10 Robinhood Stocks That May Not Be Great Investments

Robinhood, the popular stock brokerage app, has changed the way of investing forever. The company's promise of commission-free stock trades disrupted and democratized the online brokerage industry, forcing major players like Charles Schwab and ETrade to follow suit.

It's not a surprise then that Robinhood has attracted millions of users, mostly millennials, and Robinhood traders have capitalized on the market crash this year, buying popular stocks like Tesla and Apple, as well as beaten-down cyclical plays. However, not every stock that's popular on the app is a winner.

Let's take a look at 10 stocks that Robinhood investors would be better off avoiding.

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Exxon Mobil (NYSE: XOM) was once the most valuable American company, but the oil major has fallen a long way since then. Like the rest of the oil and gas industry, Exxon has been crushed by the COVID-19 pandemic, which has sent oil prices spiraling as demand has plunged.

The stock is down by about 37% year to date, setting up what some investors see as a recovery opportunity, but the company is facing structural problems going forward. Exxon has lost $1.7 billion through the first half of the year on accounting basis and $4.1 billion in free cash flow.

The company's finances have also become strained as it's made its 8% dividend yield a priority, using up scarce resources to fund it. That has forced the company to take on an additional $23 billion, giving it a total of $46.6 billion in long-term debt against oil and gas assets that appear to be losing their value.

Oil prices are likely to be down for the duration of the pandemic, and over the longer term, pressure from renewable energy could continue to keep them in check. If the company is forced to cut its dividend, the stock could crumble.

ALSO READ: Is ExxonMobil Stock a Buy?

Electric car stocks have surged in recent months as Tesla has emerged as one of the biggest pandemic-era winners after posting a surprise profit in the second quarter even as its California factory was shut down for much of the pandemic.

In the fervor for electric car stocks, investors have also jumped on Nikola (Nasdaq: NKLA), a manufacturer of electric and hydrogen fuel cell trucks, that has yet to actually produce a vehicle.

Nikola, which came public in June through a SPAC, saw its valuation reach about $35 billion at one point, topping Ford in market cap. Though the stock has since fallen by more than 50%, there are still plenty of risks for Nikola as the company still hasn't sold an actual product. Given the hype around electric vehicles and hydrogen fuel cells and the challenges in manufacturing, the stock could fall a long way if the story doesn't materialize as hoped.

Few sectors have been hit as hard by the pandemic as the cruise line industry. Cruise ships will be docked for the foreseeable future as the virus continues to spread across much of the world, especially the western hemisphere.

Carnival's (NYSE: CCL) Holland America and Princess cruise lines have already announced that they will suspend service through at least December, and Carnival's namesake line won't return until November at the earliest.

To stay afloat financially, the company has taken on billions in debt at interest rates above 10%, which is going to cramp its ability to make a full recovery even if demand comes back after the pandemic ends.

Carnival has also begun selling off smaller ships and delaying orders, a sign that it will be a smaller company in the future. Shares are down 70% year to date, but after losing $4.4 billion in the second quarter and projecting a monthly cash burn of $650 million while operations are shuttered, the stock looks like more trouble than it's worth.

AMC Entertainment (NYSE: AMC), the world's largest movie theater chain, has been walloped by the pandemic, and the company was already struggling with the structural shift away from theaters to at-home options like streaming.

AMC theaters in the U.S. closed in March and still have not reopened as plans to reopen in July have been dashed by a resurgence in coronavirus cases. The company is now planning to reopen most of its U.S. theaters in August, but Disney has said it would take Mulan, the highly anticipated live-action feature, straight to home audiences through Disney+, undermining AMC's plans. Similarly, Comcast's Universal Studios negotiated a deal that would give new movies only 17 days of exclusivity at AMC theaters before becoming available at home.

AMC was already struggling before the pandemic and posted a loss of $2.7 billion for the first half of the year, largely due to $1.85 billion in impairment charges. With pressure from studios to go direct to consumers, the threat of the virus remaining, and an increased debt and interest expense, a full recovery for AMC is unlikely.

ALSO READ: Don't Be Tempted by AMC Entertainment's Rally

Genius Brands (NYSE: GNUS), a maker of children's entertainment, including cartoons, has been on a wild ride this year. The stock surged from just around a quarter in April to nearly $12 a share in early June as the company launched the Kartoon Channel in May and on rumors that the stock would be acquired by Disney or Netflix, which have since fizzled.

The stock began to give back those gains shortly after Citron Research, a noted short-seller, announced its short thesis, and the stock is now down to less than a $2 a share.

