116 on the Fortune Global 500 list.
The conglomerate is one of the world’s largest manufacturers of consumer and professional electronic products. Many InvestorPlace.com readers would also be familiar with the company’s strong position as one of the largest video game publishers and record companies.
Earlier in September, Sony announced that the PlayStation 5 (PS5), its long-awaited game console, would launch on Nov. 12. Sony faces fierce competition from Microsoft’s (NASDAQ:MSFT) Xbox Series X. Yet a large number of consumers are expected to put the PS5 on their holiday-season shopping list. The previous model, PS4, was released in 2014 and has so far sold about 113 million consoles.
In early August, Sony released Q1 FY2020 financial results for the three months ended June 30. Revenue increased 2% YoY. Its games business thrived as users downloaded more games during the lockdown period. PlayStation Plus subscribers have reached 45 million.
Since the start of the year, SNE stock is up over 12%. In fact, the share price has been on a steady uptrend since 2016, when it was around $20. Its current forward P/E and P/S ratios stand at 19.7 and 1.2 respectively. I’d look to buy the dips in the shares, especially if they decline below the $75-level.
SPDR S&P 500 ETF Trust (SPY)
Expense Ratio: 0.0945%
Our final choice for today is another exchange-traded fund, i.e., the SPDR S&P 500 ETF Trust. Assets under management are close to $300,000 billion, making the fund one of the most liquid ETFs.
SPY is typically used by investors looking for a way to trade the S&P 500 index, which measures the performance of the 500 largest publicly traded companies in the U.S. It is a capitalization-weighted index that covers over 20 industry groups. For most market participants, its performance shows how shares are performing.
SPY, launched in January 1993, was the very first ETF to be listed in the U.S. Larger companies, such as Apple (NASDAQ:AAPL), Microsoft and Amazon (NASDAQ:AMZN), make up a greater portion of the index’s value and influence its performance.
Year-to-date, SPY is up about 4.7%. The S&P 500 index and hence the fund may come under pressure in the coming weeks. However, long-term investors who want exposure to a large portion of the U.S. equity markets may consider buying into declines in SPY.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
