Robinhood, the trading app that disrupted the brokerage industry with commission-free stock trades, has accumulated over 13 million users since its launch in 2015. Its growth accelerated throughout the pandemic, as stay-at-home measures and volatile markets attracted a new generation of aggressive traders.
However, the online trading platform was recently engulfed in controversy after it halted purchases of GameStop (GME 0.92%) and other heavily shorted stocks amid a historic short squeeze. Robinhood claimed it halted the trades due to volatility, but the move sparked a fierce backlash from its users and accusations of market manipulation.
Despite these recent setbacks, Robinhood's list of the 100 most popular stocks on its platform offers us valuable insights into the habits of its investing user base, which is thought to skew younger. Some of those popular stocks on the list, such as Virgin Galactic and Plug Power, are clearly speculative plays. However, three stocks on the list are widely considered solid investments for most investors: Amazon (AMZN 3.15%), Microsoft (MSFT 1.07%), and Visa (V 1.16%).
Let's find out a bit more about these three top Robinhood stocks to buy in February.
Amazon is the world's largest e-commerce and cloud company by annual revenue. Its online marketplace dominates many countries, including the U.S., while Amazon Web Services (AWS) controlled 32% of the global cloud infrastructure market in the third quarter of 2020, according to Canalys.
Amazon's business is built on a virtuous growth cycle between AWS, Prime, and its online marketplaces. Amazon subsidizes the growth of its lower-margin marketplaces with AWS' higher-margin revenue.
That support enables Amazon to constantly sell its products at low prices and expand its Prime ecosystem with cheap hardware, digital perks, brick-and-mortar stores, and other loss-leading strategies. Amazon ended 2019 with over 150 million paid Prime subscribers worldwide, and that number likely rose significantly throughout the pandemic as shoppers purchased more goods online.
Amazon's annual revenue rose from $107 billion in fiscal 2015 to $280.5 billion in 2019. Analysts expect its revenue and earnings to rise 35% and 52%, respectively, in fiscal 2020 as the pandemic-induced tailwinds strengthen both its e-commerce and cloud businesses. Amazon's stock rallied more than 400% over the past five years, but its forward P/E ratio of about 70 still seems reasonable relative to its growth rates.
Microsoft was considered a slow-growth company before its cloud chief Satya Nadella took the helm as its third CEO in 2014. Under Nadella, Microsoft transformed its desktop-based software into cloud-based and mobile services, expanded the Surface and Xbox businesses, and invested heavily in its Azure cloud infrastructure platform to keep pace with AWS.
Nadella's strategies initially throttled Microsoft's earnings growth, but they transformed it into a powerhouse in the cloud market. The tech giant's annual revenue rose from $93.6 billion in fiscal 2015 to $143 billion in 2020, and its net income grew from $12.2 billion to $44.3 billion.
More importantly, its "commercial cloud" revenue, which includes Office 365, Dynamics, and Azure, rose from about $8 billion in 2015 to more than $50 billion in 2020. Analysts expect that momentum to continue, with 14% sales growth and 27% earnings growth, in fiscal 2021.
Microsoft's stock soared nearly 360% over the past five years, and it might look a bit pricey at 30 times forward earnings. However, the ongoing growth of its cloud business, along with sales of its new Xbox consoles and the post-pandemic recovery of its enterprise software business, easily justify that slight premium.
Visa is the world's second-largest card payment organization after China's UnionPay. Visa doesn't issue any credit or debit cards on its own -- it merely partners with financial institutions that issue Visa-branded cards, then collects payment processing fees whenever the cards are used.
This business model shields Visa from the risks of unpaid credit card bills and defaults, which are shouldered by the issuing banks. Mastercard uses the same business model, while American Express issues both first-party and third-party cards.
Visa's presence in over 200 countries and territories make it practically synonymous with credit card payments and the war on cash. It also benefits from the growth of the mobile payment market, since many of those apps need to be linked to credit card accounts.
Visa's annual revenue rose from $13.9 billion in 2015 to $21.8 billion in 2020, while its net income jumped from $6.3 billion to $10.9 billion. Analysts expect Visa's revenue and earnings to rise 7% and 8%, respectively, in fiscal 2021 before accelerating to double-digit growth rates in 2022 as the pandemic passes.
Visa's stock has nearly tripled over the past five years, but it still trades at a reasonable 29 times forward earnings -- and it could have plenty of room to run as cash gradually vanishes from our daily routines.