Robinhood (NASDAQ:HOOD) remains the preferred trading platform for millennials. Several trades listed on the app have been wealth creators in the current bull market. However, there are some Robinhood stocks that investors should avoid at all costs.
There is a high probability that we will remain in a bull market for the foreseeable future. Inflation and the Federal Reserve’s tapering plans will cause some jitters. However, the markets are likely to remain on an uptrend. It’s worth noting that even if the Fed increases interest rates in 2022, real rates are likely to remain negative.
This is good news for asset classes like equities, commodities and cryptocurrencies.
However, a bull market does not imply all stocks will surge higher. There are stocks that have plunged due to various fundamental factors outside of general market trends.
Therefore, it’s important to be cautiously optimistic. As markets continue to trade near all-time highs, investors should be increasingly selective when picking stocks.
That being said, I believe these Robinhood stocks will trend lower or remain sideways even if the broader market continues on an upswing:
- Camber Energy (NYSEAMERICAN:CEI)
- Ocugen (NASDAQ:OCGN)
- Hyliion Holdings (NYSE:HYLN)
- GameStop (NYSE:GME)
- Aurora Cannabis (NASDAQ:ACB)
- Electrameccanica Vehicles (NASDAQ:SOLO)
- Lixiang Education (NASDAQ:LXEH)
Robinhood Stocks: Camber Energy (CEI)
The rally in CEI stock seems to have fizzled out, and I believe the stock is likely to trend lower. A recent report by Kerrisdale Capital was the catalyst for correction.
Kerrisdale pointed out that the company’s only real asset is a 73% stake in Viking Energy. The latter has a negative book value and recently violated the maximum-leverage covenant on a loan.
It’s also worth noting that Camber Energy claims to have more than 145 active conventional oil and gas wells. However, the impact of the oil price upside on the stock has been minimal.
As a matter of fact, the company has not reported financial results since September 2020. This is one of the biggest red flags for CEI stock.
Recently, Camber Energy also secured an exclusive intellectual property (IP) license agreement with ESG Clean Energy. The IP is for a patented carbon-capture system. However, the license is only exclusive for Canada. The impact on the top-line is unlikely to be meaningful.
Therefore, I would avoid CEI stock even after a meaningful correction from highs. The downtrend is likely to sustain and I would not be surprised if the stock eventually trades below $1.
OCGN stock is up by more than 2,500% in the last 12 months. But I believe the best part of the rally is over for the stock.
In December 2020, Ocugen signed an agreement with Bharat Biotech to co-develop the latter’s Covid-19 vaccine candidate for the U.S. market. Almost one year down the line, Ocugen has yet to receive approval from the Food and Drug Administration (FDA).
Ocugen has also filed a rolling submission with Health Canada for Covaxin. However, a key point to note is that the United States and Canada already have a high percentage of vaccinated adults. Even if Covaxin is approved in the coming quarters, there is limited revenue visibility.
Additionally, Ocugen has a revenue sharing agreement with Bharat Biotech. This further limits the revenue and cash flow potential. It’s unlikely Covaxin will be a game-changer for the company.
Ocugen is developing a pipeline of other products. However, for now, OCGN stock’s action will be dictated by growth potential from the vaccine. Things look bleak on that front, and I believe OCGN stock is due for a sharp correction in 2022.
Robinhood Stocks: Hyliion Holdings (HYLN)
The electric vehicle (EV) space already seems overcrowded. It’s therefore important to be selective, and HYLN stock should be on investors’ list of Robinhood stocks to avoid. The stock has already plunged by more than 50% year-to-date (YTD).
However, UBS recently assigned a “sell” rating for the stock. A key reason for the downgrade is that Hyliion is expected to “fall short of revenue expectations for 2022 to 2024.”
UBS has assigned a price target of $5 for the stock. This would imply a downside of more than 35% from current levels near $8.
As an overview, Hyliion expects to provide electrified powertrain solutions for the commercial vehicle industry. The company has more than $617 million in available liquidity for its commercialization plan.
However, expenses are likely to remain high. And as cash burn sustains, equity dilution is also a possibility. For the first half of 2021, the company reported an operating level loss of more than $40 million.
