Robinhood, the brokerage platform that popularized free stock trades, serves over 10 million users worldwide. Instead of charging fees for every trade, Robinhood generates most of its revenue by earning interest on accounts, margin lending, and directing orders to high-frequency trading platforms in exchange for rebates.
Robinhood's arrival attracted a new wave of younger investors and forced older online brokerages to offer free trades. Robinhood also awards new accounts that fulfill certain conditions with a single share of a random stock -- usually worth $2.50-$10.00.
Experienced investors might not be impressed by Robinhood's no-frills interface, but the platform's top stocks still offer valuable insights into the trading habits of younger investors. Based on numbers from the tracking website Robintrack, three stocks are currently held by the most Robinhood investors: Ford (NYSE:F), General Electric (NYSE:GE), and Disney (NYSE:DIS).
Over 843,000 Robinhood investors own shares of Ford, the struggling automaker that lost nearly 70% of its value over the past five years. During that period, Ford faced sluggish sales in China and Europe, stiff competition for its popular F-150 pickup and Explorer and Escape SUVs, and the COVID-19 crisis, which shut down its factories and throttled consumer demand.
In March, Ford suspended its dividend, drew $15.4 billion from two credit lines, and withdrew its full-year forecast as the pandemic spread. It also issued a fresh $8 billion debt offering in April. Those moves all boosted Ford's liquidity and enabled it to weather the COVID-19 crisis, but the near-term macro headwinds still caused many investors to abandon the stock.
Ford's stock looks incredibly cheap at six times forward earnings, but the bulls probably won't return until the automaker reopens its plants, launches new vehicles, and returns to profitability after posting a whopping net loss of $2 billion on revenue of $34 billion last quarter.
2. General Electric
Nearly 748,000 Robinhood investors own shares of GE, the troubled industrial giant that was booted from the Dow Industrial Average in 2018. GE had been struggling ever since the Great Recession, and it desperately tried to streamline its business by divesting weaker units, cutting jobs, and slashing its dividend.
None of those efforts generated consistent growth, and GE struggled to find direction under the leadership of three different CEOs over the past four years. Before COVID-19 hit, GE was trying to grow its core industrial businesses while divesting its non-core assets.
Unfortunately, that transition hit a brick wall as its aviation unit lost orders from Boeing (NYSE:BA), which suspended the production of its troubled 737 MAX aircraft, and orders from energy infrastructure clients dried up. The COVID-19 crisis subsequently slammed all of GE's core markets, causing the stock to tumble to a three-decade low.
Like Ford, GE looks like a deep value play at less than one times its annual revenue. Unfortunately, this battered stock probably won't rebound until the pressure eases on the energy and aviation markets.
Disney ranks third on Robinhood with about 545,000 investors. Prior to the COVID-19 crisis, Disney's movie and theme park businesses generated consistent growth, but its media business struggled with cord-cutters and competition from streaming platforms. It planned to counter those challenges by investing billions into fresh content for Disney+, ESPN+, and Hulu.
Disney+ got off to a strong start in late 2019, but the COVID-19 crisis shuttered its movie and theme park businesses earlier this year. The loss of those two growth engines forced Bob Iger, who stepped down as Disney's CEO in February, to return as its executive chairman to help CEO Bob Chapek navigate the crisis. Disney also suspended its first-half dividend in early May.
Disney remains a divisive stock for the bulls and bears. The bulls believe Disney's growth engines will restart after the pandemic passes, while the bears believe the pandemic will cause lasting damage as cash-strapped consumers buy fewer movie and theme park tickets. Regardless of what happens, the stock isn't cheap at over 50 times forward earnings -- and it could remain volatile over the next few quarters.
The key takeaways
It's unclear if Robinhood investors are bullish or bearish on Ford, GE, and Disney. Some of those investors might merely have received shares of Ford and GE -- which are much cheaper than shares of Disney -- when they opened their accounts. Nonetheless, all three companies could emerge stronger from the COVID-19 crisis. Ford and GE are arguably in deeper holes than Disney, but the near-term headwinds battering these three popular stocks should eventually pass.