Retail investors have been putting their money to work on Wall Street right alongside institutional investors for more than a century. But we've never seen retail investors rock the proverbial boat quite like they have in 2021.
In particular, these relatively young and/or novice investors have found a home with online investing app Robinhood. Last year, approximately 3 million people signed up with Robinhood to take advantage of commission-free trades and fractional share investing.
Unfortunately, Robinhood investors are known for chasing and influencing penny stocks, meme stocks, and otherwise awful businesses. Quite a few companies on Robinhood's leaderboard for July should be avoided like the plague.
But this doesn't mean all Robinhood stocks are trouble. Among the sea of poorly performing companies that fill the leaderboard are a trio of ultra-popular and unstoppable Robinhood stocks that investors can buy in July.
One dominant stock you'll pretty consistently find as a top-10 holding on Robinhood is e-commerce behemoth Amazon (NASDAQ:AMZN). Despite recently breaking out to a new all-time high, Amazon's operating cash flow growth portends that it could possibly triple by mid-decade.
As you've probably heard before, Amazon is a juggernaut in the e-commerce space. It controls about $0.40 of every $1 spent online in the U.S., which more than quintuples the next-closest competitor in terms of online sales share, Walmart, according to eMarketer. Being the go-to shopping destination is also helping to drive ad revenue higher.
But in a general sense, retail margins aren't that impressive. To combat razor-thin margins, Amazon has pushed its Prime memberships. Signing up more than 200 million people worldwide to Prime has given Amazon tens of billions in additional revenue that it can use to undercut brick-and-mortar retailers and secure even more online retail share.
Of course, the key to Amazon's share price potentially tripling to more than $10,000 a share by 2025 is its cloud infrastructure service, Amazon Web Services (AWS). AWS accounted for close to a third of global cloud infrastructure spending in the first quarter, per Canalys. Cloud infrastructure is also, arguably, still in the early innings of its growth.
For Amazon, AWS represents a pathway to considerably higher margins than retail or ad revenue. Despite accounting for an eighth of total sales, AWS is consistently producing half or more of the company's operating income. As AWS becomes a more integral part of Amazon's growth, its operating cash flow will skyrocket.
Bank of America
Another high-quality Robinhood stock that should prove unstoppable over the long run is Bank of America (NYSE:BAC).
Whereas most bank stocks delivered solid growth in the second quarter, BofA put up a bit of stinker that surprised Wall Street. In particular, the company blamed declining long-term yields for weaker-than-anticipated net interest income. Among big banks, BofA is the most interest-sensitive of them all.
While this might seem like bad news, it's actually fantastic. Investors are getting a discount on Bank of America following its earnings report, while all economic indicators suggest higher interest rates are an eventual inevitability. According to BofA, a 100-basis-point parallel shift in the interest rate yield curve would add $8 billion in net interest income over the next 12 months. Though it's unlikely we'll see this shift occur in 12 months, the future growth potential for BofA's net interest income is tantalizing.
Something else to take note of is that we've witnessed four consecutive quarters of declining net charge-offs, which have nearly been halved from $1.15 billion to $595 million. Without digging too far into the weeds, Bank of America's credit and loan quality is many times improved from where it was a decade ago.
Furthermore, it's done an excellent job of controlling its operating expenses and pushing digitization. In the June-ended quarter, a record 40.5 million people were digital banking customers, with 44% of sales occurring digitally (via mobile or on a computer). As more people shift their banking online, Bank of America is free to consolidate some of its branches and reduce its noninterest expenses.
BofA won't deliver jaw-dropping growth like Amazon, but it has the look of a company that's going to pad the pockets of its long-term investors.
A third unstoppable Robinhood stock that could drive home big gains in July and beyond is Detroit auto giant General Motors (NYSE:GM).
Historically speaking, auto stocks are companies that trade at stunningly low price-to-earnings (P/E) ratios, given the cyclical nature of the industry and the large debt loads the companies often carry around. However, two major catalysts stand at the ready to push GM significantly higher.
As some of you may have guessed by now, the push toward alternative-energy vehicles is a multi-decade growth opportunity for General Motors. The initial plan was for GM to spend $20 billion on alternative energy technology by 2025. But in November of last year, with the pandemic still raging, the company upped its commitment to spend $27 billion on electric vehicles (EVs) by 2025, with the intent of launching 30 new EVs globally in that span. With consumers and enterprises swapping out their vehicles for more environmentally friendly options, this could represent a multi-decade replacement cycle.
The other big catalyst for General Motors -- which builds on its push to electrify its fleet -- is China. The Society of Automotive Engineers of China expects that half of all vehicles sold by 2035 in the largest auto market in the world will be alternative energy. With China's EV industry still nascent, massive market share is up for grabs. During the second quarter, GM delivered north of 750,000 vehicles in China, showing it already has a strong presence in the country.
With GM's sales growth expected to pick up in the years that lie ahead, a forward P/E ratio of 8 is simply too inexpensive for a company capable of generating a boatload of income.