The free stock-trading app has become a popular brokerage option for people who have a small amount of money to invest. But the top 100 most-held stocks on Robinhood show that many users are making investing more difficult than it needs to be by buying risky stocks.
A simple way to significantly increase the chances of being successful is to stick to buying shares of companies you already know and that have a record of delivering returns to investors.
Three stocks that I'd buy today are AT&T (T 0.09%), Amazon (AMZN -2.13%), and Zynga (ZNGA). Here's why these stocks should deliver a good return on your investment.
Image source: Getty Images.
AT&T
Many investors have plowed into AT&T for its high dividend yield, which has recently hovered around 7%. But the stock recently sold off after AT&T announced a deal with Discovery to combine the two companies' entertainment and sports assets into a stand-alone company. Investors didn't like the decision by AT&T to cut the dividend, but this is the right move that will allow AT&T to reduce its debt and potentially deliver a higher total return (dividends plus capital appreciation) to shareholders.
As part of the agreement, AT&T shareholders will own 71% of the new company. The deal is designed to allow both companies to focus on what they do best. AT&T can focus on expanding its 5G wireless and fiber broadband businesses, while the new entertainment company can accelerate its growth in streaming services with HBO Max and discovery+ under the same corporate roof.
AT&T also said it would reset the dividend to a payout ratio of between 40% to 43% of anticipated free cash flow of $20 billion or more. That would put the dividend yield at approximately 3.7% based on the current share price, which is still well above the market average. It would be on par with or slightly below Verizon Communications' current dividend yield of 4.3%, depending on where AT&T's free cash flow lands.
This deal could unlock significant value for AT&T shareholders. AT&T will reduce its debt, while the new company invests more in content to grow subscribers in streaming. Lower debt and better growth prospects is a recipe for a higher valuation. The stock already trades at a low price-to-free cash flow ratio of 7.3.
Management certainly sees upside in the stock. CEO John Stankey and CFO Pascal Desroches just bought shares of AT&T. The deal isn't expected to close until next year, so it might take a while for investors to catch on, but AT&T looks like a promising value stock to hold for the next three to five years.
Amazon
Some investors look at Amazon's share price (currently around $3,200) and wonder how in the world it can go higher, but what matters is the growth of the business itself. The company is continuing to report impressive growth, and its performance suggests that Amazon still hasn't reached a ceiling in its quest to penetrate the global retail market.
Amazon grew revenue by 44% year over year in the first quarter, with free cash flow increasing by the same rate. Even before the pandemic sent more people shopping online, Amazon reported above-average revenue growth of 21% year over year in Q4 2019.
Amazon has grown into a massive business, spanning retail operations, digital entertainment, and cloud services (Amazon Web Services). Over the last four quarters, the business produced $26.4 billion in free cash flow. Management continues to use that cash to invest in more fulfillment centers, data centers to expand its cloud infrastructure, and more benefits for its 200 million Prime members.
Prime benefits, such as video streaming, are helping Amazon further penetrate new geographies and expand in retail. In the first quarter, international revenue surged 60% year over year and comprised 28% of Amazon's total revenue.
Amazon is nowhere close to reaching its potential as a global retail business. That's why it remains a top growth stock to consider owning for the long term.
Image source: Getty Images.
Zynga
The company behind the hit mobile game Words With Friends has delivered a market-smashing return of 306% over the last five years. Zynga ended the first quarter with 38 million daily active users, up 81% over the year-ago quarter. Part of that increase was through the acquisitions of two new game studios last year (Peak and Rollic), which expanded Zynga's portfolio of mobile franchises with the additions of Toon Blast and Go Knots 3D, among others.
Zynga has made smart use of acquisitions to grow the business and expand its in-game advertising capabilities. Advertising revenue more than doubled in the first quarter to $123 million. Zynga recently announced a deal to acquire Chartboost, which positions the company to potentially grow advertising revenue across the broader mobile market.
Most of Zynga's revenue comes from in-app purchases, so making games that keep players engaged is very important. Zynga has a diversified portfolio of top games that generated in-app revenue of $557 million last quarter, up 62% year over year. Management cited momentum from new games in its first-quarter earnings report, such as Harry Potter: Puzzles & Spells, in addition to new opportunities to expand into the fast-growing market for hyper-casual games.
With only $2.2 billion in trailing 12-month revenue, Zynga is just scratching the surface of the $90 billion mobile game market. There's tremendous long-term upside here.
