Over the past year, retail investors have thrived off volatility. We know this because online investing app Robinhood, which offers commission-free trades and gifts free stock to new members, gained approximately 3 million new users in 2020. That's noteworthy, given the average age of Robinhood's user base is only 31.
In simple terms, heightened volatility has acted as an insatiable lure to young and/or novice investors. They interpret these wild swings and the market's record-breaking bounce-back from a bear market as a sign that they can get rich quick. Unfortunately, a short-term focus on equities rarely pays off in the end.
As a result, Robinhood's leaderboard --i.e., the 100 most held stocks on the platform – is predominantly a mishmash of penny stocks, momentum plays, and dart throws.
But among this sea of awful companies sit three ultra-popular holdings that are ripe for the picking right now.
First up is data-mining company Palantir Technologies (PLTR -2.82%), which has been climbing Robinhood's leaderboard since its direct listing in late September 2020. Today, Palantir ranks as No. 21 among the platforms' most-held stocks.
What makes Palantir so intriguing, aside from the fact that there really isn't any other company like it, is its dual-growth model. For the time being, the company's Gotham platform, which provides data solutions to various departments of the U.S. federal government, is its biggest sales generator. Large contract wins played a key role in helping to drive total sales growth for the company of 47% last year.
However, the sensitive nature of Gotham's analytics will limit its appeal outside the United States. Don't get me wrong, it's fantastic having the U.S. government as your core client. You'll never have to worry about payment defaults, and defense spending is typically on the rise, more years than not. But Gotham offers minimal appeal beyond the borders of the United States.
The future of Palantir likely rests with Foundry -- the company's enterprise-facing data analytics platform. As noted in its S-1 filing last summer, before its direct listing, Palantir had only 125 customers. This suggests there's an insanely large runway for Foundry to grow into a juggernaut. With a focus on service industries (keep in mind, this includes the healthcare and financial sectors), Foundry should be Palantir's lead horse by mid-decade.
With the company already profitable on an adjusted basis and cranking out 30%-plus annual sales growth, it's the type of growth stock buy-and-hold investors should want to own.
Detroit automaker Ford Motor (F -0.90%), the seventh most held stock on Robinhood, is also a screaming buy.
Unlike Palantir, Ford and its auto peers were indiscriminately clobbered by the coronavirus pandemic. In general, auto stocks generate mediocre margins on the vehicles they sell, and they're highly cyclical, meaning they rely on an expanding U.S. and global economy to drive sales. The uncertainty brought about by the pandemic caused a lot of prospective buyers to holster their wallets in 2020.
But with the U.S. and global economy on the mend in the wake of a worldwide vaccination campaign, attention can once again turn to Ford's stellar F-Series sales and its investments in cleaner vehicles.
Last year, despite its challenges, the company's F-Series pickups notched their 44th consecutive year as America's top-selling truck, and 39th straight year as the top-selling vehicle. Since trucks and SUVs generate juicier margins than sedans and other value-based vehicles, Ford is one step ahead of most traditional auto stocks.
It's also putting the pedal to the metal when it comes to electric vehicles (EV) and autonomous vehicle (AV) innovation. Originally, Ford planned to spend $11 billion on EV innovation between 2018 and 2022. It's since more than doubled its investment to an aggregate of $29 billion through 2025, with $22 billion for EVs and $7 billion for AVs. Ford's goal is to launch 30 new EVs worldwide by 2025.
The company is also making inroads in China, which is the world's largest auto market. By 2035, the Society of Automotive Engineers of China has estimated that half of the country's new vehicle sales will be alternative energy, 95% of which are EVs. With Ford's market share growing in China, it's well positioned to take advantage of rapidly rising EV demand.
A third ultra-popular Robinhood stock that's a screaming buy is e-commerce giant Amazon.com (AMZN 0.90%). Amazon ended last week as the 10th most-held stock on the platform.
Unless you've been living under a rock for the past decade, you're probably well aware of how dominant Amazon's marketplace has become. An eMarketer report from March 2020 estimated the company would tack on another 100 basis points of share in 2021, pushing its market share of U.S. online sales to just shy of 40%. For some context, the company's second closest competitor, based on U.S. e-commerce share, trails it by roughly 33 percentage points.
Though it's well-documented that retail margins are nothing to write home about, Amazon has been able to use its online retail dominance to generate higher-margin revenue. In particular, it's encouraged well over 150 million people worldwide to sign up for a Prime membership. The annual fees Amazon collects from Prime help it to undercut brick-and-mortar retailers on price. Meanwhile, Prime members typically spend a lot more per year than the typical online shopper, and they're more likely to stay loyal to Amazon's ecosystem of products and services.
Beyond retail, Amazon also has a dominant cloud infrastructure services platform, Amazon Web Services (AWS). In spite of the historic downturn in 2020, AWS grew full-year sales by 30%. What's more, AWS was responsible for generating 59% of operating income last year despite accounting for less than 12% of total sales. Cloud margins are considerably higher than retail margins, which is what's going to allow Amazon's operating cash flow to explode higher in the years to come.