When the curtain closes on 2020, it'll mark one of the most volatile years on record. The widely followed S&P 500 has logged many of its largest single-session point gains and losses in history since the last week of February.
For long-term investors, these wild vacillations in the stock market are blessings in disguise. Since bull market rallies have erased every stock market correction, volatility is nothing more than a green light for patient investors to go shopping.
However, historic levels of volatility have also encouraged millennial and novice investors to put their money to work in the stock market. Online investing app Robinhood, which is known for its commission-free trades and gifting of free shares of stock to new members, has added millions of new users in 2020. The average age of Robinhood's millions of users is only 31.
With the hope of getting rich quick, quite a few of these millennial and novice Robinhood investors have focused on the short-term and chase awful companies. It's not uncommon to find day-traders' favorite stocks, or whatever companies happen to be the flavor of the week on Wall Street, on Robinhood's leaderboard (i.e., the platform's 100 most-held stocks).
But Robinhood's leaderboard isn't devoid of hope. There are a handful of popular Robinhood stocks that Wall Street investment banks also love. Here are three companies that analysts overwhelmingly believe are worth buying right now.
No major shock here: Wall Street and millennial investors are obsessed with e-commerce giant Amazon (AMZN 0.64%). It's the seventh-most-held stock on the Robinhood platform and holds a buy-equivalent rating from 94% of the 48 analysts covering the company.
Most folks are probably familiar with Amazon as the go-to online shopping destination. According to eMarketer, Amazon is expected to control 38.7% of all U.S. online sales in 2020. It is also expected to expand its seemingly insurmountable market share lead by another 100 basis points in 2021. Even though retail margins are usually very thin, Amazon has pivoted its online dominance into signing up more than 150 million people worldwide to Prime memberships. The fees it collects from these memberships have boosted margins. The program also keeps users loyal to Amazon's products and services.
However, cloud is the real growth driver here. Cloud infrastructure service segment Amazon Web Services (AWS) grew sales by 29% in the third quarter, with an annual sales run-rate of over $46 billion. With more businesses pushing online in the wake of the coronavirus disease 2019 (COVID-19) pandemic, demand for AWS' cloud building blocks should remain strong. This is a considerably higher margin segment for the company, and it might triple Amazon's operating cash flow over the next four to five years.
Millennial investors also love investing in marijuana stocks. What you might find surprising is that there's a pot stock Wall Street likes, too: Aphria (APHA). Of the 12 analysts covering Aphria's stock, 11 of them (92%) currently rate it a buy.
Despite most Canadian pot stocks losing money hand over fist, Aphria has delivered a rare quarterly profit from time to time. It's been able to achieve intermittent profits thanks to its acquisition of drug distribution company CC Pharma. This business segment, which has nothing to do with cannabis, is relatively low margin, but generates predictable sales and cash flow.
Aphria has also delivered impressive net cannabis sales growth in recent quarters. With many of its peers struggling, Aphria more than doubled its net marijuana sales in the August-ended quarter. Given its broad international presence, the company is beginning to establish itself as a potential winner to our north.
The one concern I have is that adult-use retail selling prices per gram are falling because recreational consumers favor value-based dried flower. Until we see a big uptick in high-margin derivative sales, the ongoing battle between legal and illicit channels could pressure Aphria's cannabis margins.
Robinhood investors are attracted to FAANG stocks, including Alphabet (GOOG -0.45%) (GOOGL -0.51%) as well as Amazon. According to the 43 analysts currently covering Alphabet's Class A shares (GOOGL), 39 of them (91%) rate the stock as a buy.
Alphabet's dominance in the search space is the main lure. Over the trailing 12 months, Alphabet subsidiary Google has controlled between 92% and 93% of monthly global internet search, according to GlobalStats. Dominating such a large share of the internet search market gives Google incredible ad-pricing power. Minus a second-quarter hiccup caused by the COVID-19 recession, Google regularly delivers double-digit year-on-year revenue growth.
Alphabet's rapidly growing ancillary businesses are truly exciting. For example, YouTube has become one of the three most-visited social platforms on the planet, which has been positive for Alphabet's ad-driven growth.
Meanwhile, Google Cloud (a competitor to AWS) is growing sales at an even faster pace than YouTube's ad revenue. Demand for cloud infrastructure services is soaring, and Google Cloud delivered 45% year-on-year sales growth to $3.4 billion in the latest quarter. Cloud margins trump ad margins, meaning that Google Cloud is Alphabet's secret to serious cash flow expansion in the years to come.