This past year has been a rough one for many people, what with coping with the coronavirus pandemic and the ongoing economic and political uncertainty that went along with it. But 2020 is finally coming to a close, and investors using the Robinhood stock-trading platform are continuing to bet on many traditional and some not-so-traditional stocks that they believe will boost their portfolios over the long term (and in some cases, merely the short term).
Two companies that are quite popular among Robinhood investors at the moment (based on their rankings in the list of Robinhood traders' most-widely held stocks) are Walt Disney (DIS 0.84%) and Nike (NKE 0.96%). Let's explore the reasons why the stocks for these companies could make great buys in December.
1. Walt Disney: becoming a streaming company?
The year 2020 has seen a roller coaster ride of stock prices for Walt Disney, but shares have finally recovered most of the value they lost due to the adverse economic effects brought on by the coronavirus pandemic. Disney stock is currently trading around $147 per share, which puts it up roughly 4% year to date. The iconic entertainment giant should be able to power further gains as it waits for efforts to combat the virus to succeed by doubling down on its direct-to-customer (streaming) strategy.
The coronavirus pandemic has changed a lot of consumer behaviors, some perhaps permanently. Likewise, successful companies must adapt their business models to an increasingly digital world. Disney's management has embraced new strategies to monetize its intellectual property in this changing economic environment. According to CEO Bob Chapek, the direct-to-consumer (DTC) business has become key to the company's future.
In October, Disney announced a major reorganization to make streaming its "primary focus" for entertainment. And in the fourth quarter, it saw the direct-to-consumer international segment (which includes its various streaming services) grow to represent 33% of revenue, up from 18% in the prior year period. Disney's streaming platforms ( Disney+, ESPN+, and Hulu) now boast a combined 120.6 million subscribers, compared to 195 million at their biggest rival, Netflix.
While Disney's new streaming strategy looks poised to power the next leg of growth, investors should still keep an eye on the company's other businesses, which may require a COVID-19 vaccine before returning to some level of normalcy. The company's fourth-quarter revenue fell 23% to $14.7 billion, leading to a net loss of $580 million. But this result is a dramatic improvement from the third quarter when revenue fell 42% against the prior-year period.
2. Nike: letting no crisis go to waste
While Nike faced some headwinds due to store closures and supply chain challenges in 2020, the sports apparel maker is ending the calendar year on a solid footing with share prices up by 34% year to date. Like Disney, Nike used the coronavirus pandemic as an opportunity to grow its digital business and streamline operations, which could help boost profits over the long term and create more value for investors.
Revenue in Nike's fiscal 2021 first-quarter (which ended Aug. 31) fell 1% to $10.6 billion, which is not too shabby in this challenging economic environment. That figure represents a massive recovery from Q4 of 2020, when revenue fell 38% against the prior-year period. And a big part of the rebound came from online sales, which grew 82% in Q1 and represent around 30% of the company's total revenue, according to CEO John Donahoe.
Management is using Nike's digital transformation as an opportunity to streamline the business by eliminating staff redundancies. In October, the company announced plans to lay off approximately 700 workers from its Oregon headquarters by 2021. This move could help boost Nike's margins and lead to bigger profits.
Nike boasts a price-to-earnings multiple of 79, which is significantly higher than the S&P 500's average of 37, but I don't think this is a sign of overvaluation. Investors have good reasons to be optimistic about Nike because of its potential for significant earnings growth over the long term as the digital transformation and cost-cutting boost its bottom line.
Betting on resilient American brands
Something Disney and Nike have in common -- besides being popular with Robinhood's cadre of investors -- is their strong brands, built over decades of market leadership in their respective industries. The pivot to more digital business models could ensure continued dominance for these two companies, and that's why they are two top Robinhood stocks to buy in December.