Stock market volatility was off the scales in 2020, but that didn't seem to bother millennial investors one bit.
Online investing app Robinhood, which is perhaps best known for its commission-free trades, fractional-share investing, and gifting of free stock to new users, gained approximately 3 million new users last year.
The average age of Robinhood's users is only 31. As you might expect, young investors have a penchant for chasing momentum. Whether it's penny stocks or high-growth plays, millennials and novice investors have packed Robinhood's leaderboard (the 100 most held stocks on the platform) with these volatile and potentially risky companies.
But amid these risky plays, Robinhood investors have also added a handful of value stocks to their portfolios. The following four Robinhood value stocks have the potential to make investors a lot richer in 2021.
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Historically, social media leader Facebook (FB 2.61%) hasn't met the traditional definition of a value stock, but things have changed.
Although Facebook remains a growth stock with annual double-digit sales growth, it's also a value stock. Its price-earnings-to-growth ratio (PEG ratio) is below 1, and the company's multiple relative to operating cash flow in future years looks to be well below historical norms.
Aside from valuation, there are two key catalysts that make Facebook worth owning. First is the company's penetration in the social media space. Facebook ended September with 2.74 billion monthly active users visiting its namesake website. If you include the other assets it owns, there were 3.21 billion monthly active people in the third quarter. Advertisers understand that there's no other platform that offers access to an audience this large and targeted. Facebook's ad-pricing power is unmatched in the social media space.
The other reason to buy Facebook is that it's still in the early to middle innings of its growth phase. Practically all of the company's revenue is being generated from ads on Facebook and Instagram. Meanwhile, WhatsApp and Facebook Messenger have yet to be meaningfully monetized. Facebook controls four of the six most visited social platforms, yet it's only opened the floodgates on two of them. When Facebook does monetize all of its platforms, the company's operating cash flow could quickly double.
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AstraZeneca
Another deeply discounted stock that can be found on Robinhood's leaderboard is big pharma AstraZeneca (AZN +0.00%). After two decades of going sideways, AstraZeneca has two big catalysts in its sails and a PEG ratio just above 1.
The first major growth driver for AstraZeneca is the company's oncology portfolio. Through the first nine months of 2020, cancer drug sales were up 23% to $8.2 billion, with blockbuster drugs Tagrisso, Imfinzi, and Lynparza leading the charge with respective year-to-date growth of 38%, 42%, and 51%. AstraZeneca has 172 projects currently in its clinical pipeline, with the vast majority of oncology studies focused on expanding the labels of its blockbuster trio. This is high-margin revenue with sustainable growth potential for years to come.
The other reason to be excited is the $39 billion cash-and-stock buyout of Alexion Pharmaceuticals (ALXN +0.00%). The largest buyout in AstraZeneca's history will land it a company focused entirely on ultra-rare indications. This means minimal competition and virtually no pushback from health insurers over its high list prices.
Even more important, Alexion developed a next-generation replacement for its blockbuster drug Soliris. This replacement, known as Ultomiris, only needs to be administered once every eight weeks, as opposed to every two weeks with Soliris. Ultomiris will ensure that Alexion's cash flow is well-protected for at least the next decade, and it'll be quite the organic growth driver for AstraZeneca.
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Wells Fargo
Want returns that value investors can bank on? Then consider buying shares of banking giant Wells Fargo (WFC +0.65%), which is valued at 80% of its book value. In general, bank stocks are considered a great value when you can scoop them up for less than their book value.
As you might imagine, there's a reason Wells Fargo is this inexpensive. In addition to coronavirus pandemic concerns and low interest rates, which have weighed on its net interest income-earning potential, Wells Fargo is also attempting to put a scandal in the rearview mirror. This scandal saw 3.5 million unauthorized accounts opened between 2009 and 2016. Fortunately for Wells Fargo, consumers have a short-term memory when it comes to banking PR nightmares.
One reason value investors can be excited about Wells Fargo is the company's storied history of attracting affluent clients. Well-to-do banking customers are less likely to adjust their spending habits during economic contractions and more likely to continue paying their bills. They're also the perfect customer for Wells Fargo to market some of its higher-margin services to, including wealth management. Attracting wealthy clients is a big reason why Wells Fargo's return on assets has been at or near the top of the list among bank stocks.
Furthermore, this is a company intent on becoming more efficient. Wells Fargo is investing aggressively in digitization, and has been consolidating some of its branches to reduce noninterest expenses. Patient investors should be handsomely rewarded.
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AT&T
Finally, value stock investors should strongly consider adding telecom behemoth AT&T (T 1.25%) if they want to get richer in 2021. Investors can pick up shares of AT&T for just 9 times Wall Street's consensus earnings forecast in the current year.
Like Wells Fargo, AT&T is cheap for a reason. The big issues for AT&T are its continued subscriber exodus from subsidiary DIRECTV and its mammoth debt load. Despite generating tons of operating cash flow, Wall Street is eyeing the company's more than $187 billion in total debt.
But AT&T wouldn't be on this list of value stocks to buy if I didn't see discernible positives in its future. For example, it will be a direct beneficiary of the 5G boom. It's been about a decade since telecom companies upgraded their wireless infrastructure. This won't happen overnight, nor will the technology upgrade cycle for businesses and consumers. Since AT&T generates its juiciest margins from wireless data, faster download speeds are music to its ears.
Don't overlook AT&T's streaming content, either. Though the launch of HBO Max in late May was mediocre at best, HBO Max's subscriber count has soared in recent months. Being able to offer proprietary content could go a long way to canceling out the negative effects of cord-cutting.
As one last note, AT&T's 7.1% dividend yield is a monster that income investors are bound to appreciate.
