The Robinhood trading platform helped introduce fee-free trading when it debuted in 2015, and the platform remains popular because of its easy-to-use app that even allows investors to buy fractional shares. That has allowed people who don't have a lot of capital the chance to invest in blue-chip companies that might otherwise be trading at per-share prices that are too high for them.
The platform has also been blamed for the rise of meme stocks. And another big shortcoming is that it doesn't offer investors the ability to buy mutual funds or individual bonds.
The Robinhood 100 list -- which features the most widely owned stocks in its members' portfolios -- doesn't always have all the best stocks to invest in, but they are certainly popular ones.
Two stocks on the list that stand out for me in terms of their potential to beat the market over the next year or so are Catalyst Pharmaceuticals (CPRX 1.43%) and Realty Income (O -0.17%). The first is a fast-rising pharmaceutical company, and the other is a steady real estate investment trust (REIT) that has a remarkable reputation for raising its dividend.
Despite its potential, Catalyst is underpriced
Catalyst Pharmaceuticals' shares are down 31% so far this year, despite the biopharmaceutical company being en route to its biggest year for revenue and earnings. The company focuses on rare diseases, and has been able to finance the development of its current candidates because of the sales success of Firdapse, the drug for treating Lambert-Eaton Myasthenic Syndrome (LEMS), an autoimmune disorder that leads to muscle weakness. More than half of LEMS patients also develop small-cell lung cancer.
In the second quarter, the company reported record revenue of $99.5 million, up 87.5% year over year. While Firdapse brought in $64.9 million of that (up 22% over the same period last year), the company is seeing good sales from Fycompa, an epileptic antiseizure drug that it purchased the U.S. rights to from Japanese pharmaceutical company Eisai on Jan. 25 for $160 million. Last year, Eisai reported that it expected $136 million in Fycompa sales in fiscal 2022, and for 2023, Catalyst is predicting $130 million in revenue from the drug in slightly less than a year of sales.
With a strong balance sheet, Catalyst purchased another asset that could start to pay off as early as next year. In July, it paid Santhera Pharmaceuticals roughly $231 million, plus royalties for the rights to Vamorolone, a potential first-in-class steroidal anti-inflammatory to treat Duchenne muscular dystrophy.
The drug candidate already has Orphan Drug, Fast Track, and Rare Pediatric Disease designations from the Food and Drug Administration, which is due to make an approval decision on it by Oct. 26. If approved, the drug could compete in a relatively large market -- there are 11,000 to 13,000 people in the U.S. with Duchenne muscular dystrophy.
In the second quarter, the company's net income was $37.8 million, up 74.7% over the same period last year, while earnings were $0.33 per share compared to $0.21 per share in the second quarter of 2022. Those results led the company to raise its full-year revenue guidance to between $380 million and $390 million, compared to the $214.2 million it reported last year.
Despite those numbers, the stock trades at less than 13 times earnings (compared to the average price-to-earnings ratio of around 19 for drug manufacturers) and slightly more than 8 times forward earnings.
Realty Income's price is finally right
The biggest problem before now for Realty Income was that the REIT had gotten a little too popular, so its stock was overpriced.
The company is one of the few that pays dividends monthly, and that, along with the company's strong tradition of raising its payouts regularly, helps explain the stock's popularity among Robinhood's retail investors. The huge REIT owns or has interests in 13,118 properties, leased to 1,303 clients across 85 industries.
Lately, however, the one-two punch of high interest rates and rising Treasury yields has pummeled REITs. The first part means their costs of borrowing have gone up, in some cases, faster than they can raise rents to make up for the difference. The second part means conservative investors looking for dependable investments can seize 5% yields with little risk, giving them a better option in some cases than dividend-paying stocks. That trend has sent Realty Income's stock below $50 and to a 52-week low of $48.41.
However, the company's financials remain solid, and at its lower share price, its yield has climbed above 6%, making the stock more attractive than ever. That means Realty Income's shares have a good chance of having a rebound that beats the overall market. At its current price, the stock's price-to-funds-from-operations (FFO) ratio is about 13.6%, compared to the NAREIT average of 15.5%.
For the first half of 2023, Realty Income reported revenue of $1.963 billion, up 21.3% year over year, and adjusted funds from operation (AFFO) of $1.322 billion, up 13.6%. The company also raised its monthly dividend from $0.255 per share to $0.2555 per share for its July distribution, bringing its streak of hikes without cuts to 103. Despite the dividend raise, because the company's AFFO also rose, the AFFO payout ratio remains a somewhat conservative 76.5%, leaving room for more increases.
With so many properties, some of its tenants are likely to struggle, but the company's portfolio occupancy rate remains high, at 99%, with only 137 properties available for lease or sale. In the first quarter, its occupancy rate was 99%, and a year ago, the occupancy rate was 98.9%.
