This has been a year unlike anything before it, with the coronavirus disease 2019 (COVID-19) pandemic exacting an immense physical and financial toll. More than 144,000 Americans have died from COVID-19, as of July 23, with more than 20 million people pushed out of the workforce.
The pandemic also created the most volatile environment for equities in history, as measured by the CBOE Volatility Index. We witnessed the broad-based S&P 500 lose more than a third of its value in a five-week period during the first quarter, then saw the benchmark index deliver its most robust quarterly gains in the second quarter since 1998.
Among Robinhood's most popular stocks, these are the three I'll never sell
While this volatility can be nauseating at times, it's generally a great thing for long-term investors. After all, every stock market correction in history has eventually been erased by a bull-market rally. This means all significant downside moves in the market should be bought by long-term investors.
But this volatility has also given rise to what now become known as the "Robinhood trader."
Robinhood is an online investing app that's been particularly adept at attracting younger and/or novice investors. While I'm all for millennials and Generation Z taking hold off their financial future and investing their money into the stock market, many of these Robinhood investors lack a long-term mindset. Instead, they're usually after today's hottest stock. This has left Robinhood's leaderboard (i.e., its most-popular stocks held by members) littered with terrible businesses.
But among these awful companies are a few stellar stocks that members have picked up (hopefully for many years to come). The following three companies all rank among Robinhood's 25 most-popular stocks, and are current holdings of mine that I never intend to sell.
Bank of America
Let's begin with my longest-tenured holding, money-center giant Bank of America (BAC 0.83%). On Robinhood, BofA is the 16th-most-popular stock, with approximately 342,000 members owning a stake. For context, fewer than 111,000 members owned BofA stock when the year began, so it's been a highly popular addition during the coronavirus correction.
There's no denying that bank stocks are susceptible to weakness during periods of economic contraction or recession, and Bank of America will be no different. The Federal Reserve's dovish monetary policy has pushed lending rates lower, which'll ultimately result in less interest income for big banks. At the same time, the uncertainties tied to COVID-19 are likely to increasing mortgage, auto, and personal loan delinquencies.
But these are relatively short-sighted concerns. The BofA that was hammered by settlements and poor credit quality during the financial crisis is long gone. What you see today is a national bank that's well-capitalized and is set up to succeed over the long run.
Among money-center banks, Bank of America is often the most interest-sensitive. This means it'll see a large bump up in interest income once the Fed begins raising rates again, which is expected in 2023.
Bank of America has also done a bang-up job of controlling its noninterest expenses, which has played a role in the expansion of its bottom line. As more of its members switch to digital banking and/or mobile banking on their smartphone, BofA has been able to shutter some of its physical branches. The trade-off is highly favorable, since digital/mobile transactions are only a fraction of the cost of in-person retail banking transactions.
Given CEO Brian Moynihan's emphasis on hefty capital return programs during periods of economic expansion, I see no reason to ever sell my stake in Bank of America.
Although it's a newer addition to my portfolio (added during the March meltdown), social media powerhouse Facebook (META -1.19%) is another popular Robinhood stock that I have no intention of ever selling. On Robinhood, Facebook ranks as the 25th-most-held stock, with over 238,000 members owning a piece of the pie. That's almost double the number of Robinhood stakeholders from early January.
Operating a successful company in the social media space might sound easy, but it's not. Facebook is the blueprint by which other companies try to emulate. As of the end of March, Facebook had 2.6 billion monthly active users (MAU), as well as 2.99 billion family monthly active people. This family figure includes other owned assets, such as Instagram and WhatsApp. The point is, there's not another social media platform where advertisers can go to reach nearly 3 billion pairs of eyeballs. That's what makes Facebook and its ad-pricing power so special.
Another reason Facebook is such a monster is that it hasn't even shifted its growth engine into high gear yet. While it is monetizing Facebook and Instagram with ads, it's done very little with regard to monetizing Facebook Messenger and WhatsApp. These are four of the seven most-visited social platforms on the planet, and Facebook is really only generating consistent cash flow from two of them. Once Facebook does open the floodgates on WhatsApp and Facebook Messenger, its growth rate and cash flow potential could soar.
I'm also a big fan of what Facebook might be able to do beyond advertising. Don't get me wrong, advertising should remain a fruitful venture for Facebook, especially with periods of economic expansion lasting considerably longer than periods of economic contraction or recession. But I'm excited about the potential of payment solutions or perhaps a premium streaming service being built through Facebook's platform.
It's a company with seemingly limitless potential that I'd be foolish (with a small "f") to sell.
A final popular Robinhood stock that I won't be parting ways with is Amazon (AMZN -8.43%). Currently, the e-commerce behemoth is the 12th-most-held stock on the Robinhood platform, with more than 393,000 members owning a stake. For context, that's almost quadruple the number of Robinhood investors that owned Amazon just five months ago.
Whereas most businesses have struggled during the COVID-19 pandemic, Amazon has actually been a beneficiary, thanks to its online marketplace. According to analysts at Bank of America/Merrill Lynch, Amazon controls an astounding 44% of all online sales in the United States. That's roughly six times higher than its next-closest competitor.
Amazon has been able to use its online dominance to coerce over 150 million people to sign up for a Prime membership worldwide. The fees Amazon generates from Prime help to offset its razor-thin retail margins and give the company another tool in its arsenal to undercut brick-and-mortar retailers on price. It also doesn't hurt that the membership model keeps these 150 million-plus people locked within Amazon's ecosystem of products and services.
But as I've been repeatedly saying for months, the company's real growth driver is its cloud-services segment, Amazon Web Services (AWS). AWS is a cloud infrastructure service play that primarily aids small and medium-sized businesses in building their clouds. With the COVID-19 pandemic pushing more businesses than ever online, AWS should be busier than ever.
Best of all, AWS' margins are considerably higher than what Amazon generates from retail, ads, and streaming content. Therefore, as AWS grows into a larger percentage of the company's total sales, operating cash flow should soar.
Amazon is the type of growth stock you can set and forget about.