Volatility has been the name of the game for investors in 2020. The historic uncertainty created by the coronavirus disease 2019 (COVID-19) pandemic sent equities into a first-quarter tailspin and caused the benchmark S&P 500 to lose 34% of its value in under five weeks. This was followed by a rally back to new highs that took less than five months.
When volatility surges, short-term traders and novice investors pile into the stock market. If you need proof of this, just look at Robinhood's surging membership in 2020. The online platform, which is best known for commission-free trades, fractional-share ownership, and gifts of free stock to new members, has gained millions of new customers this year. With a sitewide average age of 31, these investors tend to be inexperienced, often chasing awful companies.
Yet among the dozens of terrible businesses that Robinhood investors have piled into are a handful of high-quality and -- dare I say -- exceptionally safe stocks. These are four of the safest Robinhood stocks investors can buy right now.
Since 1965, Berkshire Hathaway has returned an average of 20.3% per year for shareholders. That's more than double the 10% total return of the S&P 500 over the same period. In aggregate, Buffett's company would have turned a $100 investment in 1965 into more than $2.7 million by Dec. 2019. Buffett and his right-hand man Charlie Munger know what they're doing.
What's the key to Berkshire Hathaway's success? Buffett and his team have bought into cyclical businesses and aligned the company's portfolio and roughly five dozen subsidiaries with the health of the U.S. and global economy. Recessions are inevitable, but periods of economic expansion last considerably longer than periods of contraction. Warren Buffett is simply playing the odds.
Berkshire Hathaway's significant investments in money center and regional bank stocks could prove to be a bit of a drag over the next year or two as interest income is constrained. However, an expected economic rebound from the COVID-19 recession should allow Berkshire to outperform the broader market this decade.
When I think of safe stocks, I think of industry leaders. In the financial space, that perfectly describes payment processor Visa (V -0.70%).
Like most financial stocks, Visa isn't immune to the COVID-19 recession. It is, however, positioned exceptionally well to handle recessions generally. Visa is purely a payment facilitator for merchants and has chosen not to be a lender. While this means it's not able to earn interest income during periods of robust economic expansion, it also protects the company from credit delinquencies during economic contractions and recessions. Visa's profit margin is regularly at or above 50% largely because it doesn't have to put its operating cash flow aside to cover loan losses.
Visa is also the most dominant credit card payment processor in the U.S. Between 2009 and 2018, the gross purchasing volume traversing its payment network grew by 156%, with its share of the U.S. credit card purchasing network market rising by close to 10 percentage points to 53%. The U.S. is the No. 1 economy in the world by gross domestic product and relies heavily on consumption.
Visa's growth story isn't finished, either. With the vast majority of global transactions still conducted in cash, the company has a long runway to expand its reach in underbanked regions of the world.
Coca-Cola offers its investors incredible geographic diversity. This is a company with operations in every country around the world, save North Korea and Cuba. This reach allows Coke to take advantage of its 10% share of the cold beverage market in faster-growing developing countries, while reaping the rewards of steady cash flow from its 20% share of the cold beverage market in developed countries.
Coca-Cola also benefits from its exceptional marketing and world-renowned brand. Coca-Cola is one of the most recognized consumer packaged goods on the planet, transcending generational gaps. It also has strong holiday tie-ins and has been known to create viral campaigns through digital advertising.
Best of all, Coca-Cola provides consistency. It's increased its base annual dividend for 58 consecutive years. It often sees little impact from economic contractions given how mainstream its beverage-focused product portfolio has become.
You might not think of highflier Amazon (AMZN -1.53%) as a safe stock given its history of wild share price swings, but it's time to toss that old way of thinking out the window. The Amazon you see today remains a high-growth company that's now entrenched as a critical cog in the success of the U.S. economic machine.
Amazon is best known as the kingpin of e-commerce. Amazon controls in the neighborhood of 40% of all U.S. online sales, though estimates vary. Although retail margins tend to be very small, having such an enormous share of U.S. online sales makes Amazon the go-to destination for consumers in the No. 1 economy in the world.
Amazon has also been able to leverage its popularity into more than 150 million Prime memberships worldwide. The fees collected from these memberships provide an even larger margin buffer that allows Amazon to undercut brick-and-mortar retailers on price.
Over the long run, it's Amazon's cloud infrastructure segment that'll be responsible for significantly growing its margins, cash flow, and profitability. The COVID-19 pandemic has shown businesses the importance of having an online presence, and Amazon stands at the ready with Amazon Web Services to aid small- and medium-sized businesses in their quest to build out their clouds. As AWS grows into a larger percentage of total sales, Amazon's bottom-line growth could vastly outpace its sales growth.