It’s worth noting the company expects to recognize revenue in the second half of 2021. The coming quarterly results might therefore provide some insights on the likely growth potential.
However, as UBS points out, supply chain issues and labor shortages will impact growth. The markets are likely to be disappointed with the upcoming third-quarter results. It would therefore be best to stay away from HYLN stock, even after the big downside in 2021.
GME stock was one of the first names that joined the meme stock rally. After extreme volatility, the stock has settled at levels around $180. However, the valuation seems to be beyond its fundamentals, and a correction is imminent.
For Q2 2021, GameStop reported $1.2 billion in sales. However, the company continued to report operating level losses. Further, with 51% of sales from hardware and accessories, it seems unlikely the company will see significant margin expansion.
GameStop has a strong cash buffer with current cash and equivalents of nearly $1.8 billion. In the near term, cash burn is not a concern. However, GME stock is likely to trend lower if EBITDA level losses sustain.
Another segment for the company is gaming software. Research indicates this market is expected to grow at a compound annual rate of 4.7% through 2030. Considering the industry’s growth outlook, it seems unlikely top-line growth will excite the markets. This holds true for the hardware and gaming software segments.
With these factors at play, a sharp correction seems likely for GME stock — and it could come soon.
Robinhood Stocks: Aurora Cannabis (ACB)
The cannabis industry has multi-year tailwinds. Furthermore, federal-level legalization of cannabis in the United States can be a big upside catalyst for cannabis stocks. However, investors should still stay away from ACB stock.
For one thing, Aurora Cannabis is unfocused. In December 2019, the company announced it will roll out cannabis 2.0 products. This included premium products like gummies, mints, chocolates and baked goods. These products are expected to accelerate growth and boost Aurora’s EBITDA margin.
But more recently, the company announced it will be focusing on the medicinal cannabis business rather than chasing recreational revenue. Clearly, management seems unsure how to boost growth and key margins.
It’s worth noting there is a bigger industry focus on evidence-backed medicinal cannabis. If Aurora pursues clinical trials, it would be few years before the company can boost growth.
On a relative basis, Tilray (NASDAQ:TLRY) looks more appealing than ACB stock. The company has a wider geographical presence and has already made significant inroads in the medicinal cannabis business.
So far this year, ACB stock is lower by more than 11%. I would not be surprised if the downtrend sustains as Aurora focuses on another business transformation, which will impact growth.
Electrameccanica Vehicles (SOLO)
I must admit, I have been wrong about SOLO stock in the past. However, it has trended lower recently, and it seems the markets are not excited about the company’s product.
As part of the EV industry, Electrameccanica has garnered considerable attention. The company has designed and is producing single-seater electric vehicle. With an asset-light model and attractive pricing, the company’s outlook was bright initially.
However, it’s worth noting Electrameccanica announced it had begun the first customer deliveries of its Solo electric vehicle earlier this month. The launch didn’t translate into stock upside.
The lukewarm response could be an early indicator of how the company will fare in the crowded EV market. Amidst strong competition in the industry, Electrameccanica might struggle to make any meaningful inroads.
It’s also likely that further dilution might be needed to accelerate its marketing and retail presence. Considering these factors, I am bearish on SOLO stock. Even if the worst of downside is over, I don’t see the stock moving higher. A time correction is likely to follow after a price correction.
Robinhood Stocks: Lixiang Education (LXEH)
Lixiang Education’s shares have traded sideways for the last 12 months. I believe a correction is imminent for the education services company.
A key reason to be bearish on LXEH stock is regulatory headwinds. The company is based in China, where the government is cracking down on for-profit tutoring. The outlook for the industry remains uncertain, but several education companies have already closed their doors.
It’s also important to note that Lixiang has not registered impressive growth. For its 2020 fiscal year, the company reported revenue growth of 4.7% on a year-over-year basis. The company’s operating income also declined for the same period.
Lixiang had raised $33 million from an initial public offering in September 2020. The company is positioned to invest for growth. However, regulatory uncertainties imply it needs to wait before making any meaningful investments.
Therefore, from a fundamental perspective, Lixiang looks unattractive. Upcoming results might be a catalyst for a sharp correction.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.