Whereas most investors shy away from volatility, young investors covet it. With a penchant for risk and a mindset to get rich quick, millennial and/or novice investors have piled into the stock market over the past year.
For many of these young investors, online investing app Robinhood is their brokerage of choice. Robinhood is known for its commission-free trades, fraction-share investing, and the gifting of free shares of stock to new members.
Another thing Robinhood is known for is transparency. Robinhood regularly updates its leaderboard -- i.e., the 100 most-held securities (including exchange-traded funds) on the platform. This provides an under-the-hood and practically real-time look at what retail investors are buying and possibly selling.
As you might imagine, the leaderboard is packed with momentum plays, Reddit-frenzy stocks, penny stocks, and dart throws. But amid these head-scratching companies are three absolutely unstoppable Robinhood stocks that are begging to be bought by long-term investors.
Image source: Getty Images.
Arguably the most attractive buy among Robinhood's 100 most-held stocks is social media giant Facebook (FB +1.33%). Despite its $826 billion market cap, Facebook offers substantial upside and is the perfect blend of growth and value.
The world's most popular social media company ended 2020 with 2.8 billion people visiting its namesake site on a monthly basis, along with 500 million additional unique visitors heading to Instagram or WhatsApp, which Facebook also owns. These 3.3 billion unique monthly visitors represent north of 42% of the world's population. There's not a social platform on the planet that can offer advertisers a broader or potentially more-targeted audience than Facebook. Keep in mind that despite the worst economic downturn in decades last year, Facebook's ad revenue still rose by 21%.
Another interesting thing about Facebook is that it's still not running on all cylinders. Of the more than $84 billion in ad revenue generated last year, it was almost entirely brought in by its namesake site and Instagram. Neither Facebook Messenger nor WhatsApp -- two of the five most-visited social sites in the world -- have been meaningfully monetized as of yet.
It would also be a mistake to overlook Facebook's opportunities beyond advertising. The company's Facebook Pay service, the potential introduction of its own cryptocurrency in 2021, and its virtual reality/augmented reality Oculus device, all represent ways Facebook can expand on its mission to connect people.
Shares of Facebook can be scooped up for only 21 times forward earnings in spite of a robust sales growth rate that ranges between 20% and 25% per year.
Image source: Sirius XM.
Sirius XM
Another unstoppable Robinhood stock that's begging to be bought by patient investors is satellite-radio operator Sirius XM (SIRI +0.00%). Sirius XM is the 72nd most-held stock on Robinhood, as of this past weekend.
Although Sirius XM doesn't offer the same high-growth potential as Facebook, it's nevertheless a dominant company. To begin with, it is the only satellite radio operator. Being able to run a legal monopoly gives Sirius XM the sort of pricing power that Facebook enjoys with its advertising platform.
But there's much more to like than simply Sirius XM's legal monopoly status. Perhaps the best thing about Sirius XM is the operating model, which is built to survive the economy's natural ebbs better than its peers.
You see, most terrestrial and online radio providers rely on advertising for the lion's share of their revenue. The issue is that ad revenue tends to dry up quickly during economic contractions or recessions. Sirius XM operates on a subscription-based model, with Pandora's ad revenue accounting for less than 17% of total sales. Sirius XM acquired Pandora in February 2019. With a focus on subscriptions, Sirius XM often sees little churn, even during recessions. In fact, the company added a net of 909,000 paying subscribers in 2020 and saw subscription revenue grow by $252 million to $6.37 billion.
What's more, Sirius XM benefits from a number of relatively fixed costs. For example, transmission and equipment costs are mostly the same year-to-year, no matter how many new net customers the company signs on. Being able to add new users without simultaneously boosting capital expenditures is a recipe for long-term margin expansion.
Image source: Square.
Square
A third game-changing Robinhood stock that investors can scoop up right now and not have to worry about selling for a long, long time is fintech stock Square (SQ 0.59%). Square is the 59th most-held stock on Robinhood.
Square has two fast-growing segments. The one most folks are likely familiar with is its seller ecosystem. This segment provides point-of-sale devices, analytics, and business services, such as loans, to merchants. Between 2012 and 2020, the gross payment volume (GPV) crossing Square's network grew from a little over $6 billion to more than $112 billion. If you exclude 2020, which negatively impacted brick-and-mortar merchants, GPV in the seller ecosystem grew by 49% on an annualized basis between 2012 and 2019.
Since this is predominantly a merchant fee-driven segment, the fact that larger businesses ($500,000+ in annualized GPV) are accounting for a higher percentage of total payment volume on its network is an encouraging sign. Square's seller ecosystem is a rock-solid foundation for the company.
The even more impressive growth story is peer-to-peer digital payment service Cash App. In three years, Cash App's monthly active user count has more than quintupled from 7 million to 36 million. These 36 million people are using Cash App for purchases, transferring money to and from traditional bank accounts, linking their Cash App account to Cash Card (a traditional debit card tied to their Cash App balance), and utilizing Cash App as an investment platform.
In particular, Bitcoin exchange has become exceptionally popular among the Cash App crowd. The $4.57 billion in sales generated from Bitcoin in 2020 was a 900% increase from the previous year.
Best of all, Square is paying less than $5 to acquire each Cash App user and netting an average of $41 in gross profit per user. Those are undeniably strong numbers that suggest Square is changing the face of banking.
