This has been a wild year for Wall Street and investors. In roughly six months, we've witnessed two completely divergent markets. A five-week period during the first quarter saw the benchmark S&P 500 lose more than a third of its value, while the subsequent five-month period involved the broad-based index recouping all of its losses and hitting new highs.
If there's one thing this volatility has successfully done, it's bring short-term investors out of the woodwork. Online investing app Robinhood is a testament to this.
Robinhood, which is best-known for its commission-free trading platform and its gifting of free stock to new members, has been particularly successful at courting young and/or novice investors. The average age of its millions of members is just 31 years.
However, how young and novice investors see the investment landscape is often very different from how experienced investors choose to put their money to work. The following three trends represent potential high-growth opportunities that have, thus far, proved irresistible to Robinhood investors.
Perhaps it's no surprise at all that marijuana stocks are a top investment trend among Robinhood investors. That's because younger adults express the highest favorability toward cannabis of all age groups. It also doesn't hurt that North America is the focus of the cannabis investment community.
Although Robinhood's leaderboard (i.e., the most-held stocks on the platform) remains fluid, Aurora Cannabis (ACB 3.88%), Canopy Growth, Cronos Group, and Aphria were the respective Nos. 12, 28, 33, and 34 most-held stocks on the entire platform to begin September.
While it's true that cannabis could be one of the fastest-growing industries in North America this decade, Robinhood's investing platform comes with a fatal flaw: Its investors can't buy over-the-counter stocks. Since marijuana remains illegal at the federal level, U.S. pot stocks that deal directly with the plant aren't able to uplist to major exchanges. This means many of the fastest-growing and most financially stable pot stocks can't be bought on the platform, leaving Robinhood investors with Canada's chronic underperformers.
In particular, Aurora Cannabis has been a big-time money loser for investors. Aurora recently announced that it would write down up to 1.8 billion Canadian dollars in goodwill and intangible assets, and earlier this year its board approved a $350 million (in U.S. dollars) at-the-market offering to raise capital. Aurora has been consistently diluting the daylights out of its shareholders for four years and counting.
COVID-19 vaccine/diagnostics development
Another trend that's been an irresistible attraction for Robinhood investors is the race for a coronavirus disease 2019 (COVID-19) vaccine, as well as diagnostics that help detect the SARS-CoV-2 virus that causes the illness. As of the beginning of the month, Moderna (MRNA 1.96%), Inovio Pharmaceuticals, Sorrento Therapeutics, Novavax, and Gilead Sciences (GILD -0.06%) were the respective Nos. 17, 35, 77, 84, and 87 most-held stocks on the platform.
Perhaps no two are better known than Gilead Sciences and Moderna. Gilead has had early success with investigational drug remdesivir, which received emergency use authorization from the U.S. Food and Drug Administration for patients with moderate and severe infections. If Gilead's COVID-19 drug is successful in trials, it could bring in more than $7 billion a year.
Meanwhile, Moderna offered encouraging early stage results of experimental vaccine mRNA-1273, with neutralizing antibodies found in patients of all three dosing tiers. Moderna has also been the recipient of a boatload of cash from the federal government thanks to a vaccine deal and Operation Warp Speed.
I can't say I'm a huge fan of the vaccine race, at least from an investment perspective. While there's little doubt that approved vaccines and diagnostics can generate billions of dollars in revenue, there'll be plenty of competition and eventual pricing pressure on these vaccines. What's more, these emotion-driven investments usually fade.
A final trend that Robinhood investors can't stop buying into is electric-vehicle (EV) manufacturers. As of the beginning of September, Tesla (TSLA 1.85%), NIO, and Nikola were the respective fourth, 21st, and 36th most-held stocks on the platform.
With the younger generation caring more about global warming than other generations, it shouldn't be all that surprising that they're attracted to EVs. With a few exceptions, EV sales have been growing in the U.S. by a double-digit percentage from the previous year. It's looking like only a matter of time before we see the pendulum swing significantly toward EV sales, in relation to traditional combustion engine vehicles.
No shock that the most popular of the EV makers is Tesla. Robinhood investors love to chase top-performing stocks higher, and at one point following the EV giant's 5-for-1 split, it was up more than 1,000% over the trailing year. Tesla appears to be on track to manufacture over 500,000 vehicles in 2020, which might (and I use this word loosely) give the company a shot at a full-year generally accepted accounting principles (GAAP) profit.
However, like the other hot trends that Robinhood investors are chasing, I'm not exactly sold. I don't deny that EVs are the future, so much as the valuations assigned them (and especially Tesla) make zero sense. Tesla is priced as if it can maintain its first-mover advantage in a space where battery technology is improving and multiple vehicles are now available. Just as the marijuana bubble burst, I fear the same thing could happen to EV stocks.