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2 Top Robinhood Stocks to Buy in August

By Will Ebiefung – Aug 8, 2020 at 6:00AM

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Want to beat the market in August? Consider Walt Disney and Peloton Interactive.

Trading app Robinhood publishes a list of its top 100 most popular stocks. Some of them are questionable investments that are too risky for the novice investors who make up much of Robinhood's clientele -- but others are poised to deliver market-beating returns because of their strong business models and convincing near-term catalysts for growth. Here are two top Robinhood stocks to consider adding to your portfolio in August.

The first is Walt Disney (DIS 0.85%), a beaten-down entertainment giant poised to bounce with its streaming expansion. The second is Peloton Interactive (PTON 13.00%), a luxury fitness brand benefiting from the trend toward at-home fitness. Both stocks look poised for a bull run. 

A clear glass jar sitting on a table is stuffed full of U.S. currency.

Image source: Getty Images.

Walt Disney: A new streaming strategy

Disney is prepared to bounce back from the coronavirus pandemic. As of Friday's close, the stock has recovered most of its losses since the market's high in February, but it's still significantly below its own 52-week high around $153. At the same time, investors are getting more excited about Disney's streaming strategy.

The blue-chip entertainment company reported earnings for the third quarter of its fiscal 2020 on Aug. 4. As expected, the results were rough. The quarter, covering April to June, faced the brunt of lockdowns and travel restrictions during the height of the pandemic, which hurt Disney's sales and margins. Total revenue fell by 42% year over year, driven by weakness in the park experience and products segment -- which fell 85% in the quarter. With amusement parks having been closed for much of the year, it's little surprise that sales tanked. But investors can expect a recovery in the second half of the year because Disney has already reopened most of its locations.

Disney's direct-to-consumer (streaming) segment is also poised for strong growth over the long term. The company has announced plans to launch a new streaming platform called Star in 2021 for the international market. The platform will include content from ABC, FX, and 20th Century Studios. Disney has also decided to launch the much-anticipated film Mulan on Disney+ and charge $30 to view it in the U.S. -- a move that highlights the company's potential edge in original content compared with rivals Netflix and Amazon's Prime.

Peloton Interactive: A super-scalable business model 

Luxury fitness company Peloton has performed well this year, with a 140% year-to-date rally powered by demand for stay-at-home exercise amid the coronavirus pandemic. The company is poised for continued growth because of its strong business model and improving margins.

With COVID-19 still at large, many consumers are avoiding gyms and instead opting to work out at home. That trend has been great news for Peloton. Thanks to demand for its connected exercise bikes and treadmills, equipment and subscription sales soared in the fiscal third quarter. The company's total revenue jumped 66% to $524.6 million because of strong equipment sales and a corresponding growth in subscriptions.

Peloton's business model is unique because its equipment sales drive growth in the potentially much more profitable subscription service -- leading to rapidly improving margins.

The company's gross margin on subscription sales leapt from 26% to 58% in the quarter and looks poised to continue improving as the company's subscriber base grows. Peloton can drive future growth and margin improvements through new hardware releases. According to CFO Jill Woodworth, a lower-priced treadmill may be hitting shelves soon.

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Netflix, Peloton Interactive, and Walt Disney and recommends the following options: long January 2022 $1920 calls on Amazon, long January 2021 $60 calls on Walt Disney, short January 2022 $1940 calls on Amazon, and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

Stocks Mentioned

Walt Disney Stock Quote
Walt Disney
DIS
$99.43 (0.85%) $0.84
Peloton Interactive Stock Quote
Peloton Interactive
PTON
$13.30 (13.00%) $1.53
Netflix Stock Quote
Netflix
NFLX
$320.41 (1.09%) $3.46
Amazon.com Stock Quote
Amazon.com
AMZN
$94.13 (-1.44%) $-1.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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