Editor’s Note: This article was updated on Feb. 8, 2021, to correct information in the disclosures.
Wall Street doesn’t want to give the young investors much credit. Often dubbed “Robinhood traders” or “Robinhooders,” these young traders are getting more involved in the stock market than ever before. As a result, we’re getting a look at what many investors refer to as Robinhood stocks.
Although experienced investors want to laugh at some of their picks, a number of them have done quite well. Admittedly, many have pie-in-the-sky valuations, but a number of these young investors have made a great deal of money in these names.
According to Keith Czerney, assistant professor of Accounting & Deloitte Faculty Scholar, University of Missouri:
If over the past six months sophisticated or institutional investors simply traded in the same direction as stocks perceived to be popular among retail or unsophisticated investors, this was likely a very profitable trading strategy.
Again, what may be perceived as Robinhood traders driving equity prices, is more likely due to institutional investors, and their much deeper pockets, participating in the markets.
Will the rally live on forever in these Robinhood stocks? Of course not. But there are several names that will continue to succeed. Let’s look at seven of them.
- General Electric (NYSE:GE)
- Disney (NYSE:DIS)
- Royal Caribbean (NYSE:RCL)
- Apple (NASDAQ:AAPL)
- Roku (NASDAQ:ROKU)
- Fastly (NYSE:FSLY)
- Delta Air Lines (NYSE:DAL)
Robinhood Stocks to Buy: General Electric (GE)
Likely because of its low price and the beaten-down nature of the stock, General Electric has gained a following as a Robinhood stock.
While GE stock is a low-priced name that has yet to recover its pre-coronavirus highs from 2020, it has an improving fundamental situation as well. Industrial stocks were put in a tough place when the novel coronavirus hit. Many like GE were unable to quickly recover revenue after the lockdowns and initial shock that Covid-19 caused.
In the case of General Electric, a large percentage of its revenue is tied to the aerospace and airline industry, which remains in critical condition. Even worse for GE, the company builds the engines for Boeing’s (NYSE:BA) 737 MAX, which has been swirling in controversy for two years now.
However, the skies are starting to clear a bit — figuratively and literally. Management expects General Electric’s free cash flow to improve dramatically this year, while the 737 MAX recently made its return to the air.
If CEO Larry Culp and his team can accelerate the company’s top line and cut down costs, GE stock should improve along with its free cash flow.
Robinhood investors seem to love the economic rebound stocks or as some call them, the reopening stocks. Disney fits in that category, given its exposure to hospitality. However, it also has another growth unit, that coming from streaming video.
Covid-19 was the best and the worst thing that could happen to Disney.
On the one hand, it dealt a devastating blow to the House of Mouse’s parks, hotels and cruise businesses. Without its guests, this sudden halt left the company holding the bag on billions of dollars worth of expenses.
Making matters worse, sports were suspended, too. That meant cable revenue (such as for its ESPN unit) saw a huge drop in advertising revenue. Of course, all of this was occurring just after Disney completed its $71 billion acquisition of Twenty-First Century Fox.
So what was the best thing to come of Covid-19 for Disney? The company saw years worth of signups for its Disney+ streaming service. “Disney Plus hit 86.8 million paid subscribers worldwide — and the company projected up to 260 million by 2024.” Now that’s where the recent acquisition is paying dividends.
As sports remain active and as the world will eventually reopen, Disney is a mainstay entertainer that should continue to succeed.
Royal Caribbean (RCL)
Another reopening play? The cruise stocks! This group has been obliterated, with all of the majors having to worry about liquidity. With no-sail orders in place, Royal Caribbean and its peers have been essentially revenue-less for several quarters now.
But believe it or not, there is still pretty strong demand for cruises among consumers. While some of the public has privately vowed to never step foot on another cruise ever, many can’t wait to voyage once again.
With the vaccines gaining momentum, economists, investors and consumers are excited to see where things stand in a few months. Should we return to normalcy — and should cruise ships leave port — then these stocks could have some upside.
Of the three major cruise stocks, RCL stock has been the best-performing name. I would look for that to continue should this group find its footing and power higher.
