Robinhood, the app-based trading platform that disrupted older online brokerages with free trades, serves over 13 million investors. Many of its users are millennials, and a quarter of them are first-time investors.
Wall Street didn't initially pay much attention to Robinhood, since most of the platform's users only placed small trades. But more investors joined the platform throughout the pandemic the past year, and some of their choices -- amplified by social media platforms like Reddit -- shook the markets.
That shift culminated in the Reddit-fueled short squeeze earlier this year, which boosted GameStop and other battered stocks to historic highs. It also caused more analysts to focus on what Robinhood investors were actually buying. Let's examine three stocks that those investors have been quietly accumulating.
Ford's (F 2.33%) popularity on Robinhood might be surprising since it's the type of stock that younger investors often avoid. The automaker's market share is shrinking, it suspended its dividend last March, and it's shouldering over $110 billion in long-term debt. Its brand is also arguably losing its luster against hotter electric vehicle (EV) brands like Tesla.
Yet Ford's stock price nearly tripled over the past 12 months even as the pandemic disrupted its plants, as investors bet on its long-term recovery. Ford plans to aggressively expand its EV and hybrid business -- which currently includes the popular Mustang Mach-E, Ford F-150 PowerBoost Hybrid, and Escape and Explorer hybrids -- to reduce its dependence on traditional gas-powered vehicles.
Analysts expect Ford's revenue to rise 24% in fiscal 2021, thanks to an easy comparison to 2020, and grow 7% in 2022. They expect its earnings to jump 178% this year and improve 35% next year.
Those are high growth rates for a stock that trades at just eight times forward earnings, and the low P/E ratio doesn't seem to factor in Ford's turnaround plans yet. But Ford has weathered plenty of downturns before, and it could surprise the skeptics with its expansion into the EV market.
Nokia (NOK 0.61%) attracted a lot of attention from Robinhood investors during the Reddit-fueled short squeeze. Its stock briefly hit a two-year high in late January, but those gains quickly evaporated.
Nokia's stock has risen nearly 60% over the past 12 months, likely because investors considered it a value play on the 5G market. The stock certainly looks cheap at 14 times forward earnings, but it's still lost about a third of its value over the past five years.
I don't think Nokia is worth buying now for a simple reason: Its Swedish rival Ericsson (ERIC -0.75%), which generated a 35% gain for investors over the past five years, is doing nearly everything better than Nokia.
Nokia's problems began after it bought its rival Alcatel-Lucent back in 2016. It focused too much on cutting costs after the acquisition, which caused it to fall behind Ericsson and Huawei in 5G investments. Nokia suspended its dividend in 2019 to free up more cash for more 5G investments, but it lost major contracts in China amid the trade war and fell behind Ericsson in other markets. Nokia's former CEO, Rajeev Suri, also resigned last year without fixing the company's biggest problems.
Ericsson didn't switch leaders during its crucial shift to 5G. It also retained its contracts in China, grew faster than Nokia, and continued to pay its dividend. That's why analysts expect Ericsson's revenue and earnings to rise 15% and 16%, respectively, this year. They expect Nokia's revenue to rise just 3% this year, and for its earnings to tumble 21%.
Lastly, Palantir (PLTR 5.43%), the data-mining firm named after the all-seeing orbs from The Lord of the Rings, has been a hot stock on both Robinhood and Reddit forums.
Palantir went public via a direct listing last September. Its stock hit the market at about $9 a share, surged to nearly $40 a share in late January, and currently trades in the mid-$20s.
The company, which generates over half of its revenue from government contracts, grew its revenue 25% in 2019 and 47% in 2020. It expects its revenue to rise more than 30% in 2021.
That growth is impressive, but Palantir is unprofitable and its stock trades at 30 times this year's sales -- which could make it an easy target for profit-takers as higher bond yields spark a rotation from growth stocks to value stocks.
That being said, Palantir's margins are expanding, it's growing its average revenue per customer, and it continues to expand its enterprise-facing business to reduce its dependence on government contracts.
I bought most of my shares of Palantir below $10, sold a third of my stake in late January, and plan to hold the rest of my shares for the long term. I think the company's near-term growth will be volatile, but it's tough to bet against a company that aspires to provide the "default operating system" for the U.S. government while offering lighter versions of its tools for big businesses.