Volatility is always present in the stock market, but it's been especially prominent since February 2020. Though patience has, once again, paid off for investors, their gains have come after the benchmark S&P 500 lost 34% of its value in less than five weeks during the first quarter of 2020.

Some investors absolutely shy away when heightened volatility rears its head. But that's not what we've witnessed from retail investors.

A person looking at a rapidly rising stock chart on their smartphone.

Image source: Getty Images.

Even though retail investors have been putting their money to work on Wall Street for more than a century, they used the wild volatility on Wall Street over the past 16 months as their cue to really ramp up their buying. How do we know this? Just take a look at online investing app Robinhood, which gained approximately 3 million new users last year.

Millennial investors have found a home at Robinhood for a bevy of reasons. The app doesn't charge commissions for buying or selling on major exchanges, and it allows fractional shares for a number of securities. The company even awards new members with free shares of stock.

While it's fantastic to see young investors putting their money to work in the greatest wealth creator on the planet, it's also disturbing to see what they've been buying. Instead of taking the tried-and-true long-term investing approach, many are chasing momentum plays, penny stocks, and companies with poor operating performance.

Don't believe me? Here are the 50 most-held stocks on Robinhood's leaderboard as we enter June:

Company Company
1. Tesla (TSLA 0.52%) 26. OrganiGram Holdings
2. Apple  27. Bank of America
3. AMC Entertainment Holdings (AMC -1.93%) 28. Coinbase Global
4. Sundial Growers (SNDL 1.47%) 29. Tilray
5. Ford Motor  30. Facebook
6. General Electric  31. Canopy Growth (CGC -2.83%)
7. NIO  32. Advanced Micro Devices
8. Walt Disney  33. Twitter
9. Microsoft 34. Starbucks (SBUX 1.67%)
10. Amazon  35. Moderna
11. American Airlines Group  36. AT&T
12. Plug Power  37. FuelCell Energy
13. Nokia  38. Virgin Galactic Holdings 
14. Pfizer  39. Ideanomics 
15. Aurora Cannabis (ACB -2.02%) 40. Norwegian Cruise Line Holdings
16. Carnival 41. Vanguard S&P 500 ETF
17. GameStop (GME -0.59%) 42. Coca-Cola
18. Zomedica (ZOM -1.61%) 43. General Motors
19. GoPro  44. NVIDIA
20. Palantir Technologies  45. SPDR S&P 500 ETF
21. Churchill Capital 46. United Airlines Holdings 
22. Delta Air Lines  47. Uber Technologies 
23. Snap  48. Zynga
24. Netflix  49. Boeing
25. Alibaba Group Holding 50. Workhorse Group

Data source: Robinhood, as of May 28, 2021. 

Meme-mania doesn't stop

With retail investors acting as the catalyst behind the meme stock craze (meme stocks are companies lauded for their social media popularity, not their fundamentals), it should come as no surprise that companies like AMC Entertainment, GameStop, and Sundial Growers are among the most-held on Robinhood.

AMC, GameStop, and Sundial were some of the most heavily short-sold companies earlier this year, which made them logical targets by investors on Reddit who were looking for short-squeeze opportunities. Though we witnessed these squeezes take place in January and February, the recent trading in these names looks to be more hype or mania than short-covering.

History is pretty clear that hype-driven stocks will eventually have the rug pulled out from under them. AMC, for example, is going to struggle just to service its more than $5.4 billion in corporate debt and doesn't appear to have a chance to pay back what comes due in 2026. It also has $473 million in deferred rent obligations to contend with.

As for GameStop, it boasts a healthy net cash position following a recent share offering. But it was very late in transitioning to digital gaming, and as a result will see its sales go nowhere for years to come. GameStop's core strategy for the time being is to keep closing physical stores to cut down on operating expenses.

In sum, meme stocks are bad news.

A penny stood on its side atop a newspaper clipping of a rising chart.

Image source: Getty Images.

Penny for your thoughts

Robinhood investors have also demonstrated that they love penny stocks. Sundial Growers and Zomedica are two of the 18 most-held stocks on the platform, yet both can be purchased for under $1 a share.

Psychologically, young and/or novice investors believe that owning more shares of stock will give them a better chance to make a lot of money. There's also the belief that it's easier to double a stock from $1 a share to $2 than, say, $100 to $200. But the reality is that penny stocks almost always trade at a low share price for very good reasons.

In the case of pot stock Sundial Growers, it's because the company's management team can't stop drowning its investors in share offerings. Earlier this year, the company's board OK'd an additional $800 million at-the-market share offering. Since the end of September, more than 1.35 billion shares have been issued. With 1.86 billion shares now outstanding, Sundial has almost no chance of ever generating meaningful earnings per share, or perhaps even remaining listed on the Nasdaq exchange.

As for veterinary health company Zomedica, it only began commercializing its first product in mid-March. Shares are currently valued at close to 40 times sales looking three years into the future. Though it does have a healthy cash position, Zomedica has buried its investors with share offerings and is closing in on 1 billion shares outstanding.

Penny stocks are rarely cheap.

An up-close view of a flowering cannabis plant.

Image source: Getty Images.

"Merry-juana"

Another trend you'll note about millennial investors is that they really love the prospects for marijuana stocks. In this respect, I agree with them.

Unfortunately, Robinhood is shortchanging its users in the cannabis department. Since the trading platform won't allow its users to buy and sell stocks listed on the over-the-counter exchange, and U.S. pot stocks can't list on major exchanges due to cannabis being illicit at the federal level, Robinhood users are stuck buying Canadian weed stocks. To put things as nicely as possible, the Canadian pot stocks have been a disaster.

Aurora Cannabis, which at one time was the most-held stock on Robinhood, has been burying its shareholders in dilution for years. It used its stock as collateral for around a dozen deals and grossly overpaid for all of its acquisitions. Even with legal Canadian weed sales climbing, Aurora's top line has been stuck in neutral or gone in reverse.

Canopy Growth is another popular marijuana stock that's been an utter disappointment. The company's cash pile has dwindled significantly over the past couple of years, and Canopy is still nowhere close to generating a profit, even after closing two large greenhouses in British Columbia.

A Starbucks barista behind the bar.

Image source: Starbucks.

Brand-name companies are popular with millennials

Lastly, you'll note that among the meme stocks, pot stocks, and penny stocks, millennial investors have also piled into brand-name companies that they're familiar with or regularly engage with.

For instance, electric-vehicle (EV) manufacturer Tesla has supplanted Apple as the most-held stock in the Robinhood universe. Generally speaking, the desire to take action against climate change increases the younger someone is. Motivated young investors who want to see positive climate action taken, and who have a favorable view of CEO Elon Musk, have flocked to Tesla. In kind, Tesla's production numbers have risen significantly, and could near 800,000 EVs in 2021.

Coffee giant Starbucks has also been rising up the leaderboard in recent months. It has used its mobile app and rewards as a means to keep the younger generation loyal to its brand. It has also introduced an array of healthier lunches and snack options to improve foot traffic. It definitely doesn't hurt that Starbucks is one of the most-recognized brands in the world.

Brand-name companies that can engage with young investors are always a good bet to work their way onto Robinhood's leaderboard.