Uncertainty surrounding the 2019 coronavirus disease (COVID-19) pandemic initially set the benchmark S&P 500 down 34% in less than five weeks. We then saw the fiercest rally in a bear market ever. Last week the S&P 500 and Composite Nasdaq set new records.
Although sometimes disconcerting, this volatility plays into the hands of long-term investors. This is because it allows them to buy good stocks at a perceived discount.
However, increased volatility can also have undesirable consequences. Specifically, times of ferocious stock vacillations tend to bring out short-term traders and investors in captions.
If you don’t believe me, take a look at the recent rise of the Robinhood online investment platform. Best known for offering commission-free trades and free stocks to open an account, Robinhood has been particularly adept at wooing millennial and / or novice investors. While I am all in favor of encouraging young investors to put their money to work in the stock market, Robinhood has not provided these people with the tools they need to be successful as investors, with many choosing to hunt the penny stock that has the flavor of the market. the week.
But among the millions of Robinhood members, some have stumbled upon some really good companies. Here are three widely held stocks on Robinhood that should be viewed by investors as easy buys.
While it continues to set new all-time highs this year, it’s not too late to buy Amazone (NASDAQ: AMZN) growth story. In mid-August, Amazon was the 12th most owned title on the Robinhood platform.
As you may know, Amazon has been a major beneficiary (pardon the pun) of the COVID-19 pandemic. With consumers staying at home, online shopping has become an increasingly popular method of purchasing products. Since Amazon controls about 44% of all online sales in the United States, according to estimates by Bank of America, going online is preparing Amazon for success during the pandemic.
But the flash here is that Amazon was already set for robust growth long before the pandemic. It has signed up more than 150 million Prime members worldwide, with the costs of those memberships allowing Amazon to lower the prices of its competitors. Additionally, the retail membership model keeps these consumers loyal to Amazon’s ecosystem of products and services.
Amazon has also experienced robust growth in its infrastructure cloud segment, Amazon Web Services (AWS). In the coronavirus-hit second quarter, AWS consistently saw 29% year-over-year growth, with the segment now on track for more than $ 43 billion in extrapolated annual sales. Since cloud margins are significantly higher than retail and advertising revenue, AWS is Amazon’s long-term key to explosive growth in operating cash flow.
I contend that if Amazon just continues to trade under its historic operating cash flow multiple of 23-37, it will be at least a $ 5,000 stock by 2023. That makes it a no-hassle buy. .
Another very popular Robinhood stock that could turn investors into a load of money is fintech. Square (NYSE: SQ). As of mid-August, Square was the 64th most owned title on the Robinhood platform, with more than 40,000 net users who have piled into the business since mid-March.
As with Amazon, what people know about Square may not ultimately be the company’s biggest long-term enabler.
In Square’s case, most people are familiar with its point of sale platforms for small to mid-sized merchants. Between 2012 and 2019, the gross volume of payments crossing its network increased from $ 6.5 billion to $ 106.2 billion, although it will likely decline in 2020 due to the pandemic. What is noteworthy, however, is that large merchants are turning to Square’s point-of-sale devices. Since the company’s seller ecosystem is primarily driven by merchant fees and, to a lesser extent, loans, larger businesses could have a very positive impact on Square’s bottom line.
But Square’s real growth engine appears to be its peer-to-peer payment platform Cash App. Benefiting from a boost from the pandemic and consumers avoiding money as a germ transmitter, Cash App captured over 6 million New Monthly Active Users (MAUs) in 2020. Between the end of 2017 and June 2020, Cash App MAUs more than quadrupled from 7 million to over 30 million.
Cash App provides Square with a variety of ways to generate income. For example, the business receives revenue from merchant fees when users of the Cash app make purchases, and also when users speed up transfers from the bank app to Cash or vice versa. Square also sees a lot of income from bitcoin trading and investments. Don’t be surprised if Cash App becomes the primary source of gross profit for this business in the very near future.
Investors also probably can’t go wrong with the 72nd most held stock on the Robinhood platform in mid-August: Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B).
While the name of the company may not ring a bell for some investors, one of the main reasons this stock is an obvious buy has to do with its CEO… a guy named Warren Buffett. Buffett is the model of long-term investment success that other fund managers follow. Over the past 55 years ended December 31, 2019, Berkshire Hathaway stock has averaged an annual compound return of 20.3%. Compare that to a 10% compounded annual return for the S&P 500, including dividends received, over the same time period. This average annual spread of 10.3% is equivalent to an outperformance of over 2,700,000% of the S&P 500 in 55 years.
In addition to getting the famous Warren Buffett as your fund manager, buying Berkshire Hathaway also ties your portfolio to the health of the US economy. A week ago, 92% of Berkshire’s portfolio was tied to just three sectors: information technology, finance and consumer staples. These sectors are very cyclical and tend to do very well when the US economy is in deep trouble. The good news here is that periods of economic expansion last much longer than contractions and recessions, which means Buffett is simply playing the odds in his favor.
In addition, Berkshire Hathaway sits on a mammoth pile of cash, cash equivalents and short-term investments ($ 147 billion). This money serves as a bit of a downward buffer for Berkshire Hathaway stock and gives the Oracle of Omaha some firepower to shop if it sees a good deal. Remember that Berkshire Hathaway has more than five dozen various branches.
Given Buffett and Berkshire’s success story, the stock is an obvious buy after its 2020 withdrawal.