It doesn't matter how long you've been an investor -- nothing could have prepared you for this year's roller-coaster ride that was precipitated by the coronavirus disease 2019 (COVID-19) pandemic. Over the past five months, equities have plunged faster than they ever have, as well as delivered their strongest quarterly performance in more than two decades. Volatility levels have simply never been higher.
For long-term investors, this period of heightened volatility isn't necessarily a bad thing. It's given investors the opportunity to buy into game-changing and innovative businesses at a perceived discount. And history shows that every single stock market correction (save for the current COVID-19 correction) has been eventually erased by a bull-market rally.
Investors should avoid these awful stocks
Unfortunately, periods of volatile trading tend to bring short-term-focused and/or novice investors out of the woodwork -- and online investing app Robinhood is giving these retail investors a platform.
On the surface, getting younger people to invest for their future is an excellent thing. Thus, in this regard, the coronavirus pandemic and Robinhood have been a bit of a blessing. But it's a mixed blessing when you consider that Robinhood isn't giving its many young and novice users the knowledge and tools needed to lean to invest the right way. The result is that Robinhood's leaderboard (i.e., the most-held stocks on the platform) is a smorgasbord of awful stocks or short-term highfliers. In many instances, these are companies that have no reason to be held by investors.
As we move headlong into August, I'd encourage investors (Robinhood members included) to avoid the following three awful, but extremely popular, Robinhood stocks like the plague.
It's sort of wild that I even have to say this, but please (with sugar on top) don't buy into the Eastman Kodak (NYSE:KODK) hype train.
As some of you may already know, Kodak skyrocketed last week after being awarded a $765 million loan from the U.S. International Development Finance Corporation. Under the authority of the Defense Production Act, Kodak will be using this capital to help manufacture generic drug ingredients to help combat COVID-19. That's right, the one-time digital photography giant is moving into the pharmaceutical industry. In a matter of two days, Kodak's share price exploded from $2.62 to an intraday high of $60.
This might sound like the opportunity of a lifetime for Kodak, but it's not something that investors should be particularly excited about. You see, Eastman Kodak is riding a dubious sales streak that I had to see to believe. The last time Kodak reported year-on-year sales growth was all the way back in 2005. That's right... a 14-year (and counting) sales slump that's seen revenue fall from $14.27 billion in 2005 to a meager $1.24 billion in 2019. And just in case you weren't aware, Kodak also filed for bankruptcy in January 2012.
Eastman Kodak has tried to reinvent itself since emerging from bankruptcy, but it's still selling many of the same stodgy products that simply aren't as popular any longer. Digital cameras and printing products just don't garner the appeal today that they did 20 years ago, and the same could be said for Eastman Kodak stock as it ventures into drug ingredient production. It's an awful stock that should be avoided by all investors.
When it comes to electric-vehicle (EV) manufacturers, I feel as if the entire industry is in a valuation bubble. But the latest to see its market cap balloon higher without real merit is China's Kandi Technologies (NASDAQ:KNDI).
Robinhood investors flocked to their latest crush last week after Kandi announced that it would be launching two of its most affordable EVs in the United States (the K27 and K23 models). According to the company press release, the K27 will price at roughly $13,000 after federal tax credits, with the larger K23 selling for about $22,500 following federal tax credits.
Though U.S. consumers are clearly hungry for EVs, this initial reception, which saw Kandi's share price catapult from $3.87 to north of $17 before finally retracing, looks unjustified.
Arguably the biggest issue with Kandi is that its vehicles simply won't pass muster when placed side-by-side to existing EVs on sale in the United States. Yes, the price point is significantly lower, but the K27 and K23 only have respective estimated driving ranges of 100 miles and 188 miles and they lack the power that other U.S.-sold EVs bring to the table. Unless we're talking about consumers looking for an inexpensive alternative to city driving, Kandi's vehicles aren't all that practical.
Another hurdle being that EV infrastructure in the U.S. is still nowhere close to where it needs to be. Every next-big-thing investment over the past quarter of a century has been overhyped and taken longer than expected to be become mainstream. This is likely going to be true for EVs, and investors would be wise to temper their expectations for Kandi.
Not to purposely pick on the automotive industry twice, but rental car stock Hertz (OTC:HTZG.Q) is a highly popular Robinhood holding that should also be avoided like the plague in August (and beyond).
Hertz became exceptionally popular among young and novice investors in late May, when its share price rose by nearly 900% in a span of two weeks. What made this exponential growth such a head-scratcher is that it came after the company filed for Chapter 11 bankruptcy protection. In particular, investors were excited about the possibility of Hertz issuing common stock during bankruptcy proceedings, or the idea of having another company swoop in to buy some of Hertz's assets.
However, none of this has come to fruition. Hertz's proposed stock issuance was suspended, and no company has stepped forward to buy Hertz. Although the rental giant was able to strike a deal with lenders to reduce its debt by selling down its fleet of vehicles, this doesn't guarantee that there'll be any equity leftover for existing shareholders. In fact, Hertz spelled this out back it was proposing to offer its common stock for sale. In the company's own words:
There is a significant risk that the holders of our common stock, including purchasers in this offering, will receive no recovery under the Chapter 11 Cases and that our common stock will be worthless.
As one added worry, it's unclear how long the COVID-19 pandemic is going to last. No one is certain how effective a vaccine will be, or if a successful vaccine will even be developed. This could tie the hands of the travel industry for many years to come.
With Hertz's stock likely headed to $0, it remains a big-time avoid for investors.