Robinhooders like to buy what they know and what do they know better than their iPhone? As a result, Apple is a favorite among investors, both young and old. In fact, it’s a top holding among Robinhood investors.
At the risk of watching AAPL stock correct lower after exploding higher in 2020, there’s just so much to like about the company. First, its balance sheet assures us that it should never face any liquidity issues. Ever. That alone is worth a premium and is likely one reason investors flocked to the name in the aftermath of the March 2020 selloff.
Second, the pandemic sent teachers, students and employees all to remote-working environments. This drove sales of Macs and iPads, as new equipment was now needed.
Third, Apple recently introduced its first 5G iPhone. Demand has been pretty strong, according to reports, which should help drive additional revenue growth for the company.
Finally, many are clamoring about Apple’s valuation. While it’s admittedly high vs. its historical valuation, I would argue that because of the company’s growing Services business, it deserves this higher valuation. It’s more profitable than its Products business and it’s growing faster.
After months of consolidating, AAPL stock should have a solid 2021 — even if that means it corrects lower first.
Another technology young investors are familiar with? Streaming video. The leader of the streaming video movement? Roku. That makes it one of our Robinhood stocks to consider.
The one issue with ROKU stock — if we can even call it that — is that it has been on a tear. While shares rebounded nicely from the March low, they’ve been on fire since the September low. From that point, shares have rallied more than 170%.
Of course, there’s a reason for that rally. Wall Street is finally waking up to the shift in cord-cutting. Not that this trend just began, but it has accelerated so aggressively during the pandemic that it’s clear investors were underestimating it.
Further, Wall Street knows these customers aren’t going to ditch streaming to go back to legacy video consumption. As a result, Roku has both short- and intermediate-term catalysts. Analysts expect roughly 55% revenue growth this year and 40% growth in 2021.
However, its long-term opportunity exists in the international markets and as advertising continues to shift into streaming video. Further, its acquisition of Quibi content shows that Roku is selectively getting into content as well.
Fastly has been a bit of a mixed bag. Shares flew completely under the radar in the first quarter of 2020. That goes for Robinhood investors as well as Wall Street veterans. Simply put, this name would not have fallen into the $10 range had investors properly understood it.
FSLY stock bounced sharply back into the $20 area, before going on a crazy run toward $120.
Obviously this move attracted the attention of the younger investors, who saw an exciting growth stock powering higher. The one thing I love about Robinhood investors is their ability to be patient. While they may pay a premium to sit in some of these names, you have to marvel at their patience to wait for a good story to play out.
Fastly is one of those stories.
When the pandemic hit, it accelerated an already-strong trend: the internet.
As silly as that sounds, consider how much we already do online. We shop, read, research, work and seek entertainment, all on the internet. When Covid-19 hit, all of those demands increased, thus increasing traffic and increasing operators’ need to lean on edge cloud computing platforms, like Fastly.
I expect the internet to continue growing in the years ahead and with it will come growth in edge computing. Assuming that is the trend — and it is the trend — then Fastly should be a major beneficiary.
While the stock has been consolidating for several months now, let’s give it some more time. It has the potential to be a big long-term winner.
Delta Air Lines (DAL)
Like cruise stocks, airlines have been battered. However, that hasn’t stopped Robinhood investors from flocking to Delta Air Lines and other carriers. That six of the 51 most-held Robinhood stocks are airlines shows millennials are betting life will return to normal sooner rather than later.
Still, I hesitated to include Delta — or any airline for that matter — on this list. But it’s clear that it’s one of the Robinhood stocks to watch, given the exposure these young investors have to the airlines.
The biggest problem with the airlines? It’s a low-margin business with high operating costs. Now, these companies are saddled with more debt, as they faced a liquidity issue and heavy cash burn throughout most of 2020.
The group has some risks, but if only a few were to survive, Delta would be one of them.
It has the best financials in the industry, behind Southwest Airlines (NYSE:LUV). It’s also the second best-performing stock in the group, (again behind Southwest). When the airlines turn, Southwest and Delta should be winners.
The views and opinions provided by Keith Czerney in this article do not constitute investment advice. Keith Czerney is currently long AAPL stock.
On the date of publication, Bret Kenwell held a long position in AAPL and ROKU.