While these wild swings in the stock markets have been baffling to some people, they have proven to be an insatiable draw for millennial and newbie investors. We know this because Robinhood online investing app added millions of new members in 2020 and the average age of its user base is only 31.
While it’s great to see young investors putting their money to work in the stock market, many Robinhood users have chosen to chase down dime stocks or downright horrible companies. As a result, some of Robinhood’s most popular stocks are hated by Wall Street. This was particularly evident in the third quarter, with fund managers looking to pull out of the next three stocks.
Manufacturer of electric vehicles (EV) Tesla Motors (NASDAQ: TSLA) has been virtually unstoppable over the past decade. CEO Elon Musk has successfully built the first base-to-mass-production automaker in more than five decades, and the stock has rewarded shareholders with a gain of nearly 7,800% over the past 10 years.
However, optimism around Tesla and its high valuation appears to be waning among professional fund managers. During the third quarter, the total ownership of Form 13F depositors decreased by 18.2%, or more than 87 million shares.
If you’re wondering why professional fund managers aren’t so excited about Tesla anymore, I’ll take a look at the company’s income statement. With funding no longer an issue, the real issue has been Tesla’s inability to generate an annual profit under generally accepted accounting principles (GAAP) and its reliance on the sale of emission credits to generate income. In other words, Tesla has not been profitable without the help of an accounting (legal) trickery. A market cap north of $ 500 billion for a company that hasn’t even demonstrated its ability to generate an old-fashioned profit might make some people think twice before lowering the accelerator to the floor.
It’s also unclear whether Tesla’s first-mover benefits will be sustainable in the long run. Other branded auto stocks invest billions in electric vehicles and / or autonomous driving solutions each year. From styling to battery technology, it might be difficult for Tesla to maintain its US dominance in electric vehicles for much longer.
American Airlines Group
Another exceptionally popular Robinhood headline that Wall Street fund managers showed on the doorstep in the third quarter is American Airlines Group (NASDAQ: AAL). The struggling airline’s stock saw total ownership of 13F decline 5.3%, or 15.1 million shares, in the third quarter.
While Tesla defies gravity with its innovation, the old-school airline industry remains mostly entrenched, with American Airlines looking like the worst of the bunch. It’s a company that made the decision to modernize its fleet in 2018 and retire dozens of commercial aircraft well before the end of their useful life. As a result, American Airlines’ balance sheet was once again buried in debt.
The company’s low financial flexibility was only amplified by the COVID-19 pandemic. With air traffic well below where it was at the start of the year, and no clear timeline for when people will take to the skies again, this capital-intensive, low-margin industry is hanging on. by wire and produces massive losses in the process. This industry is simply not able to navigate its way through prolonged economic downturns.
What fund managers are running away from is a company with nearly $ 33 billion in net debt that has suspended all dividends and share buybacks. Even if American Airlines avoids bankruptcy, it will be crippled by debt for many years.
Wall Street fund managers have also avoided the branded chipmaker Intel (NASDAQ: INTC). Although the stock is popular with millennials investors, 13F filers reduced their sequential quarterly holdings in Intel by about 159 million shares, or 5.8%, in the third quarter.
Similar to American Airlines, COVID-19 has really done quite a bit on Intel’s core operational segments. Despite seeing very modest growth in demand for computer chips and workstations, its data center group’s revenue stumbled badly (down 10% from the previous year quarter). Uncertainty of demand arising from COVID-19, market share losses in a key competitor Advanced micro-systems, and the expectation of more modest order growth from cloud service providers did not appeal to Wall Street.
Yet unlike Tesla, which does not have a proven and proven business model, and American Airlines, whose business model is disrupted by the slightest economic headwind, Intel has demonstrated its ability to remain highly profitable under economic conditions. unfavorable. Intel is investing heavily in its future, with the company expecting demand for its higher margin data center segment to increase dramatically in the coming years. Even the memory and programmable solutions divisions offer good long-term growth prospects.
So even though Intel was a disappointment in 2020 and its high growth days are long gone, it is now valued at around 10 times Wall Street’s expected earnings per share for 2021. That’s a reasonable estimate when it is associated with a return of almost 3%. Assuming the backbone of Intel’s growth strategy begins to pay off in the middle of the decade, this is a Robinhood title Wall Street will regret selling.