One of the most volatile years on record for the stock market has officially come to a close. Despite losing over a third of its value during the first quarter, the widely followed S&P 500 ended the year on a high note, with the index advancing by a double-digit percentage.
For some investors, volatility can be unnerving. But for millennial and novice investors, it's been an insatiable lure.
Millennials are flocking to Robinhood
Online investing app Robinhood, which is best-known for its commission-free trades, fractional share investing, and gifting of free shares of stock to new members, has been particularly popular among younger investors. With an average user age of 31, Robinhood gained an estimated 3 million new users in 2020.
In one sense, it's fantastic to see young investors putting their money to work in the greatest wealth creator on the planet. Historically, the stock market has doubled about once every decade, including dividend reinvestment. Over four decades, an initial investment would increase 1,500%, hypothetically assuming that the historic average return holds true.
On the other hand, Robinhood hasn't exactly provided these millennial and novice investors with the tools and education they're going to need to be successful over the long run. As a result, Robinhood's leaderboard (i.e., the most-held stocks on the platform) is a mix a brand-name companies and absolute head-scratching dart throws.
As we move headlong into a new year, here are the top 50 Robinhood stocks for 2021, as ranked by the platform's leaderboard.
|1. Apple||26. Fitbit|
|2. Tesla Motors (NASDAQ:TSLA)||27. OrganiGram|
|3. General Electric||28. JetBlue Airways|
|4. Ford Motor||29. Nikola|
|5. American Airlines Group (NASDAQ:AAL)||30. Royal Caribbean Group|
|6. Pfizer||31. Spirit Airlines|
|7. Carnival||32. Southwest Airlines|
|8. Delta Air Lines||33. Genius Brands|
|9. NIO (NYSE:NIO)||34. Twitter|
|10. Disney||35. Prospect Capital|
|11. Moderna||36. Netflix|
|12. Amazon||37. Coca-Cola|
|13. Microsoft||38. Direxion Daily S&P Oil & Gas Bull 2X|
|14. GoPro||39. MGM Resorts|
|15. Aurora Cannabis (NASDAQ:ACB)||40. Workhorse Group|
|16. Plug Power||41. Facebook|
|17. Norwegian Cruise Line (NYSE:NCLH)||42. AT&T|
|18. Snap||43. Uber Technologies|
|19. Marathon Oil||44. Canopy Growth|
|20. United Airlines||45. ExxonMobil|
|21. Bank of America||46. Starbucks|
|22. Aphria||47. Draftkings|
|23. Alibaba||48. Inovio Pharmaceuticals|
|24. AMC Entertainment||49. Palantir Technologies|
|25. Boeing||50. Virgin Galactic|
What stands out?
Now that you've had a closer look at what millennial and novice investors have been buying, let's take a closer look at some of the standout trends.
A dangerous obsession with travel stocks
The first thing that jumps about from this list of the 50 most-held Robinhood stocks is just how many top holdings are airlines or cruise line companies. It's absolutely frightening that six of the top 32 most-held stocks are capital-intensive, low-margin, and generally debt-ridden airline stocks.
American Airlines, which happens to be the fifth-most-held stock on the entire platform, is lugging around more than $41 billion in debt. Though it's had access to coronavirus relief loans, the debt it's carrying around will minimize its financial flexibility for many years to come. To boot, we don't know when air travel is going to get back to pre-coronavirus disease 2019 (COVID-19) levels, and most airline stocks, including American, have suspended their dividends and share buybacks.
Among cruise lines, Norwegian nearly capsized in May when it warned Wall Street about its ability to raise capital to stay afloat. Management has, thankfully, been aggressive with its cost-cutting and capital-raising tactics. Nevertheless, it could be years before the cruise industry is back to its former glory.
Young investors love cannabis
It's no secret that, when broken down by age group, people between the ages of 18 and 34 have the most favorable view of marijuana. That's why it's no surprise to find four marijuana stocks among the 50 most-held stocks on the platform.
At one time, Aurora Cannabis was the most-held stock on Robinhood. But after declining by close to 90% over the trailing three years, it appears to have lost most of its allure with millennials. Aurora Cannabis has been financing its day-to-day operations and acquisitions with its common stock for years, which is ultimately responsible for diluting the daylights out of the company's long-term shareholders.
Arguably Robinhood's biggest flaw is that it doesn't allow its users to purchase stocks listed on the over-the-counter (OTC) exchange. In some ways that's a positive thing, as there are a sea of bad-news penny stocks listed on the OTC boards. But many of the best U.S. marijuana stocks are listed on the OTC exchange. In short, millennials have been stuck investing in some of the worst cannabis stocks.
Renewable energy is on their mind
Young investors are also enthralled with the idea of putting their money to work in renewable energy stocks. More specifically, Robinhood's top 50 contains four electric-vehicle (EV) stocks and Plug Power, which is focused on hydrogen fuel cell solutions. Technically, General Motors and Ford can also be added to the list, given that they're investing billions each year into EVs and autonomous vehicle technology.
Robinhood investors have always had an affinity for chasing big gains, which is probably why Tesla and NIO have catapulted into the top 10 most-held stocks. Tesla was the top-performing megacap stock in 2020, with NIO catapulting more than 1,000% at one point. Millennials rightly understand that EVs are the future of the auto industry, and they want to get in early on that investment.
However, meeting exceptionally lofty expectations could be difficult for Tesla, NIO, and a host of other EV manufacturers. Tesla is only making around 500,000 EVs annually, yet holds a valuation that's as big as multiple established car brands on a combined basis. Meanwhile, NIO has a nearly $69 billion market cap and is only delivering around 50,000 EVs on annual run-rate basis. Suffice it to say, renewable energy is a high-growth but risky bet in 2021.