Investing in 2020 should really come with a set of instructions. We've watched the benchmark S&P 500 get throttled to the tune of a 34% loss in less than five weeks, then subsequently regain everything back in under five months. In a six-month stretch, Wall Street has crammed in about a decade's worth of volatility.
For long-term investors, this volatility is actually welcome. That's because it's allowed patient investors to buy into high-quality stocks at a perceived bargain.
But these wild vacillations in the market have also encouraged short-term traders and get-rich-quick enthusiasts to come out of the woodwork. This trend has been especially noticeable with online investing app Robinhood. The average age of the platform's millions of members is only 31, and a significant number of its members appear to be new to investing.
These young and novice investors have filled Robinhood's leaderboard (i.e., the most widely held companies on the platform) with penny stocks and downright awful companies. Here are what I believe to be the five absolute worst stocks that Robinhood investors love.
Once the most-held stock on Robinhood, Aurora was expected to lead the world in legalized cannabis production and exports. But over the past year, Aurora has halted construction on two of its largest projects (Aurora Nordic 2 in Denmark and Aurora Sun in Alberta) to conserve cash, sold a 1-million-square-foot greenhouse (Exeter) that was never retrofit for pot production, and closed five of its smaller production facilities.
Today, the company is simply trying to backpedal its way toward positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). If Aurora doesn't reach positive adjusted EBITDA by the September-ended quarter, it'll default on its already reworked debt covenants.
The icing on the cake here is the balance sheet, which is a nightmare. Aurora Cannabis continues to dilute its shareholders into oblivion by selling stock to raise cash, and slightly over half of its total assets are classified as goodwill -- that is, it overpaid for all of its acquisitions. I'm not entirely sure what Robinhood investors see in this stock.
Another head-scratcher of a stock that Robinhood investors love is ride-hailing and food delivery company Uber Technologies (NYSE:UBER). While I get that it's a relatable service millennials probably frequently use, that doesn't make Uber worthy of your investment dollars.
With regard to ridesharing, Uber has seen Lyft and other competitors chip away at its once-dominant market share. In particular, Uber's share of first-time app downloads relative to Lyft has tightened considerably since the beginning of 2017. The coronavirus disease 2019 (COVID-19) pandemic certainly isn't helping, either, with revenue falling off a cliff in its most recent quarter. To make matters worse, Uber is in the fight of its life in certain markets that aim to reclassify its drivers as employees instead of independent contractors.
Then there's Uber Eats, which has been a cash-sucking segment since day one. Over the past two quarters, Uber Eats has generated EBITDA losses of $313 million and $232 million, and yet Uber is throwing $2.65 billion at Postmates in an all-stock deal to further entrench itself in this cash-draining venture.
At this point, I'm not sure if Uber has proven it's a viable entity that can reach recurring profitability.
Why millennial investors buy airline stocks, I will never understand. Why they value American Airlines Group (NASDAQ:AAL) above all other airlines is the biggest question mark of them all.
Yes, the COVID-19 pandemic deserves a lot of the blame for American Airlines' recent struggles. But the pandemic doesn't account for all of its woes. You see, American Airlines chose to modernize its fleet a few years back, which meant retiring planes well before their useful period was up. The end result was the company taking on a boatload of debt just a few years before the pandemic hit. Now, American Airlines is lugging around more than $30 billion in net debt, and its hands will be tied with interest payments on that debt for many years to come.
It's also worth mentioning that it's unclear if or when we'll see air travel return to normal following COVID-19. These answers will depend on the efficacy rate of vaccines and passengers' willingness to travel. We may well have witnessed the future of air travel changed forever.
If this still isn't enough reason to stay away from American Airlines, consider that the company suspended its share buyback program and dividends as part of its coronavirus bailout from the federal government. Those might have been the only reasons to ever consider buying American Airlines stock in the first place.
Have I mentioned that millennials really love marijuana stocks? You might think Cronos Group's (NASDAQ:CRON) $1.32 billion in cash, cash equivalents, and marketable securities is a smart investment idea, but you'd be wrong.
Nearly all of this cash derives from a $1.8 billion equity investment Cronos received from tobacco giant Altria Group (NYSE:MO) in March 2019. The deal gave Altria a 45% stake in Cronos, and it was widely believed that Altria would help Cronos develop and market cannabis vape products. However, last year vape health concerns cropped up in the U.S., and the launch of high-margin cannabis derivatives -- a category that includes vapes -- was delayed by two months in Canada. In short, vape products haven't sold very well in Canada.
That's a pretty big problem for Cronos Group because it doesn't have much going on besides its derivatives focus. Whereas most licensed producers focused on producing 80,000 kilos or more of peak annual output, Cronos has just 40,000 kilos of peak potential from its flagship Peace Naturals cultivation farm. Currently, Cronos isn't even producing $10 million in net sales a quarter, and it's continuing to burn through its cash on hand.
Last but not least, there's the mighty electric vehicle (EV) manufacturer Tesla (NASDAQ:TSLA). Admittedly, my definition of "worst stock" might differ from that of other investors, and Tesla has been one of Wall Street's hottest stocks over the trailing 12-month period. But a deeper dive into what's driving the company's stock finds a breakdown is merited.
Tesla CEO Elon Musk deserves credit for taking Tesla from a start-up to a mass-market automaker. However, Musk's company has historically relied on EV credits to drive adjusted profitability. When focusing solely on generally accepted accounting principles (GAAP), Tesla has yet to turn a full-year tangible profit that Wall Street can grasp.
While Musk might be a visionary, investing in Tesla also means putting up with his numerous faults. Musk has a history of overpromising when it comes to release dates, new technology, or production goals, and often fails to meet those timelines. Tesla's acquisition of solar panel lease company SolarCity has also been a complete dud.
Tesla may once have had a first-mover advantage in the EV space, but it won't moving forward with virtually every automaker investing in EVs and autonomous vehicles. With driving range advantages and amenities also narrowing, Tesla's competitive edge simply isn't worth its nosebleed valuation.