This has not been an easy year for many Americans, including Wall Street and retail investors. Even though the benchmark S&P 500 is slightly higher for the year, it's been a tumultuous ride that's included the quickest bear market nosedive in history, as well as the fastest rebound from a bear market bottom of all time. You could rightly say that investors' resolve has been tested like never before.
However, this volatility has also brought short-term traders out of the woodwork.
Online investing app Robinhood, which is best-known for offering commission-free trades and parsing out free shares of stock to new members, has been particularly adept at attracting millennial and/or novice investors. While it's great that young people are putting their money to work in the stock market, many are doing so with the wrong idea that they're going to get rich quick by diving in and out of the market. History shows that this rarely, if ever, ends well.
If Robinhood investors want to get rich the right way, all they need to do is seek out game-changing companies to hold for the long run. Here are four companies that'll do just that.
One of the best companies young investors can set and forget about is payment facilitator Mastercard (NYSE:MA). Even though it's susceptible to spending downturns during recessions, Mastercard offers a handful of compelling reasons to buy and never sell.
To begin with, you should know that a bet on Mastercard puts investors on the right side of history. Despite recessions being a normal part of the economic cycle, they tend to be short-lived. By comparison, economic expansions are measured in years, with the recently ended bull market of 11 years registering as the longest on record for the United States. Since Mastercard thrives during periods of expansion, it's been something of a no-brainer buy-and-hold for a long time.
Mastercard also benefits from acting solely as a payment processor and not a lender. While this does mean it misses out on a chance to further enhance its revenue stream by charging interest via loans, it also removes any direct chance of the company being adversely affected by rising loan delinquencies during recessions. Sticking to processing has been Mastercard's ticket to a profit margin of at least 40%.
And don't overlook the fact that most global transactions are still conducted in cash. Mastercard's runway to promote cashless transactions in underbanked regions should allow it to grow at a healthy clip for decades to come.
American Eagle Outfitters
While Wall Street has been quick to pronounce mall retailers as dead or slowly dying, teen-focused retailer American Eagle Outfitters (NYSE:AEO) could be one of the few retail stocks to emerge from the ashes.
As you can imagine, the coronavirus disease 2019 (COVID-19) pandemic has walloped American Eagle's operations. Some of its stores were closed for weeks, and many of its reopened brick-and-mortar locations have suffered from reduced foot traffic. But the beauty of this company is that its direct-to-consumer sales are growing rapidly, and its brands have strong appeal/engagement with its customers.
Despite reporting a year-on-year sales decline of 15% in the quarter ending Aug. 1, sales of intimate apparel brand Aerie rose 32%, with digital sales jumping an absurd 113%. The more Victoria Secret struggles, the better Aerie has performed. Meanwhile, American Eagle sales dipped 26%, but still saw digital sales jump by 21%. The company is having little issue substantially growing its online business, and it's resulting in less overhead and inventory in the process.
American Eagle Outfitters also meets the desires of today's teens and young adults, without breaking budgets. It's no secret that consumers love brand-name merchandise, and the AE brand gives consumers that luxury without a premium price point. It looks to be a clear long-term winner in a space that's undergoing a major shakeup.
Since Robinhood investors tend to be younger, and younger adults are the marijuana industry's biggest cheerleaders, I can't think of a better stock to buy than U.S. multistate operator (MSO) Cresco Labs (OTC:CRLBF). Take note that Robinhood doesn't allow its members to buy stocks listed on the over-the-counter exchange, so you'd need to open an account at a brokerage that would allow you to do so.
Over the next decade, cannabis should be one of the fastest-growing industries, with worldwide weed sales estimated by some Wall Street firms to top $100 billion a year by 2030. This is noteworthy since the U.S. is the top-selling marijuana market in the world. Even if the U.S. federal government stands pat on its scheduling of weed, state-level legalizations have been more than enough of a catalyst for MSOs like Cresco Labs to thrive.
What investors can expect from Cresco is growth on two fronts. First, there's the company's retail exposure. Cresco holds the state maximum of 10 retail licenses in Illinois and has opened nine locations. This represents nearly half of the company's 19 operational dispensaries in the United States. Illinois opened its doors to adult-use weed sales on Jan. 1, 2020, and Cresco believes it can garner significant share in what should be a more than $1 billion market by 2024.
Secondly, investors are buying into a wholesale powerhouse. In January, Cresco closed its all-share deal to buy Origin House, which is one of the few companies to hold a cannabis distribution license in California. This deal allows Cresco to get its products into more than 575 dispensaries throughout the top-selling marijuana market in the world.
Whereas most social media assets struggle to grow beyond a certain level, that's not been the case with Pinterest, which registered 39% year-on-year monthly active user (MAU) growth in the June-ended quarter. Undoubtedly, the COVID-19 pandemic has helped usher traffic to its site. But Pinterest was already seeing double-digit MAU growth prior to the pandemic.
What's interesting about Pinterest's MAUs is that a majority of its new users are coming from international markets. These ex-U.S. users usually generate average revenue that's well below U.S. users, so that's not great news with regard to near-term profitability. Then again, Pinterest more than doubled its international average revenue per user (ARPU) in 2019, and should considerably grow overseas ARPU throughout this decade. These international users are Pinterest's key to sustainable double-digit sales growth.
The company is also has the potential to transform into an e-commerce powerhouse. Its users are listing their interests and hobbies for the world to see, which means it's only logical for Pinterest to connect small businesses with these potentially motivated consumers. As engagement builds, so will Pinterest's relevance in the e-commerce space.