Retail investors on the stock investing application Robinhood have been making a lot of noise in 2020 amid the market volatility.
The S&P 500 first slumped 36% is just over a month in early 2020 due to the COVID-19 pandemic. The miraculous snap back rally surprised industry experts but also garnered the interest of retail investors at Robinhood who managed to beat the broader market consistently with some good stock picks.
In the first six months of 2020, nearly six million investment accounts were opened in the U.S. and over 50% of these accounts were registered on the Robinhood application, according to a Barron’s report.
According to Robinhood’s 100 most popular stocks, investors have bet on several blue-chip companies including Amazon (AMZN), PayPal (PYPL), and Facebook (FB). However, there are also some stocks that are very risky right now.
Here we take a look at three such stocks that Robinhood investors need to avoid.
Joe Biden is the President-elect and this is good news for cannabis investors. During one of the pre-election debates, Senator and now Vice-President-elect Kamala Harris claimed the Democrats will look to decriminalize marijuana at the federal level and several pot stocks have experienced a near-term rally in the last week.
In fact, Aurora Cannabis (ACB) surged 40% on a single day on November 5, following news of a potential Joe Biden win. There is a good chance that Aurora and peers will move higher in the upcoming week as well, now that the win has been confirmed.
However, Aurora Cannabis is a company with weak fundamentals and is grappling with decelerating sales growth, negative profit margins, an inflated book value as well as high inventory levels.
This means ACB stock is still trading 90% below its record high despite the recent uptrend. Aurora Cannabis will benefit from marijuana legalization in the U.S. markets. But that may take a few years to materialize which means the company will have to focus on reducing cash burn and increase profit margins.
Aurora stock has raised equity capital multiple times in the last few years which has resulted in shareholder dilution and a lower valuation for investors.
A consumer technology company
The second stock that is a high-risk proposition is GoPro (GPRO), a consumer technology company. GoPro is another beaten-down stock that has lost over 90% in market value since touching a record high back in October 2014.
While the stock soared 15% since its Q3 results, investing in GoPro remains risky. The company has not reported a profitable quarter for over five years and this trend continued in the first half of 2020 as well.
GoPro reported a $3 million net income in Q3 which surprised investors and sent the stock higher. Comparatively, the company’s revenue stood at $281 million, indicating a net margin of a paltry 1.06%. Though GoPro's revenue doubled in Q3 on a sequential basis, it is expected to report a sales decline of 26.3% in 2020.
GoPro targets a niche market and has a high product price point which means it will struggle to generate demand in emerging markets of Asia and Latin America. Further, action cameras don’t attract repeat purchasers compared to say a smartphone or even a smartwatch.
There are much better companies with a more enticing risk-reward ratio compared to GoPro, a stock that has flattered to deceive since its IPO in 2014.
Nokia- a networking giant
Nokia (NOK) is another company that is popular among Robinhood investors. Shares of this networking giant are trading at $3.65 which means the stock has lost about 50% in market value in the last five years.
In 2019, Nokia suspended its dividends to focus on improving cash flow, lowering profit margins, and investing heavily to develop a robust 5G infrastructure. However, the company continues to disappoint investors and missed Wall Street estimates in Q3 as well.
In fact, Nokia CEO Pekka Lundmark provided a grim outlook during the Q3 earnings call and said, “We expect next year to be a challenging, a year of transition with meaningful headwinds from North America, as I have already mentioned, and further investment requirements in 5G…..I want to be very clear that I believe the potential of Nokia is substantial, but delivering on that promise will not happen overnight."
Similar to two other stocks on this list, Nokia has failed to deliver on its own expectations which makes it a stock to avoid especially when the market is choppy and volatile.
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ACB shares were trading at $11.52 per share on Monday morning, up $1.73 (+17.67%). Year-to-date, ACB has declined -55.56%, versus a 13.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.3 Popular Robinhood Stocks to Avoid Right Now appeared first on StockNews.com