For well over a century, everyday investors have been putting their money to work on Wall Street right alongside professional money managers. But since the beginning of 2021, these retail investors have made their presence felt more than ever before.

According to a recent note from Peng Cheng, the Big Data and Artificial Intelligence Strategies research leader at JPMorgan Chase, the percentage of total trading volume derived from retail investors hit an all-time high of 23% in the week of January 25 to February 1, 2023. This even surpassed the retail volume surge of the short-squeeze events of January 2021.

Although retail investors have gained notoriety for chasing momentum stocks and those with high short interest, they're far likelier to invest in brand-name growth stocks -- at least according to data from online brokerage Robinhood Markets. While there's no way to perfectly aggregate what stocks are in retail investors' portfolios across all online brokerages, Robinhood has a history of catering to everyday investors, which is what makes its leaderboard of the 100 most-held securities so valuable.

Based on that leaderboard, there are three brand-name stocks retail investors have been buying hand over fist.

A Tesla Model S plugged into a wall outlet for charging.

A Tesla Model S charging. Image source: Tesla.

Tesla

Despite all the hoopla about "meme stocks," electric vehicle (EV) manufacturer Tesla (TSLA 3.17%) is the most widely held stock among retail investors.

Since Robinhood's investing audience tends to be younger than that of most online brokerages, Tesla's Earth-friendly operating model speaks to the environmental activism that these younger investors are likely to hold dear. But Tesla is more than just an ESG (environmental, social, governance) story for retail investors.

Tesla has ridden its first-mover competitive advantages in the EV space to the highest valuation among all automakers. Last year, Tesla surpassed 1 million EVs produced for the first time in its history, and it has an outside chance of nearing 2 million EVs in 2023, assuming supply chains cooperate.

For what it's worth, the company has guided for 1.8 million EVs produced this year, but that'll be dependent on the speed of production ramp-up at the Berlin, Germany, and Austin, Texas, gigafactories, which both came online last year.

Retail optimists are also likely enthralled with Tesla pushing into the recurring-profit column. The company has produced a generally accepted accounting principles (GAAP) profit in each of the past three years and is no longer reliant on selling renewable energy credits (RECs) to be profitable.

But I'd be remiss if I didn't voice my skepticism for this top retail holding. Although Tesla is profitable, multiple rounds of recent price cuts on its EVs in both China and the U.S. demonstrate that competitive pressures and rising inventory levels are a problem. Even if Tesla hits 1.8 million EVs sold in 2023, its vehicle margin is liable to decline substantially.

Another issue is that, at its heart, Tesla is just a car company. While it might have other ventures, such as solar installation, they are all low-margin, money-losing operating segments once you add below-the-line expenses. Tesla's profits are entirely dependent on selling EVs and RECs. That makes it an auto stock trading at 6 to 7 times the price-to-earnings multiple of its peers.

But worst of all, Elon Musk is a genuine liability for the company. Musk has baked a mountain of promises into Tesla's share price, many of which have failed to come to fruition.

Apple

A second stock retail investors have been buying hand over fist is the largest publicly traded company in the U.S., Apple (AAPL 1.66%). Apple is the No. 2 stock on Robinhood's leaderboard.

Retail investors tend to buy into companies they know and trust. When it comes to brand value, no company more regularly tops the list than Apple. According to Interbrand, Apple has been No. 1 on its list of the world's most-valuable brands for 10 consecutive years. It's a testament to how loyal the buyers of its products tend to be.

More importantly, Apple leads with its innovation. The company's assortment of physical products (iPhone, iPad, and Mac) has been keeping consumers loyal to its brand for more than a decade. Apple's ongoing evolution now has it focused on subscription services. While in no way abandoning the tech products that made it what it is today, Apple's focus on services will further enhance customer loyalty, lift its operating margin, and stabilize revenue when iPhone replacement/upgrade cycles arrive.

The largest publicly traded company is also a cash cow. Apple generated over $109 billion in operating cash flow in calendar year 2022 (Apple's fiscal year doesn't align with the traditional calendar year). Bringing in a mountain of cash flow is what allows Apple to dole out $14.55 billion annually in dividends to its shareholders. It's also fueled more than $550 billion worth of share buybacks since the start of 2013.

Though Apple is probably a fine investment for those planning to hold for multiple years, I believe this company is exposed to downside if a U.S. recession materializes.

For much of the past half decade, it has not been uncommon for Apple to trade at a forward-year price-to-earnings ratio of more than 20. When Apple was growing its sales by 10% or more, this was a perfectly reasonable valuation. But with iPhone 14 sales disappointing, Apple's revenue is expected to decline by 1% in fiscal 2023 -- even with the help of inflation. That makes its forward-year price-to-earnings ratio of 23 quite pricey.

In other words, this popular retail holding could struggle in 2023.

An Amazon delivery driver leaning out the window of their van to speak with a fellow employee.

Image source: Amazon.

Amazon

The third stock retail investors have been buying hand over fist, based on Robinhood's leaderboard, is e-commerce stock Amazon (AMZN -0.17%).

Similar to Apple, one (likely) reason everyday investors flock to Amazon is because it's a familiar brand they know and trust. In March 2022, eMarketer issued a report estimating that Amazon would account for 39.5% of U.S. online retail sales for the year. That's more than 8 percentage points more than the share of its 14 closest competitors combined! When you think of e-commerce, chances are that Amazon's online marketplace is what comes to mind.

Interestingly, though, it's not e-commerce that's Amazon's key to success. While it is the company's top revenue driver, online retail sales generate low margins. Rather, Amazon's trio of high-margin ancillary operating segments does the heavy lifting and brings in the lion's share of its cash flow.

The first of these is subscription services. Back in April 2021, Amazon announced that it had surpassed 200 million worldwide Prime members. Since this announcement, its marketplace has grown modestly, the company added exclusivity rights to Thursday Night Football, and it passed along annual/monthly price hikes to Prime members.

The second key cash-flow-driving ancillary segment is advertising services. Though you might not think of Amazon as an advertising platform, it had between 2.2 billion and 2.9 billion monthly worldwide visits between December 2021 and May 2022. That's plenty of eyeballs for merchants to reach.

The final important ancillary segment is Amazon Web Services (AWS). AWS accounts for nearly a third of global cloud infrastructure service spending. Even though AWS amounts to only a sixth of Amazon's net sales, it's frequently responsible for 50% to 100% of the company's operating income.

These three higher-margin ancillary operating segments generate the copious amounts of cash flow that Amazon reinvests in its logistics operations and other high-growth initiatives.

Based solely on Wall Street's future cash-flow-per-share estimates, Amazon is cheaper now than at any other point in its publicly traded history.