Wall Street and investors have witnessed some of the craziest volatility on record in 2020 courtesy of the coronavirus disease 2019 (COVID-19) pandemic. It took less than five weeks for the benchmark S&P 500 to lose 34% of its value during the first quarter, and less than five months for the broad-based index to gain everything it had lost back.
Although volatility is actually the friend of long-term investors, as it allows for the purchase of great stocks at perceived discounts, it has a dark side, too. Volatility tends to bring short-term traders out of the woodwork -- and that's exactly what we've seen happen.
In recent months, we've witnessed the rise of the "Robinhood investor." Robinhood is an online investing platform that's well-known for offering free trades and gifting small parcels of stock to people when they sign up.
More importantly, it's an online platform that's been particularly popular with millennial and/or novice investors. Don't get me wrong; encouraging young people to invest in the stock market is an excellent thing. The earlier people start investing, the more they can allow compounding to work to their advantage.
The problem is that most Robinhood investors aren't really investing -- they're day-trading. In many instances, Robinhood's leaderboard (i.e., the platform's most-held stocks) is a mishmash of awful companies and penny stocks.
But there are exceptions. Among the many short-term traders are some apparently level-headed, long-term-focused investors who have a penchant for blue chip stocks. A blue chip is a time-tested, trusted company that's a leader in its respective industry or sector. Here are three blue chip stocks that Robinhood investors absolutely love.
First up is tech kingpin Apple (AAPL 0.20%), which has been a magnet for Robinhood members. Roughly 216,000 Robinhood members owned shares of Apple at the beginning of the year. It's now the third-most-held stock on the entire platform, with almost 731,000 investors on the app holding a stake.
The secret sauce to Apple's success has always been its branding. Apple has an exceptionally faithful following and is one of the most recognized brands in the world. Even when the company develops an unsuccessful product, it still manages to generate interest in its other products or services. This is to say that Apple regularly lures new people into its ecosystem and gets them to stick around.
Having dominant products doesn't hurt, either. Apple's iPhone still accounts for the lion's share of the company's revenue, and it's the most popular smartphone in the U.S. market. Even with the ongoing coronavirus pandemic, excitement is building for the upcoming launch of a 5G-capable iPhone. Given that this is the first wireless infrastructure upgrade in about a decade, we're liable to see a multiyear technology upgrade cycle that sends Apple's iPhone sales to new heights.
What's more, CEO Tim Cook is in the process of transforming Apple into a wearables and services company. Though he's not abandoning Apple's roots, Cook knows that services offer a more consistent revenue stream with greater long-term growth potential and higher margins.
In other words, it's very hard to go wrong with Apple stock.
Surprisingly, the most popular stock on the entire Robinhood platform is automaker Ford (F 1.21%). It's unclear if Ford is one of the stocks parceled out when new members sign up, but ownership has steadily risen from 321,000 accounts at the beginning of the year to more than 911,000 accounts as of this past weekend. But the "Why Ford?" question is tough to answer.
On one hand, we're talking about a company with more than 100 years of history behind it that has become one of America's most recognizable brands. Ford makes millions of vehicles worldwide each year, usually at a profit. Perhaps the relatability of the brand, its nominally low share price ($7.04), and its reasonably low price-to-book value (91% of book) make Ford an attractive blue chip option for Robinhood investors.
On the other hand, the auto industry is highly cyclical, and auto stocks were already trending lower well before COVID-19 became a serious worldwide problem. Ford is facing increasing competition in the fast-growing Chinese market and could face headwinds from a rising number of auto loan delinquencies. If loan delinquencies keep rising, there will be fewer qualified auto buyers in the United States.
For long-haul investors, Ford certainly appears to offer a value proposition. It's investing heavily in electric vehicles while also pivoting to higher-margin SUVs and trucks since crude prices have remained low for years. But transformations in the auto industry take time, meaning investors should be prepared for some potholes before Ford once again stomps on the gas.
A third blue chip stock that Robinhood investors can't seem to get enough of is beverage giant Coca-Cola (KO -0.95%). The 34th-most-held stock on Robinhood has seen its ownership among members climb from approximately 57,500 at the beginning of the year to nearly 217,000 accounts as of this past weekend.
Not to sound like a broken record, but investors like to buy companies that they recognize and connect with. Few companies fit this description better than Coca-Cola, which is arguably the best-known non-tech brand in the world. The company has been masterful over the decades with its advertising and consumer engagement. Coke has tie-ins with Santa Claus during the holiday season, has signed up numerous celebrity and social media ambassadors, and frequently uses digital media platforms to reach consumers.
Coca-Cola also has geographic diversity at its sails. You can currently find the company's hundreds of beverage products in every country around the world, save for two (North Korea and Cuba). This allows Coca-Cola to take advantage of the predictability of sales in developed markets, as well as the higher growth potential of operating in emerging markets where its share of cold beverages offers substantial upside.
Lastly, the company has increased its base annual dividend for 58 consecutive years. There are only a few publicly traded companies that boast a longer streak.
Buyers of Coca-Cola sleep easy at night, and that can be quite alluring to long-term investors.