The past year has been exceptionally volatile for the stock market – but that didn’t seem to bother young investors who craved these wild vacillations.
The Robinhood online investment app, with an average age of only 31, gained around 3 million new users in 2020. While it is fantastic to see young people putting their money into the serving the greatest wealth creator on the planet (the stock market), it’s also baffling that they don’t get the proper education and tools to be successful. As a result, some of the most held shares on the Robinhood platform look like absolute dumpster fires.
As we enter a new year, four ultra-popular Robinhood stocks look like companies to avoid like the plague.
Next to a better than -1.100% gain in 2020, manufacturer of electric vehicles (EV) NIO (NYSE: NIO) made his way to the ninth most owned share on the Robinhood platform.
In some ways, the optimism is justified. NIO is based in China, which will be the world’s largest electric vehicle market. By 2035, about half of all new vehicle sales are expected to be electric vehicles or, to a much lesser extent, hybrids. NIO shipments exploded in 2020, as the company addressed all of its immediate cash flow issues by selling shares. It also introduced an all-new crossover (EC6) which quickly became its best-selling vehicle.
However, even with NIO pushing its vehicle gross margin to positive double digits in the third quarter of 2020 from a negative single digit number in the previous year period, a market cap of $ 83 billion is a big deal. few too much. With deliveries from NIO exploding to just over 7,000 in December, the company has an annual operating rate of just 84,000 EVs. Even if the company’s production and sales were to double in 2021, it would still be valued at more than 16 times sales in an industry known for its modest margins.
In addition, NIO will not be the only manufacturer of electric vehicles to focus on China. The Detroit Big Three invest billions each year in electric vehicles and autonomous vehicles, with a number of other branded and established automakers doing the same. Without its own infrastructure to really increase production, a valuation of $ 83 billion looks like a serious stretch.
The North American marijuana industry seems poised to (pardon the obvious pun) grow like a weed this decade. But not all pot stocks will win. Previously most owned stock on Robinhood and now currently 15th, Canadian licensed producer Aurora Cannabis (NASDAQ: ACB) should be avoided like the plague.
At one point, Aurora offered a lot of promise. It had 15 production facilities capable of producing over 650,000 kilograms of cannabis per year, if fully operational. The company also had access to some 20 markets outside of Canada. It seemed like a logical winner in a crowded field of pot stocks – but This was not the case.
The biggest issues for Aurora Cannabis were overestimating consumer demand and underestimating regulatory issues. As a result, it buried its balance sheet in goodwill and intangible assets in too expensive for more than a dozen companies, and had to write off a considerable portion of its inventory.
Aurora Cannabis is also facing cash flow issues. It is a company whose board of directors has approved and completed a $ 400 million and $ 250 million market offer (ATM), and recently accepted another $ 500 million offer from ATMs. Having financed its current operations and redemptions with its shares, Aurora’s share counts has swelled by 11,800% in just over six years. It’s an overwhelming shareholder value number that makes Aurora worth avoiding.
American Airlines Group
One of life’s biggest mysteries is why Robinhood millennial investors are infatuated with airline actions. Six of Robinhood’s 32 largest holdings are airlines, with American Airlines Group (NASDAQ: AAL) taking the # 1 spot as Platform Action # 5. The problem is, it’s probably the worst company in the airline industry.
My best guess as to why American Airlines flies so high in the minds of young investors is due to the appeal of its brand and its beaten action price. Presumably, if enough Americans choose to receive a coronavirus vaccine, the country can return to normal and people will resume their flight. Unfortunately, this thesis has two flaws.
First, we have no idea when things will return to normal, or what normal will even look like. For example, even with the authorization for the emergency use of two vaccines, the actual vaccination campaign in the United States has been slow. Less than 2% of the population (5 million people) have been vaccinated, which is well below the 20 million people targeted for the vaccine in December.
Second, American Airlines is going to be strangled by its $ 41.2 billion debt for years to come, assuming he avoids bankruptcy. Like my colleague Adam Levine-Weinberg underlined in 2018, American Airlines made the reckless decision to withdraw commercial jets that still had a lot of life to modernize its fleet. This bad decision coupled with COVID-19 and a complete suspension of its capital return program make American Airlines completely preventable.
Stock n ° 2 on the Robinhood platform, Tesla Motors (NASDAQ: TSLA), may just be the most overvalued large-cap stock around. The bull thesis surrounding Tesla has to do with its first-come benefits. It just fell 450 vehicles with less than 500,000 EVs delivered in 2020. Tesla also offers a clearly identifiable advantage over its competitors in terms of battery power and range.
But we’re also talking about a company valued north of $ 700 billion that only produces about half a million electric vehicles a year. By comparison, the Detroit automakers each have more than two established production plants and are capable of producing millions of vehicles each year. Tesla’s market cap currently exceeds that of many of the world’s most established automakers on a combined basis.
In addition, Tesla has not demonstrated its ability to generate a profit only the sale of electric vehicles. In four of the past five quarters, selling renewable energy credits has helped push Tesla to nominal adjusted earnings. Investors shouldn’t have to worry about the recurring profit potential of a company with a valuation of over $ 700 billion.
As a reminder, the automotive industry traditionally has low margins. The EV industry looks like a bubble in the making, with Tesla as Action n ° 1 to avoid in 2021.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.[ad_2]