The Robinhood financial services company took the stock-trading world by storm with its millennial-focused investing app, which offers low or no fees (depending on the service) and a user-friendly platform geared toward novice investors. The company also publishes a regularly updated list of its 100 most popular stocks. Here are two companies on that top 100 list that look poised to outperform because of their low prices and catalysts for growth.
The first pick is Sirius XM (NASDAQ:SIRI), a satellite radio company boosting growth through synergistic acquisitions into music and podcast management. The second pick is Ford Motor (NYSE:F), an iconic American automaker poised to bounce back from its current slump.
Both stocks trade for under $10 a share, but might not stay this inexpensive for long.
1. Sirius XM: Acquisition-driven expansion
Trading around $6 a share at the time of this writing, Sirius XM stock is deceptively cheap. But that low ticker price represents the largest satellite radio company in the U.S., with a commanding 88% market share according to data from financial research company CSImarket.
Sirius's satellite radio business generates most of its revenue from car-installed subscriptions. This business enjoys a 77% new car penetration rate, and it helped Sirius generate $1.87 billion in second-quarter revenue despite significantly lower advertising sales during the pandemic. While total revenue fell 5.2% in the quarter, EPS for the quarter remained constant at $0.06 per basic share because of lower costs and an aggressive stock buyback program which still has $16 billion worth of shares authorized.
The U.S. auto industry is mature (and by extension so is the market for car-installed radio), but Sirius can drive continued growth through its expansion into other forms of audio entertainment like music and podcast management.
In June, Sirius acquired Simplecast, a leading podcast management platform that allows creators to publish and analyze their content. This business synergizes well with Sirius's "adtech" subsidiary, AdsWizz, which is an end-to-end monetization solution for audio content. Then Sirius doubled-down on its pivot to podcasting with the July acquisition of podcasting giant Stitcher, which will add established podcasts like Freakonomics Radio, Conan O'Brien Needs a Friend, and Oprah Winfrey's SuperSoul Sunday to the SiriusXM platform.
In total, Sirius's 2020 acquisitions cost the company $428 million in capital, including $75 million the company paid in February for a minority stake in the open audio platform SoundCloud. The expectation is that the podcasting trend will boost current revenue streams and potentially add new ones too.
2. Ford Motor: Poised for a comeback
Ford Motor is not a growth stock -- in fact, it's doing the opposite of growing right now, because the coronavirus pandemic has reduced sales and tightened margins across the automotive industry. But despite the tough macro-economic environment, Ford looks poised for a turnaround because of its new leadership and improved vehicle lineup.
The company has embarked on an extensive restructuring program designed to streamline operations and boost margins. And this strategy has the potential to unlock massive value for shareholders if things go as planned.
In 2019, Ford generated, $155.9 billion in total revenue. That's a huge amount compared to its market cap of just $28 billion. Right now, the company's problem is that it can't translate enough of these sales into net income because of its low operating margins. Ford is also trying to change this with initiatives to reshuffle its product lineup as well as a pivot to electric and autonomous vehicles.
Last year, Ford discontinued most of its sedan lineup to focus on more profitable trucks, SUVs, and the Mustang sports car. Now it is bringing back the iconic Ford Bronco SUV, which could become a serious contender with Fiat Chrysler's Jeep brand in the off-road category and add up to $1 billion in profit to the company's bottom line, according to analysts at Credit Suisse.
Ford is also on the cusp of an exciting new leadership change. CEO Jim Hackett will retire from the company on Oct. 1 to be replaced by current COO Jim Farley. Farley may be better able to execute on Ford's restructuring because of his success in turning around Ford Europe, where he served as CEO and chairman from 2015 to 2017.
While Ford is still a somewhat risky stock at the moment, the company looks poised for a comeback over the long-term, and investors should consider adding it to their portfolios.