No matter how long you've been an investor, there's nothing that could have prepared you for 2020. The coronavirus disease 2019 (COVID-19) pandemic has exacted a huge physical and financial toll on the U.S. and global market, as well as set records with regard to stock market volatility.
If there is a silver lining to this madness, it's that opportunity is often found during periods of panic and heightened volatility. Every stock market correction in history (save for the current one) has eventually been put firmly into the rearview mirror by a bull market rally. In other words, investors who take a long-term view and buy high-quality businesses at a discount tend to come out ahead.
But periods of panic and volatility don't always bring the best investing habits to light. In recent months, Robinhood investors have gained quite the reputation for their short-term mindset and willingness to chase seemingly awful companies. While it's great that online trading platform Robinhood has been able to attract younger investors to put their money to work in the stock market, Robinhood's retail investors have become an informal joke on Wall Street.
However, there is good news. Although there are quite a many Robinhood millennials who have a get-rich-quick mentality and are basically playing roulette with their money on a daily basis, there are also Robinhood investors who are making sound choices with their money.
After perusing the online platform's most popular additions over the past couple of months, I'm fairly confident that the following four top stocks will make Robinhood investors rich, if they simply continue holding over the long run.
If not for a small handful of prospective COVID-19 vaccine developers, there's a very good chance that Livongo Health (LVGO) would be the hottest stock in the healthcare sector. Shares of Livongo have more than quadrupled since the year began, with the total number of Robinhood accounts holding shares of Livongo surging from around 4,500 in February to over 34,000, as of this past weekend.
What makes Livongo Health so intriguing is the company's approach to helping patients with chronic illnesses live healthier lives. While there are countless medications and devices available to patients with chronic illnesses, ensuring that these patients stay on top of their disease and lead healthier lives is half the challenge. That's where Livongo comes in.
Livongo aggregates mountains of patient data and utilizes artificial intelligence to send tips and "nudges" to its members to help them make smarter choices. It's a win for everyone involved, with patients living longer and healthier lives, insurers dealing with lower medical costs tied to fewer chronic illness hospitalizations, and Livongo benefiting from a steady stream of highly predictable cash flow.
As of the end of March, Livongo had more than 328,000 Diabetes members, which was double what it had at the end of March 2019. The company also recently announced that its Q2 revenue would be well ahead of its own previous guidance. This all comes with Livongo having penetrated just 0.95% of the U.S. diabetes market (34.2 million people). If Livongo is already generating small profits with less than 1% of diabetes market share, imagine how much of a beast this company will be once it secures a larger piece of the pie and expands into hypertension, prediabetes, and weight management.
Another stock that's bound to make Robinhood investors rich is social media giant Facebook (META -0.93%), which recently hit an all-time high. When the year began, approximately 126,000 Robinhood accounts owned a stake in Facebook. But as of this past weekend, over 233,000 accounts were stakeholders, making Facebook the 26th-most popular stock on the platform.
Social media is predominantly a numbers game -- and Facebook is winning in that column by a landslide. At the end of March, Facebook had 2.6 billion monthly active users, as well as 2.99 billion family monthly active people (this includes all the unique visitors to the company's owned platforms). There's simply no other social platform where advertisers can go to get access to almost 3 billion sets of eyeballs. This allows Facebook exceptional pricing power, and is a big reason it continues to grow by a double-digit percentage.
Maybe the craziest thing about Facebook is the company's untapped potential. While it's been monetizing Facebook for a long time, and began placing ads on Instagram in recent years, it's hardly begun to monetize WhatsApp or Facebook Messenger. Combined, these are four of the seven most-visited social platforms. Once Facebook does begin monetizing all of its assets, its growth rate can pick right back up again.
Robinhood investors also won't regret their decision to buy and hold e-commerce giant Amazon (AMZN -0.12%). Since the end of February, the number of accounts holding Amazon has more than tripled from approximately 106,000 to more than 344,000. Today, it's the 14th-most-held stock on the platform.
Most folks know Amazon for its e-commerce dominance. In February, Bank of America estimated that the company had a whopping 44% of e-commerce market share in the U.S., which is light years ahead of Walmart, which is in second place with 7% of U.S. e-commerce market share. Amazon has pivoted its online dominance into more than 150 million Prime memberships around the world. These membership fees are a big key to Amazon undercutting big-box retailers on price, and in keeping consumers loyal to the Amazon ecosystem of products.
Of course, the key growth driver for Amazon isn't the company's e-commerce segment. Rather, it's infrastructure-as-a-service segment Amazon Web Services (AWS). We were already witnessing a greater number of businesses push online and into the cloud well before COVID-19. However, the pandemic has accelerated this trend. Since cloud services produce considerably higher margins than retail or ad revenue, Amazon is seeing its operating cash flow explode as AWS grows into a larger percentage of total sales.
Lastly, there's been a definite attraction in recent months to fintech stock Square (SQ -0.42%). With its share price more than tripling off of its mid-March bottom, the number of Robinhood members holding Square stock has risen by almost 40,000 in four months.
Just as Amazon's e-commerce platform has turned investors' heads, so has Square's seller ecosystem over the past half-decade. But it's no longer small and medium-sized businesses that are key to Square's payment network. Instead, the company has seen a significant increase in gross payment volume from larger businesses (defined as $125,000 or more in annualized gross payment volume). Since Square is focused on the consumption-driven U.S. market, an uptick in usage from larger businesses would be great news for its fee-based revenue channel.
However, the long-term growth catalyst for Square looks to be online peer-to-peer payment platform Cash App. It took Cash App a mere two years to more than triple its monthly active user count from 7 million to 24 million (by December 2019). But in March and April, Square reported record enrollment for Cash App, primarily due to the coronavirus pandemic and the ongoing aversion to cash. At the rate Cash App is growing, it could be responsible for half of Square's gross profit by as soon as 2022.
Square, along with Amazon, Facebook, and Livongo Health, have what it takes to make long-term-focused Robinhood investors rich.