Robinhood took the investment universe by storm, providing a new generation of investors with the tools they need to start putting money to work in the stock market. Many young adults are investing in stocks for the first time, and the app-based brokerage has a lot to do with opening the door to those who were once reluctant to invest.
However, Robinhood investors do not always follow Wall Street rules. They often like speculative stocks that have a chance of big gains, but also disproportionate risks. Many of them trade frequently and sometimes buy shares in doomed companies in the hope of making a quick profit in the short term.
As a result, many of Robinhood’s favorite stocks have been fully criticized by Wall Street stock analysts. In particular, four of the stocks on Robinhood’s top 100 popularity list stand out for having favorable ratings from less than 10% of analysts. Who’s right: Robinhood or Wall Street investors? Keep reading to get a closer look.
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1. Carnival
Carnival (NYSE: CCL) received a lot of attention last year, as the cruise ship giant was arguably the company hardest hit by the pandemic COVID-19. The stock fell 57% from last year, although it jumped 140% from its worst levels in late March and early April. Of the 18 analyst ratings that Robinhood tracks, only one classifies Carnaval as a purchase, compared to four sales ratings and 13 retention ratings.
It’s easy to see why Wall Street isn’t excited about Carnival. The company has been unable to set sail for almost a year, and with the latest wave of COVID-19 cases, not even the release of vaccines has allowed Carnival to set firm expectations about when it will be able to go on the open sea again. Meanwhile, the company expects to lose another $ 2 billion in the fourth quarter and continues to burn cash at an alarming rate.
The hope among optimistic shareholders is that, at some point, the pandemic will come under control, and when that happens, cruise fans will be excited to finally take the cruises that have been delayed for so long. But in the meantime, Carnival had to continue raising cash, diluting the interests of current shareholders. This means that an eventual recovery may not benefit the shares as much as Robinhood investors would like. Carnival will likely survive, but it may not appear at much higher stock prices.
2. Aurora Cannabis and 3. HEXO
Marijuana stocks are back in the news, and the hope of legalization in the U.S. makes many investors bet big on cannabis. However, Wall Street is not convinced. Aurora Cannabis (NYSE: ACB) it only gets a single purchase rating among 17 analysts, with four sales and 12 retentions. HEXO (NYSE: HEXO) it’s not much different, with a purchase, 12 retentions and a sale.
Aurora and HEXO had terrible times in 2020, falling 68% and 42%, respectively. But they came back to start the new year. HEXO almost doubled, while Aurora increased 40%.
Optimistic investors expect a new government in Washington to work to decriminalize marijuana at the federal level. This will not automatically open markets in all states, but it will make it much easier for companies like HEXO and Aurora to do business in the United States, especially in jurisdictions that have already legalized cannabis for medical and / or recreational use.
Skeptics point to the history of diluted Aurora stock offers, which seem to happen just when stock prices are starting to rise. For HEXO, however, a joint venture with Molson Coors (NYSE: TAP) The launch of some CBD-infused drinks in Colorado may be a good starting point for considering other growth opportunities. However, both companies face competitive challenges and must overcome the operational inefficiencies that prevent them.
4. Slack Technologies
Finally, Slack Technologies (NYSE: WORK) completes the list of Robinhood’s shares least loved by Wall Street. The shares accumulate only a single purchase rating among 22 analysts, while the other 21 are firm in their neutrality because they have retention ratings.
In Slack’s case, “hate” is too strong a word to describe Wall Street humor. This is because the retention ratings are likely to result from the pending acquisition of Slack by salesforce.com (NYSE: CRM). Under the terms of that agreement, Salesforce will pay $ 26.79 per share in cash, and Slack investors will also receive 0.0776 shares of Salesforce, which are currently worth around $ 17 at recent prices.
As a result, owning Slack is largely like investing 40% of your money in Salesforce and keeping the other 60% in cash. Salesforce has solid prospects for the future, with 35 out of 43 analysts giving it a purchase rating, as reported by Robinhood. It is a solid vote of confidence for the tech giant, and holding the shares will give Robinhood investors exposure to Salesforce without any additional tax consequences if the deal goes through.
Who’s right: Wall Street investors or Robinhood?
Among these shares, Slack appears to be the safest bet to produce long-term earnings, assuming that shareholders hold their shares in Salesforce when the merger is completed. HEXO, Aurora and Carnaval still face great uncertainties, however.
This does not mean that Wall Street is right and Robinhood’s investors are wrong – but it does mean that if you are thinking of buying these shares, you should know exactly what you are getting into before you invest.