Robinhood (NASDAQ:HOOD) has an Investor Index that tracks the top 100 most owned investments on Robinhood, in aggregate. The Investor Index outperformed the Nasdaq 100 in 2021 but currently lags the popular benchmark over the past five years.
Tesla (NASDAQ:TSLA), Gamestop (NYSE:GME), and AMC (NYSE:AMC) are some of the Top 10 holdings in the Investor Index, which helps to explain its underperformance. The index has some good investment ideas among the riskier and speculative assets available.
Investors looking for good stock ideas may want to review this list. Yet, it’s important to take it with a grain of salt based on some of the companies within the top 10. Let’s examine some of the most undervalued Robinhood stocks that can reward long-term investors.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is the largest advertising platform thanks to Google and YouTube. Billions of people visit these websites each month to find educational resources and entertaining content. Also, the company enjoys a fast-growing cloud computing segment that makes up more than 10% of its total revenue.
Additionally, Alphabet is diversifying beyond advertising, and its financials have improved due to those efforts. Revenue increased by 13% year over year (YOY) in Q4 of 2023 while net income increased by more than 50% YOY.
Also, the stock trades at a 28 P/E ratio, which is lower than most of the Magnificent Seven stocks. Alphabet has been making meaningful efforts to improve its net profit margins, which should make the valuation more attractive to long-term investors. Shares are up by 46% over the past year and have gained 152% over the past five years. Thus, this Robinhood favorite offers a good valuation and promising growth opportunities like cloud computing and artificial intelligence.
PayPal (PYPL)
The PayPal (NASDAQ:PYPL) growth story isn’t what it used to be. Although shares have been down by 37% over the past five years and well removed from their all-time high, the P/E ratio is grabbing investors’ attention.
In fact, the stock trades at a 17.5 P/E ratio and is up by 9% year to date (YTD). And, the company’s recent financial report demonstrates that it’s no longer a growth stock. Revenue only increased by 9% YOY. However, the valuation reflects decelerating revenue growth, and GAAP EPS increased by 61% YOY.
Also, the company is strengthening its profit margins which can make up for lower top-line growth. PayPal needs revenue growth to accelerate if it wants to maintain impressive net income growth. However, the stock is priced at a reasonable level and offers a relatively limited downside compared to other tech stocks.
Currently, the stock is rated as a moderate buy among 36 analysts. None of these analysts rated the stock as a sell but more than half of them rated it as a hold. Risk-averse investors who want to capitalize on some upside in the event of a recovery may want to consider this stock.
Visa (V)
Visa (NYSE:V) is another fintech company, but its prospects look more promising than PayPal’s. The stock has gained 24% over the past year and is up by 8% YTD. The stock is now rated as a strong buy with a projected 11% upside from the current price. The highest price target of $335 per share implies Visa stock can gain an additional 20%.
Further, Wall Street analysts feel bullish about the stock, and financials fuel that sentiment. Revenue increased by 9% YOY while net income jumped by 17% YOY in Q1 FY24. Profit margin expansion has been a key theme for Visa earnings, and the company’s net profit margins now exceed 50%.
Finally, Visa plows a lot of money into stock buybacks and dividends. The corporation allocated $4.4 billion toward those initiatives to start off the first quarter of fiscal 2024. Also, Visa has a tremendous dividend growth program. The fintech company raised its quarterly dividend from $0.45 per share to $0.52 per share in 2023. That’s a 15.6% YOY increase.
On this date of publication, Marc Guberti held a long position in GOOG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
