Most investors are not big fans of intensified periods of volatility. But this is not the case for novice and generation Y investors, as evidenced by the online investment app Robinhood.
Last year, Robinhood gained about 3 million new users. This is remarkable, given that the average age of its users is only 31 years old. Robinhood’s commission-free negotiations, investing in fractional shares and offering free stock shares to new members have worked effectively to attract young investors.
While it is fantastic to see young people putting their money to work in the world’s greatest wealth creator, many Robinhood users fail to understand the importance of long-term investment. As a result, the platform’s leaderboard (the 100 most held shares) is mostly populated with penny stocks and less than desirable momentum plays.
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Most of the time, the shares held by Robinhood are a solid company
Perhaps the only exception to this rule is Robinhood’s best-selling shares. Most of the time, the shares most maintained on the platform have been a profitable and / or innovative company that offers substantial long-term value or growth.
For example, with the exception of a few days, the technology boss Apple (NASDAQ: AAPL) it has consistently been the best selling Robinhood stock for months. Apple is one of the most recognized brands in the world and debuted its first 5G-capable iPhone just three months ago. Although CEO Tim Cook is overseeing a move to high-margin services, the iPhone is still the biggest revenue driver for Apple. In short, it is a cash flow machine that is constantly at the forefront of innovation.
For a brief period in January, we also witnessed Tesla Motors (NASDAQ: TSLA) ascend to first place on the Robinhood leaderboard. Although I’m not a big fan of Tesla’s assessment, it clearly did something right to prove me wrong. The electric vehicle (EV) giant delivered about 500,000 vehicles last year, and its Battery Day event in September outlined the ways in which its batteries will maintain their capacity, range and energy advantages over competitors. For now, Tesla’s pioneer advantage in US EVs seems secure.
Up until Ford (NYSE: F) it once became Robinhood’s best-selling stock. While it may have been a function of the app to give Ford free shares to new members, it is a company that offers long-term growth at a reasonable price. Ford has a recognized brand with more than a century of history and is spending $ 11 billion between 2018 and 2022 to research and build a line of EVs. Given the existing infrastructure and profit history, Robinhood investors are wise to invest in Ford.
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Here is the stock that dethroned Apple
But there is an entirely new company that has left Ford, Tesla and, finally, Apple, to become the most held new share on the platform, as of February 4: AMC Entertainment (NYSE: AMC).
No, I’m not kidding. The AMC Entertainment movie network is held by more Robinhood users than any other stock listed on a major US stock exchange.
If the name sounds like a bell, it’s probably because AMC is the GameStop in the Reddit-based retail investor rally that we’ve witnessed in the past few weeks. Both GameStop and AMC have high levels of short interest (ie investors who want to see their stock prices fall). Knowing this, retail investors on WallStreetBets who invest in the Reddit chat room have teamed up to buy shares and out-of-the-money options at both companies. In AMC’s case, it pushed the company’s shares up by just 525% in January. As noted earlier, Robinhood users love impulse actions.
Interest in AMC was also partially sparked by the company that obtained $ 917 million in financing in late January. It raised $ 506 million between mid-December and the end of January, issuing common shares, and secured another $ 411 million through debt capital. With the 2019 coronavirus pandemic (COVID-19) closing cinemas or significantly reducing pedestrian traffic, this capital injection will allow AMC to survive the winter.
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AMC is an absolute monstrosity
Unfortunately, Robinhood’s new No. 1 stock is an absolute monstrosity that simply shouldn’t be in investor portfolios.
Let’s not forget that, before being the apple of the eye of day-traders and retail investors, AMC was practically on the verge of bankruptcy. The only way to avoid bankruptcy was to add debt and issue a lot of dilutive shares. It is important to note that the recent increase in AMC’s share price has prompted the company to consider another share offering to raise additional capital.
AMC’s main operating model also appears to be seriously flawed in two respects. First, it is unclear when the COVID-19 pandemic will subside. The recent rise in AMC’s stock would suggest that the current vaccination campaign will run smoothly and that life will return to normal in the middle of the year. However, surveys suggest otherwise, with a recent survey by the Kaiser Family Foundation showing that almost half of all respondents are in the wait to see or simply do not want the vaccine.
The other big problem is that the monopoly of new movie theaters may be coming to an abrupt end. In December, ATT (NYSE: T) the subsidiary WarnerMedia announced that it would release all of its new films in 2021 on HBO Max the same day they would be shown in theaters. AT&T saw a considerable increase in the number of HBO Max subscribers prior to this announcement, and I would not be shocked if that momentum continued through December and into the new year. The point is that consumers can prefer the comfort of their sofa to the ambience of a movie theater.
AMC has no business being the most owned share in Robinhood, and I can only hope that novice and millennial investors know about this company before it is too late.