Over the past year, investors were taken for quite the ride. The benchmark S&P 500 lost over a third of its value in just 33 calendar days. It followed this record decline by catapulting to record highs over the subsequent nine months. It was wild, and young investors seemingly loved every minute of it.
Online investing app Robinhood, which has an average user age of only 31, picked up approximately 3 million new users in 2020. These millennial and novice investors have a penchant for chasing high-flying stocks. In particular, Robinhood investors can't stop buying the following five high-risk, high-reward stocks.
Once hardly even on the radar for young investors, electric-vehicle (EV) manufacturer NIO (NIO 2.12%) is now the fifth most held stock on the entire Robinhood platform.
What's driving this interest is the future potential of EVs in China, the largest auto market in the world, where NIO is based. It's been estimated that up to half of all vehicles sold in China by 2035 will be EVs.
In recent quarters, NIO has made efforts to significantly increase its production capacity. In September, it launched its latest vehicle, the EC6 crossover. In December, NIO's 7,007 deliveries put it on track to hit at least 7,500 EVs per month in early 2021. The company has previously stated that it will work toward hitting 150,000 EVs in annual run-rate production capacity in 2021.
NIO's battery-as-a-service (BaaS) program also seems to be a hit. NIO's BaaS program lowers the initial cost of its vehicles in exchange for enrolling buyers in a monthly service program that carries a fee. Drivers can use the BaaS program to upgrade or replace batteries in the future. The key point is that it encourages rapid adoption of NIO's EVs by curtailing some of the upfront costs. It also ensures buyers stick with the brand for a long time.
Robinhood investors are also infatuated with data-mining company Palantir Technologies (PLTR 6.31%). After beginning the year as the 49th most held stock on the leaderboard, it's now leapt its way to the No. 29 spot.
Palantir's rapid sales growth is predominantly what's garnering attention from younger investors. Palantir's two operating platforms -- Gotham for the federal government and Foundry for enterprises -- have both been growing quickly, though Gotham has had a growth edge in recent quarters.
Over the long run, Foundry likely offers the most potential. The company is only scratching the surface in terms of big-name adoption. When it became a publicly traded company in late September, it had just 125 customers. However, the company's third-quarter report shows that Palantir's customer concentration (i.e., revenue received from its top-20 customers) is on the decline (61% through the first nine months of 2020 vs. 68% in the comparable period in 2019).
Palantir shareholders can probably expect sustainable annual growth in the 25% to 30% range.
Anything having to do with EVs and EV infrastructure is extremely popular with Robinhood's millennial investors. That's why we've seen EV charging equipment and services provider Blink Charging (BLNK -1.15%) vault onto the leaderboard this past week at the No. 91 spot.
The buy thesis for Blink is twofold. First, there are the logistics of servicing an increasing number of EVs on American roadways. The Edison Electric Institute estimated in 2018 that the number of EVs on U.S. roadways would grow to nearly 19 million by 2030, up from 1 million in late 2018. We're going to need more than Tesla Supercharger stations to fill exponential growth in EV charging demand.
Blink is also benefiting from the Democratic blue wave in the U.S. elections. A slim Democrat majority in Congress makes it more likely that EV and other alternative fuel infrastructure will be prioritized in the years to come.
Then again, Blink is still a very early stage company. Last week, the company sold 5.4 million shares of stock after its monstrous run-up to raise $221.4 million in gross proceeds. But through the first nine months of 2020, it had only generated $3.8 million in sales. Blink Charging remains a high-risk work in progress.
Millennial and novice investors love marijuana stocks. They also favor penny stocks. Put the two together, and you get Canadian licensed producer Sundial Growers (SNDL -0.32%). Sundial is currently one spot (No. 28) ahead of Palantir on the Robinhood leaderboard.
The best rationalization I can offer for owning Sundial is that investors are counting on the Biden administration to legalize marijuana at the federal level. That's certainly more doable now that they'll control the legislative branch of government, but it's far from a guarantee. Without federal legalization, Canadian pot stocks won't enter the U.S. weed market.
What should concern investors is that, like most Canadian marijuana stocks, Sundial has shown little regard for its shareholders. In order to reduce its outstanding debt, the company has sold its common stock and converted some of its debt to equity. When a company's outstanding share count skyrockets, it dilutes the value of the remaining shares. Unsurprisingly, shares of Sundial are down 76% over the trailing 12 months, even after quadrupling since the beginning of November.
Sundial is also transitioning from a wholesale cannabis operating model to a higher-margin retail model. That's not going to happen overnight, and the company's $151.5 million Canadian in operating losses in the first nine months of 2020 demonstrates that.
Like NIO, hydrogen fuel cell solutions company Plug Power (PLUG -1.55%) has been climbing Robinhood's ranks for months. As of Jan. 8, it was the 11th most held stock on the platform.
Last week, Plug Power moonshot higher after securing a $1.5 billion equity investment from South Korea's SK Group. The duo will form a joint venture to accelerate the use of hydrogen fuel cell technology in South Korea. The press release notes that South Korea is aiming to have roughly 6 million hydrogen fuel cell vehicles on the road by 2040, with approximately 1,200 refilling stations. This deal almost certainly means the company's target of $1.2 billion in sales by 2024 is headed higher.
But even before announcing this game-changing deal, Plug Power was benefiting from favorable U.S. election results. With Democrats controlling Congress, there's an increased likelihood that we see green energy bills become law. Clean and renewable energy sources are going to be prioritized, and that includes hydrogen fuel cell solutions.
It will be interesting to see how quickly Plug Power can turn its SK Group joint venture into tangible sales growth. The company's lofty $22.3 billion valuation probably hinges on it.