In just nine days, we'll close the curtain on one of the craziest years in history. The broad-based S&P 500 endured a record-setting bear market decline of 34% in under five weeks. The index then made history by taking less than five months to post new highs after hitting a bear market bottom.
Millennial investors have loved every minute of it. We know this because online investing app Robinhood has added millions of new users in 2020. The average age of its user base is only 31.
Robinhood's commission-free trades, fractional share investing, and gifting of free shares of stock to new members all incentivize young people to put their money to work in the greatest wealth creator on the planet. Unfortunately, the platform hasn't done a good job of educating its users about the benefits of long-term investing and compounding. As a result, Robinhood's leaderboard -- the 100-most-held stock on the platform -- is a smorgasbord of terrible businesses.
The following four popular Robinhood stocks are companies that I believe have the potential to lose 50% or more in 2021.
Electric-vehicle (EV) manufacturer NIO (NIO 0.52%) has had a stellar year. NIO's approximately 22,500 EV SUV deliveries between April 1 and Sept. 30 outpaced the total number of deliveries for the entirety of 2019. Further, the company has allayed cash concerns by raising capital. It's creating plenty of buzz with its battery-as-a-service subscription model that reduces upfront vehicle cost in exchange for a long-term monthly subscription fee.
But NIO and its $73 billion market cap have some huge shoes to fill. After all, even with production capacity increased, the company is on track for an annual run-rate output of maybe 50,000 to 60,000 EVs. By comparison, some traditional auto stocks have been around for over a century, are investing billions in EV and autonomous technology, and can produce millions of vehicles annually -- yet have a smaller market cap than NIO.
The other potential concern is that NIO relies on its partnership with JAC Motors to boost production capacity to an estimated 150,000 units in 2021. NIO's plans to build its own production factory fell through in early 2019 due to cost restrictions. In other words, NIO's fate isn't entirely in its hands, which is a bit concerning for a $73 billion company.
American Airlines Group
It's one of life's greatest mysteries: Why do millennial and novice investors like American Airlines Group (AAL -0.13%) stock? Although it's a brand-name airline stock and it's down significantly over the past three years, there aren't any redeeming qualities that should have young people champing at the bit to invest in American Airlines.
Easily the biggest issue for the company is its outstanding debt. American Airlines was, thankfully, the recipient of a coronavirus disease 2019 (COVID-19) relief loan, and has taken the initiative to raise additional capital to navigate its way through the pandemic. But as of the end of September, it had nearly $33 billion in net debt and $41.2 billion in total debt. Even if the company survives the pandemic, servicing this debt will cripple its financial flexibility for a long time to come.
Additionally, American Airlines was required to suspend its share buybacks and dividend payout in return for accepting a COVID-19 relief loan. This is a company that operates in a capital-intensive, low-margin industry, and it now has no capital return program whatsoever. It's unquestionably the worst company in the industry and could still have plenty of downside.
The North American cannabis industry is starting to catch fire, but it doesn't mean every company will be a winner. If we've learned anything over the last couple of years, it's that Aurora Cannabis (ACB 0.95%) has little regard for its shareholders, and it's unlikely to be a winner.
The single biggest reason investors should keep their distance from Aurora Cannabis is the company's ongoing share-based dilution. Since April 2019, Aurora's board has approved and completed separate at-the-market (ATM) share offerings of $400 million and $250 million. It is now working on a $500 million ATM offering. This company has also funded more than a dozen acquisitions with its common stock. In total, Aurora's outstanding share count has ballooned by over 11,800% in six-plus years.
Another issue is that management (old and new) continues to kick the can further down the road when it comes to hitting positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Achieving positive EBITDA is critical to not violating the company's debt covenant.
Even if cannabis is a hot investment in 2021, Aurora Cannabis looks as if it'll go up in smoke.
I know what you're probably thinking: Am I crazy? After all, Moderna's COVID-19 vaccine candidate, mRNA-1273, has produced the second-highest vaccine efficacy to date (94.1%), and arguably has the best safety profile of the three late-stage candidates we thus far have data on. On Dec. 18, the Food and Drug Administration granted emergency use authorization to mRNA-1273.
But there are a couple of big challenges that await Moderna. For example, Johnson & Johnson (JNJ 0.46%) should be reporting interim efficacy data for its COVID-19 vaccine candidate sometime in January. Johnson & Johnson's vaccine is only administered in one dose, as opposed to two doses for all other late-stage candidates, including Moderna. If Johnson & Johnson is able to deliver a vaccine efficacy north of 90%, Moderna's vaccine could quickly be deemed obsolete.
Also, the vaccine space should grow more crowded over time. There are around two dozen coronavirus vaccines in development, which suggests that Moderna's share of the market will only shrink after 2021.
Suffice it to say that the upcoming year could be rough for one of the standout healthcare stocks of 2020.