Robinhood has taken the investing universe by storm, arming a new generation of investors with the tools they need to start putting money to work in the stock market. Many young adults are getting into stock investing for the very first time, and the app-based commission-free brokerage has a lot to do with opening the door to those who were previously reluctant to invest.
However, Robinhood investors don't always follow Wall Street's rules. They often like speculative stocks that have chances for big gains but also outsized risk. Many of them trade frequently and sometimes buy shares of doomed companies in the hope of making a quick short-term profit.
As a result, many of the favorite stocks on Robinhood have gotten utterly panned by Wall Street stock analysts. In particular, four of the stocks on the Robinhood Top 100 popularity list stand out as having favorable ratings of less than 10% from analysts. Who's right: Robinhood investors or Wall Street? Read on to take a closer look.
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1. Carnival
Carnival (CCL 1.13%) has gotten a lot of attention over the past year, as the cruise-ship giant has arguably been the company hardest hit by the COVID-19 pandemic. The stock is down 57% over the past year, although it's jumped 140% from its worst levels in late March and early April. Out of 18 analyst ratings that Robinhood tracks, only one rates Carnival a buy, compared to four sell ratings and 13 hold ratings.
It's easy to understand why Wall Street isn't excited about Carnival. The company hasn't been able to set sail for nearly a year now, and with the most recent wave of COVID-19 cases, even the release of vaccines hasn't allowed Carnival to set firm expectations about when it will be able to go out on the open seas again. Meanwhile, the company expects to lose another $2 billion in the fourth quarter and continues to burn cash at an alarming rate.
The hope among bullish shareholders is that at some point, the pandemic will come under control, and when it does, cruise fans will be excited to finally take the cruises they've had to put off for so long. But in the meantime, Carnival has had to continue to raise cash, diluting the interests of current shareholders. That means an eventual recovery might not benefit the stock as much as Robinhood investors would like. Carnival will probably survive, but it might not show up in much higher stock prices.
2. Aurora Cannabis and 3. HEXO
Marijuana stocks are back in the news, and hopes for legalization in the U.S. have many investors betting big on cannabis. However, Wall Street isn't convinced. Aurora Cannabis (ACB -2.79%) gets only a single buy rating among 17 analysts, with four sells and 12 holds. HEXO (HEXO) isn't much different, with one buy, 12 holds, and one sell.
Both Aurora and HEXO had terrible times in 2020, falling 68% and 42%, respectively. But they've bounced back to start the new year. HEXO has almost doubled, while Aurora is up 40%.
Bullish investors hope that a new administration in Washington will work to decriminalize marijuana at the federal level. That won't automatically open up markets in all states but would make it far easier for companies like HEXO and Aurora to do business in the U.S., particularly in those jurisdictions that have already legalized cannabis for medical and/or recreational use.
Skeptics point to Aurora's track record of dilutive stock offerings, which seem to happen just when share prices are starting to move higher. For HEXO, though, a joint venture with Molson Coors (TAP 0.45%) to release some CBD-infused beverage products in Colorado could provide a nice entry point from which to consider further growth opportunities. Nevertheless, both companies face challenges from competition and need to overcome the operational inefficiencies that have held them back.
4. Slack Technologies
Finally, Slack Technologies (WORK) rounds out the list of Robinhood stocks least loved by Wall Street. The stock garners only a single buy rating out of 22 analysts, while the other 21 are firm in their neutrality by having hold ratings.
In the case of Slack, "hate" is too strong a word to describe Wall Street's mood. That's because the hold ratings likely stem from Slack's pending acquisition by salesforce.com (CRM 1.27%). Under the terms of that deal, Salesforce will pay $26.79 per share in cash, and Slack investors will also get 0.0776 shares of Salesforce stock, which would currently be worth about $17 at recent prices.
As a result, owning Slack is largely like investing 40% of your money in Salesforce and keeping the other 60% in cash. Salesforce has solid prospects for the future, with 35 out of 43 analysts giving it a buy rating, as reported by Robinhood. That's a solid vote of confidence for the tech giant, and holding onto shares will give Robinhood investors exposure to Salesforce without any further tax consequences if the deal goes through.
Who's right: Wall Street or Robinhood investors?
Among these stocks, Slack looks like the safest bet to produce longer-term gains, assuming that shareholders hang onto their Salesforce stock once the merger is complete. HEXO, Aurora, and Carnival still face major uncertainties, though.
That doesn't mean that Wall Street's right and Robinhood investors are wrong -- but it does mean that if you're considering buying those stocks, you should know exactly what you're getting into before you invest.
