Robinhood's trading app is popular with millennial and beginner investors. The company makes it easy to invest with its user-friendly interface and free trades, and it encourages newcomers with uplifting slogans about investing for the masses. But it also makes it easy for investors who don't have a lot of experience to make risky trades. Just look to the recent GameStop craziness; for the past two months, the stock has been on a wild ride largely based on the interest of beginners and speculators. It's been a similar story with AMC Entertainment Holdings (AMC -3.25%).
But there are also bigger, safer stocks that are popular with the Robinhood crowd, such as Walt Disney (DIS 0.18%) and Amazon (AMZN -1.64%). So what's really worth buying?
Image source: Getty Images.
1. AMC Entertainment Holdings
AMC had a challenging year in 2020, with movie theaters closed in many areas for months. It showed in the numbers: Fourth-quarter revenue was down 90% and net loss was almost $1 billion, and the company raised more than $2 billion during the year to stay afloat.
That's gotten better in 2021: As of March 19, 98% of U.S. theaters were open. But a potentially bigger problem is whether moviegoers will return in the same numbers as before the pandemic. Even now that theaters are open, they're filled at limited capacity. And streaming sites have made a lot of headway over the past year as people stayed home, and several film studios have already said that they will release films straight to streaming even as they open in theaters. AMC will continue to operate in a difficult environment for the foreseeable future.
In January, AMC was a heavily shorted stock that got a lot of attention from speculators hoping to send the price up by forcing short-sellers to cover their positions. It worked -- its price was bid up nearly 1,000% from January into February. It's come down sharply, but it was still up more than 400% from its 2021 lows by the end of this week. That's a phenomenal gain for a company that lost almost all of its business last year and is yet to recover.
The show is not over for AMC, and there's definitely that to be optimistic about. But I would stay away from AMC's stock while it's at risk of a serious reckoning.
2. Walt Disney
Disney's stock has gained almost 80% over the past year even though its sales took a big hit -- although the declines have improved, from a 42% drop in the quarter ending June 27 to a 22% drop in the most recent period, which ended Jan. 2.
The main issue for Disney has been the ongoing closures or capacity restrictions at its parks and experiences. The company recently announced that Disneyland in California will reopen on April 30, but it will also face restrictions on attendance.
In Disney's favor, its premium streaming site, Disney+, opened in November 2019 and took off with great success. It has more than 100 paid subscriptions, destroying the company's initial estimates, and between Disney+, Hulu, and ESPN+, the company has more than 150 million paid subscriptions. It's forecasting between 300 million and 350 million subscriptions by 2024, by which time it expects to become profitable.
Even though Disney is in a tough position right now, there are many reasons to be confident about the future. Beyond streaming, parks and experiences will eventually reopen as normal and see a resurgence in attendance. Robinhood investors are smart to keep Disney on their lists.
3. Amazon
Unlike these other two companies, e-commerce giant Amazon had an amazing year, fulfilling millions of orders while Americans were under lockdown. The stock has gained more than 50% over the past year but is down roughly 7% year to date at Friday afternoon's prices.
Amazon's sales increased 38% in 2020, outpacing its recent growth, and it was more than e-commerce. The Amazon Web Services cloud hosting business has been an important part of overall growth, accounting for about 11% of total sales in the fourth quarter but around half of net income. The company is also making progress in its ventures into in-store retail, with 12 Amazon Fresh supermarkets featuring cashier-less technology, and 26 Amazon Go cashier-less convenience stores.
Beginning investors probably love Amazon because it's easy to envision as a huge opportunity, and they're right. As huge as Amazon is, the reason it's a great investment is because of how much bigger it could get. The shift to digital is accelerating because of the pandemic, and it's not going back. Amazon is right in the thick of everything digital, from shopping and streaming, with Prime video and audio, to cloud computing and smart devices. Its future prospects are strong, and it's not too late to gain from Amazon stock.
