The stock market toppled numerous records for volatility in 2020 -- and millennial investors loved every minute of it.
We know this because online investing app Robinhood, which is best known for its commission-free trades and gifting of free shares of stock to new members, added millions of new users in 2020. Since the average age of its user base is only 31, we can put two and two together to see that these young investors were pretty excited to get in on a wildly vacillating market.
While Robinhood's millennial investors are known for chasing penny stocks and other momentum plays that should probably be avoided, the platform's leaderboard (i.e., the 100 most-held stocks) contains a number of companies that investors can confidently buy right now. Here are four unstoppable Robinhood stocks that should deliver for investors in 2021 and beyond.
Even with its monumental run-up last year, fintech stock Square ( SQ -5.64% ) has proven that it deserves a lofty premium. That makes it a good bet to generate a positive return for investors in 2021 and beyond.
For nearly a decade, Square's bread-and-butter operating segment has been its seller marketplace. The company provides a variety of point-of-sale solutions to process payments and provide analytics to small businesses. Between 2012 and 2019, the gross payment volume (GPV) crossing its network grew by 49% annually.
This segment isn't just for small businesses anymore. Square's third-quarter report points out that 61% of GPV was derived from merchants with at least $125,000 in annualized GPV. That's up 8 percentage points over the past two years. Since merchant fees drive its seller ecosystem, adoption by larger businesses should continue to drive double-digit growth.
Peer-to-peer payment platform Cash App is Square's other major growth catalyst. Millennials and Generation Z favor digital payments. That preference is a big reason Cash App's monthly active user count has more than quadrupled since the end of 2017. Cash App gives Square multiple avenues to generate revenue, including bitcoin exchange, which has become especially popular in 2020.
Satellite radio operator Sirius XM ( SIRI -0.64% ) may not be growing as quickly as Square, but it offers abundant competitive advantages in the radio space that should make investors happier and richer in 2021.
Sirius XM is part of a small club of legal monopolies. Though it faces some degree of competition for listeners from terrestrial and online radio, it's the only satellite radio operator. This affords the company healthy pricing power for its monthly subscriptions.
Equally important is how Sirius XM generates revenue relative to other radio operators. For online and terrestrial radio, advertising provides the bulk of revenue. That's fantastic news for the multiyear periods of economic expansion in which companies are willing to spend big on ads to reach targeted audiences. However, ad spending dries up quickly when recessions strike.
Meanwhile, Sirius XM has generated 81% of its sales from subscriptions through the first nine months of 2020. This subscription revenue actually rose during the pandemic. With less historic churn tied to subscriptions, Sirius XM is better suited to navigate its way through economic contractions than its peers.
As one final note, Sirius XM's transmission costs are relatively fixed, no matter how many subscribers it adds. That's a formula for improved operating margins over time.
For more than a decade, nothing has been more synonymous with "unstoppable" than the FAANG stocks. In 2021, the FAANG stock on Robinhood's leaderboard that might deliver the most impressive gains is Alphabet ( GOOGL -0.68% )( GOOG -0.87% ).
Alphabet handily outperformed the benchmark S&P 500 in 2020, but was the worst-performing member of the FAANGs. The coronavirus-induced recession, coupled with its reliance on ads for the lion's share of its revenue, created something of a perfect storm. But with the U.S. and global economy set to bounce back in 2021, Alphabet appears poised for success.
Alphabet is the parent company of Google, which might be considered a monopoly in the internet search space. According to GlobalStats, Google has controlled anywhere from 91% to 93% of global internet search share over the trailing year. This makes it the clear go-to for advertisers looking to reach a targeted or broad audience. As long as the U.S. and global economy are expanding, Google's ad revenue tends to grow by a double-digit percentage.
Don't overlook Alphabet's ancillary operating segments. YouTube is now one of the three most-visited social platforms in the world. Meanwhile, Google Cloud is the company's fastest-growing operating segment (45% year-on-year sales growth in Q3 2020). Cloud is particularly intriguing given that its margins are considerably higher than those associated with ads.
Look for Alphabet to outperform in 2021.
Bank of America
To round out the list, investors should consider buying into money-center giant Bank of America ( BAC -2.27% ).
Admittedly, things aren't perfect for bank stocks at the moment. The Federal Reserve's insistence on keeping lending rates at or near historic lows through 2023 will hurt all banks' potential to earn interest income. Banks are also dealing with the possibility of rising loan and credit delinquencies associated with the coronavirus recession. Yet Bank of America has a number of favorable catalysts that could allow it to outperform other big banks and the broader market.
For example, Bank of America has reinvested aggressively in digitization and has been pushing for increased digital and mobile banking usage. With more consumers willing to transact online and through its mobile app, the company's been able to close and consolidate physical branches to reduce its noninterest expenses.
Bank of America also happens to be the most interest-sensitive of the big banks. Though interest income isn't likely to pick up prior to 2024, BofA will be in line to see the biggest boost by mid-decade when the Fed begins increasing its federal funds target rate.
As the icing on the cake, the Fed recently gave big banks the go-ahead to reignite their share repurchase programs, as long as they meet certain conditions. Bank of America's last two capital return programs were $26 billion and $37 billion, respectively.
Trading just above book value, Bank of America looks ripe for the picking.