Robinhood investors got a somewhat undeserved bad rap during 2021's meme stock mania.
Sure, some investors on the platform did nothing more than blindly chase the next big meme, but in looking at the most widely held stocks on the platform, there are plenty of sensible holdings there. The top holdings don't look radically different from the holdings of top investment managers and mutual funds, and skew heavily toward large-cap consumer and tech stocks.
Robinhood itself gave credence to this idea in a recent blog post introducing its new Robinhood Investor Index, writing that "contrary to what might have been heard in the news, our customers are similar to the OGs [i.e., respected professionals] of investing. That is, they invest in what they know, understand and believe in for the long-term."
Peter Lynch, the former portfolio manager of Fidelity's Magellan Fund who outperformed the market for years -- averaging a 29% return -- famously said that retail investors could beat Wall Street by focusing on businesses they know from their everyday lives. Looking at the widely held stocks on Robinhood, it seems that retail investors on the platform are doing just what he advised.
With that in mind, here are two Robinhood stocks with market-beating potential.
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1. Starbucks
In Lynch's seminal book One Up on Wall Street, he writes about how he first got the idea to invest in Dunkin' Donuts because he was a fan of its coffee and he noticed that its locations in the Boston area always seemed crowded. He then delved into the company's financials and decided it was worthy of investment.
A modern-day Lynch might well make the same decision about Starbucks (SBUX 0.29%). Starbucks is a popular stock on Robinhood, and many users of the platform are doubtlessly fans of the Seattle-based chain's coffee and see how busy the drive-throughs are when they go to grab a latte.
The company's fundamentals back up the notion that this is a good investment idea -- during the most recent quarter, the Starbucks shrugged off inflation and concerns about a slowing economy and grew sales by 9% year-over-year for an all-time best quarterly revenue total of $8.2 billion. It's even more impressive that Starbucks accomplished this record revenue during a quarter where China, one of its key markets, was in the midst of pandemic-related lockdowns that forced many locations to close.
Same-store sales growth, which measures sales growth for locations that have been open at least a year, grew by 3% worldwide. Same-store sales grew by 9% in the U.S., which is an impressive number for a mature market, and by double-digits globally when China is removed from the equation. As China emerges from these lockdowns, this should be a major tailwind for Starbucks as it has about 5,400 locations in the country.
Starbucks has another potential catalyst in the form of new CEO Laxman Narasimhan, who is leaving his role as CEO of Reckitt Benckiser (OTC: RBGL.Y) -- a U.K. maker of health, hygiene and nutrition products, such as Lysol and Enfamil -- to take the reins from founder and interim CEO Howard Schultz. Narasimhan faces his share of challenges such as dealing with a unionization push by the company's workers, the stop and start nature of China's reopenings, and rising inflation.
But with his extensive experience running a global consumer brand at Reckitt Benckisser (which has a large presence in China, just like Starbucks), and his knowledge of the beverage industry from his time at Pepsi (NASDAQ: PEP), Narasimhan seems like the right candidate to lead Starbucks forward as it continues to expand globally.
With the ability to continue growing sales during even the most challenging macro environment and a promising new CEO ready to take the helm, Starbucks looks like a solid investment choice by Robinhood inventors, and could make sense for your portfolio as well.
2. Ford
If retail investors are familiar with Starbucks from their day-to-day lives, Ford (F -3.01%) is another brand they are certainly familiar with too. It makes the U.S.'s best-selling vehicle, the F-Series, as well as popular models like the Escape and the Explorer. Robinhood investors are bullish on electric vehicles (EVs), with stocks like Tesla (NASDAQ: TSLA) and Nio (NYSE: NIO) among the top-10 most popular names on the site.
While you might not immediately group legacy automaker Ford with these names, the company is making great progress on creating an enticing fleet of electric vehicles. Earlier this year, Ford's Mustang Mach-E unseated Tesla's Mach 3 as Consumer Reports' Top Pick for EVs, and it has won a slew of other awards.
Beyond the Mustang Mach-E, Ford's F-150 Lightning has seen tremendous success so far. In August, Ford's EV sales quadrupled year-over-year. Ford is also growing faster than the overall auto industry, which is a sign of a good growth stock. In August, overall auto sales for the industry grew by 4.8% year-over-year, while Ford saw sales increase by 27.3%. Ford's EV sales also grew at a faster rate than the broader industry.
Ford is successfully entering the ring as a true contender in the EV market, and it also looks like a sensible holding for Robinhood investors based on its valuation, especially when compared to its EV peers and fellow Robinhood top-10 holdings like Tesla and Nio.
Shares of Ford trade at under eight times forward earnings versus Tesla's multiple of over 50. On the other hand, Nio is not yet profitable. Not only is Ford cheaper than Tesla and Nio, its shares are also cheaper than the S&P 500 as a whole. Even better, Ford also pays out an attractive dividend. After increasing its quarterly payout to $0.15 in July, shares of Ford now yield nearly 4%.
You don't always need to look far and wide to uncover great investment opportunities. As Peter Lynch can attest from his career, sometimes they are right in front of us. Robinhood investors recognize this, and stocks like Starbucks and Ford are attractive long-term investment opportunities for Robinhood investors -- and plenty of other investors too.
