Over the past three years, retail investors have rocked the boat like never before on Wall Street. The meme-stock phenomenon of early 2021, which saw dozens of short-sold stocks explode higher in a matter of days, sounded their arrival. But it's the trading activity of these everyday investors that speaks volumes.
Between 2010 and 2023, the percentage of shares traded on major exchanges by retail investors has effectively doubled. While high-frequency trading and professional investors still account for the lion's share of trading activity on Wall Street, retail investors are playing a progressively larger role in moving markets. In other words, knowing what these folks are buying, selling, and holding is taking on increased importance.
Image source: Getty Images.
One such platform that offers an under-the-hood look at what its everyday investors are holding is Robinhood (HOOD 4.44%). Since retail investors have gravitated to Robinhood's investing platform for a variety of reasons over the past three years, its list of the 100 most commonly held securities (stocks and exchange-traded funds) is a veritable goldmine for those looking to understand what companies are captivating the attention of a growing army of everyday investors.
According to Robinhood, these are the four most commonly held stocks among retail investors.
Tesla
The stock you'd be likeliest to find in the investment portfolios of Robinhood's retail investors is electric vehicle (EV) manufacturer Tesla (TSLA -1.11%).
EVs represent something of a no-brainer growth opportunity over the next couple of decades as consumers and businesses shift away from fossil fuel-powered transportation and toward green energy vehicles. Tesla has been leading this shift, with its first-mover advantages propelling its shares higher by more than 16,000% since its initial public offering (IPO) in 2010.
Tesla is the first automaker to successfully build itself from the ground up to mass production in more than a half-century, and it's currently the only EV pure play that's reached recurring profitability based on generally accepted accounting principles (GAAP). Tesla is very likely on its way to a fourth consecutive year of GAAP profits in 2023.
Retail investors also seem to appreciate the innovation of CEO Elon Musk. Musk has expanded Tesla's product line to include four production models, with a fifth (Cybertruck) on the way. Additionally, he's overseen Tesla's expansion into energy-storage products.
However, this top retail holding isn't without its flaws. Tesla's operating margin has plunged since kicking off a price war with new and legacy players in the EV space. Likewise, Tesla's attempts to become more than a car company have either been met with losses (e.g., residential solar panels) or low margins (e.g., energy storage and supercharger network).
The biggest worry of all for Tesla shareholders is its leadership. Elon Musk is a bit of a loose cannon who has a terrible habit of overpromising and underdelivering. Tesla is working on a mile-long list of promises that haven't yet been delivered.
Apple
Perhaps it's no surprise that the largest publicly traded company by market cap in the U.S., Apple (AAPL -0.35%), is among the most commonly held stocks in retail investors' portfolios, according to Robinhood. At one time, Apple was the most commonly held stock, but it's since fallen to the No. 2 spot behind Tesla.
One of the biggest lures of Apple as an investment is the visibility and familiarity of its brand. Apple is considered one of the most valuable and easily recognizable brands globally, and it has a very loyal base of consumers. It's no secret that some investors buy what they know -- and most everyone is familiar with Apple.
Another reason everyday investors can be excited about owning shares of Apple is the company's ongoing innovation. In addition to accounting for around half of U.S. smartphone market share, Apple is steadily evolving as a platform company. Subscription services has been its fastest-growing operating segment for years, and over time it should provide a healthy lift to the company's operating margin.
Apple is also unmatched in the capital-return column. It's parsing out $15 billion in dividends each year, and it's repurchased around $600 billion worth of its common stock since instituting a buyback program in 2013. Share repurchases have helped Apple's earnings per share grow over time.
The big concern at the moment for Apple shareholders is the company's valuation. With the exception of its Services segment, sales for all of the company's physical products have declined on a year-over-year basis through the first nine months of fiscal 2023. Modestly declining sales, coupled with a historically pricey forward price-to-earnings ratio of 29, isn't a great combination.
Image source: Amazon.
Amazon
The third most commonly held stock in the portfolios of retail investors is e-commerce company Amazon (AMZN 3.43%).
Familiarity likely plays a big role in Amazon climbing into the top three on Robinhood's platform. According to a 2022 report from eMarketer, Amazon was estimated to account for just shy of 40% of online retail sales in the United States. Well over 2 billion people visit Amazon's site each month, many of whom have a product or purchase on their mind.
But what's interesting about Amazon is that its online marketplace plays little role in its cash-flow generation. Amazon absolutely loves to reinvest most of its cash flow back into higher-growth initiatives and its burgeoning logistics operations. A significant chunk of the company's cash flow derives from Amazon Web Services (AWS).
Second-quarter estimates from tech analysis company Canalys show that AWS controls a 30% share of global cloud infrastructure service spending. Considering how much juicier the margins are for cloud services, compared to online retail sales, AWS regularly accounts for 50% to 100% of Amazon's operating income despite contributing to just a sixth of its net sales.
Subscriptions services and advertising services are other key cash-flow drivers for Amazon. This is a company with exceptional pricing power that shouldn't have any trouble raising the monthly or annual cost of Prime subscriptions. Plus, as noted, having more than 2 billion people visiting its online marketplace monthly puts the ball completely in its court on ad pricing.
Ford Motor Company
The fourth most commonly held stock among retail investors is yet another auto stock, Ford Motor Company (F -1.92%). Despite a host of brand-name, historically high-flying stocks for retail investors to choose from, such as Microsoft, Walt Disney, Nvidia, Meta Platforms, and Starbucks, it's legacy auto company Ford that gets the nod.
The excitement surrounding Ford has to do with the aforementioned shift to EVs. With well-defined organic catalysts in place, Ford has committed more than $50 billion to EV and battery research through 2026. The goal is to ramp its annual run-rate EV production to 2 million by the end of 2026.
Although Tesla possesses first-mover advantages in North America, Ford has one competitive edge that the world's largest auto company by market value simply can't match: its brand value. Ford has 120 years of history in its sails, and it can easily use this nostalgia to engage with consumers across generational gaps.
Additionally, this is a company that has its sights set on becoming far more than just a major EV producer in the United States. Ford has had an established presence in China, the world's No. 1 auto market, for two decades. Although it doesn't control a large percentage of the existing China auto market, the EV space in China remains nascent, with market share up for grabs.
On the other hand, auto stocks are highly cyclical and, Tesla aside, rarely trade at premiums valuations. Between the United Auto Workers' strike and select economic datapoints signaling a growing likelihood of a recession, Ford Motor's shareholders may find the drive a bit bumpy in the near future.