While the company continues to make moves, including rolling out a line of Rainbow Rangers toys, video content tends to be cheap and without a hit show it's hard to see why Genius Brands is still worth $350 million, especially as it brought in just $5 million in revenue last year.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Lyft (Nasdaq: LYFT) has emerged as one of the most popular stocks on Robinhood as shares have been beaten down by the pandemic after falling sharply last year on a disappointing IPO. The company is deeply unprofitable and has a long road to recovery even in a post-COVID world. After a recent regulatory ruling in California, Lyft and rival Uber may even stop operating in the country's most populous state.

In its second quarter, revenue fell 61% and the company reported an adjusted-EBITDA loss of $280.3 million.

With the steep competition from Uber and the effects of the pandemic likely to endure at least through the end of the year, Lyft faces a number of challenges ahead, and its pre-pandemic goal of turning an adjusted-EBITDA profit by the end of 2021 may need to wait.

Kodak's (NYSE: KODK) meteoric rise in recent weeks has caught the attention of investors, including those on Robinhood. The stock went from around to $2 to a high of $60 in just two days after news broke that the company was receiving a $765 million loan from the federal government, as part of the Defense Production Act, to produce pharmaceutical ingredients for generic drugs like hydroxychloroquine.

However, the deal attracted scrutiny and accusations of insider trading as the stock began moving higher before the news broke.

Since the original spike, shares have fallen to less than $10, and the CEO said he now supports the federal government's decision to hold back on the loan pending further investigation.

With the loan potentially not coming, the stock is unusually risky and could fall back down to $2 again.

Struggling apparel retailer Gap (NYSE: GPS) also makes the list of Robinhood's most popular stocks as investors on the app seem to be eyeing it as a recovery play. However, the stock is only down 14% year to date giving it little upside potential, especially since Gap was struggling before the pandemic, flip-flopping on a plan to spin off Old Navy, and experiencing consistent sales declines at Gap brand and Banana Republic.

The pandemic has dealt a particularly tough hand to apparel retailers, especially mall-based chains like the Gap who have been forced to temporarily close stores, some of which will never reopen. Gap will almost certainly end up closing hundreds of stores as the crisis plays out, and its prior challenges aren't going away. This is a stock best avoided.

ALSO READ: Simon Property Group Sues Gap for Nearly $66 Million in Unpaid Rent

Wells Fargo (NYSE: WFC) shares are down more than 50% so far this year, making them the worst-performing of the major banks. But Wells deserves to be in the dumps. The company's reputation was in tatters before the pandemic following the scandal in its consumer banking division. It is poorly positioned to weather the crisis as it lacks exposure to investment banking unlike some of its commercial bank peers, and it is particularly vulnerable to foreclosure crisis as the nation's No. 1 mortgage lender.

The company reported a $2.4 billion net loss in the second quarter, due in part to an $8.4 billion increase in its loan loss reserves. Management slashed its dividend by 80%, eliminating a major reason to buy the stock and showing that the bank needs to conserve cash as it expects earnings to fall considerably.

Given the resurgence in coronavirus cases and an end to federal unemployment payments, the crisis and its impact on Wells Fargo will persist through at least the end of the year. Beyond that, a low-interest-rate environment will also keep the company's net interest income down.

The marijuana sector is one of the few areas that has been largely untouched by the coronavirus pandemic, but that hasn't stopped Tilray (Nasdaq: TLRY) stock from tumbling 59% as investors have mostly sold off the high-priced sector, whose performance has disappointed since Canadian legalization took place in 2018.

Tilray was one of the highest fliers during the bubble that preceded legalization, spiking to $300. However, it now trades for less than $7.

The company's recent earnings report did little to inspire confidence. Revenue rose just 10% to $50.4 million, and its net loss expanded from $36.3 million a year ago to $81.7 million.

The marijuana sector still has potential if the U.S. makes progress toward legalization, but Tilray is in a weaker position than competitors like Canopy Growth and Cronos Group who have backing from large U.S. companies.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

There are plenty of popular stocks on Robinhood that have done well during the pandemic like Apple, Tesla, Zoom, and Amazon. Trendy stocks can outperform too, but the problem with some of the names above, like Genius Brands, Kodak, or Nikola, is that they've been pumped up by traders and have little in the way of fundamentals to justify gains. Others seem permanently damaged from the pandemic and are unlikely to return to their previous heights.

In the stock market, winners tend to keep winning, and Robinhood investors should keep that rule in mind. Avoiding broken stocks and short-term pops is one way to help yourself beat the market.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Amazon, Ford, Netflix, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, Tesla, Walt Disney, and Zoom Video Communications. The Motley Fool recommends Carnival, Charles Schwab, Comcast, and Uber Technologies and recommends the following options: long January 2021 $60 calls on Walt Disney, short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, short August 2020 $130 calls on Zoom Video Communications, and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.