Popularity isn't always a good proxy for quality. Some much-talked-about companies have been terrible businesses, while some little-known corporations have delivered market-beating returns.
However, sometimes quality and popularity go hand in hand. That's the case with two stocks that are among the top 100 holdings on the versatile investing app Robinhood: Alphabet (GOOG 9.96%) (GOOGL 10.22%) and Netflix (NFLX -0.63%). Read on to discover why these two famous tech giants are excellent "forever" picks.
1. Alphabet
The list of Robinhood's top 100 stocks changes constantly, but Alphabet has long been a regular. The tech giant came in at No. 18 last I checked. Here's an argument in favor of investing in the parent company of Google that many investors on Robinhood might agree with: Alphabet is a leader in its core industries, with a solid competitive advantage, and several exciting growth opportunities.
Let's start with the first item: Leadership in key industries where it operates. Alphabet's Google is by far the leading search engine in the world. It has become a verb used in everyday language, a clear sign that it is entrenched in the lives and habits of people. Even Microsoft's artificial intelligence-powered Bing couldn't do much to disrupt Google's empire. Alphabet also has a strong position in video streaming through YouTube and in the cloud computing market.
Next, let's consider Alphabet's moat. Google displays the network effect. Alphabet uses the data it collects to fine-tune its search results. The more people use the engine, the more data it collects, and its results improve over time. YouTube also benefits from this dynamic, while Alphabet's cloud services arguably display switching costs.
Lastly, there are plenty of opportunities ahead for the company, be it in the cloud market or video streaming. But lately, it has made lots of noise within the generative AI space.
The market briefly thought Alphabet might be lagging in this area after the release of ChatGPT. But Alphabet soon showed it wasn't far behind when it released its competitor, Bard (now Gemini). Alphabet has been working on AI for years. If anything, the introduction of ChatGPT opened the floodgates to an industry in which Alphabet will likely be one of the leading beneficiaries.
Here's the bottom line. If you look at Alphabet's business, the company has an incredible record.
Though the details have changed somewhat, Alphabet has been able to deliver excellent financial and stock market results for a long time thanks to its incredible business.
Alphabet's future looks exciting, with AI, cloud computing, video streaming, and its Google advertising business, which is still going strong. The stock deserves its popularity. Alphabet is a top stock to buy and hold for good.
2. Netflix
Netflix was recently ranked No. 13 on Robinhood's top 100. This popularity is well-deserved, as Netflix started the year on a strong note. The company's fourth-quarter earnings results showed that the recent changes to its business are beginning to bear fruit. Netflix introduced a lower-price ad-supported tier that clearly helped boost subscription growth. The company ended the year with more than 260 million global paid memberships, an increase of 12.8% year over year.
It scored 13.12 million net new additions, the highest total since the first quarter of 2020. Netflix's ad-supported option is having an effect on top-line growth, along with its crackdown on password sharing. The company is making primary account holders pay for sub-accounts shared with people outside their households.
The company's Q4 revenue came in at $8.8 billion, 12.5% higher than the year-ago period. That's the best quarterly revenue growth rate since early 2022.
NFLX Revenue (Quarterly YoY Growth) data by YCharts
However, these initiatives are still taking shape. Ads aren't yet contributing to Netflix's revenue, something it plans to change soon. Meanwhile, the streaming industry Netflix dominates is still underpenetrated. The most advanced markets are the U.S. and the U.K. -- where streaming still accounts for just 36% of total television viewing (as of December).
Netflix performed well in the past thanks to its pioneering work in this space. True, it now faces stronger competition, but that won't stop the company. Netflix's content development strategy continues to produce gems. Many of the available streaming platforms also offer vastly different libraries of content and can, therefore, coexist.
Netflix should succeed in delivering excellent returns for a long time despite the competition. It's far too early to give up on the stock -- it is worth holding forever.
