Retail investors have become a force in the stock market. Now more than ever, even Wall Street's finest look closely at what ordinary investors are doing on the Robinhood app and at other retail-oriented brokerage companies.
It's true that among the top Robinhood stocks right now, you'll find plenty of speculative plays that aren't likely to end well. However, fully half of the current top 10 fit well into nearly any investor's portfolio. Below, you'll learn more about these five solid stocks and whether they make sense for you.
Weighing in at No. 10 on the list of top Robinhood stocks is Amazon.com (NASDAQ: AMZN). Shares of the e-commerce and cloud computing giant have more than doubled over the last three years, although Amazon's 21% return over the past year is only half what the broader Nasdaq Composite has put up over that timeframe.
Despite Amazon's size, it has plenty of growth drivers. E-commerce continues to gain traction, and companies are flocking to the cloud. Shoppers who used Amazon for the first time during the pandemic are likely to stay because of its convenience, and success in drawing new Prime subscribers brings high-margin revenue into Amazon's doors. Top investors believe that Amazon could easily triple again in just the next four years.
Add to that the fact that margin levels at Amazon Web Services are impressively strong. That makes a reasonable argument for why Amazon looks like a smart pick from Robinhood investors.
At No. 9 on the Robinhood list is Microsoft (NASDAQ: MSFT). The software behemoth has done even better than Amazon, with its shares nearly tripling in the past three years. Even though it too has slowed down compared to the Nasdaq lately, it recently passed the $2 trillion mark in market capitalization.
Microsoft languished for years following the tech bust, but it finally figured out that it needed to open its doors to the power of cloud computing. Making its highly popular Office software available on a subscription basis allowed Microsoft to tap into the power of recurring revenue. Meanwhile, fully embracing the profit prospects of the cloud made its Azure product a priority, and Microsoft has seen the value of its cloud franchise soar in recent years.
Even dividend investors get a little something from Microsoft. Although its 0.8% yield is nothing to write home about, Microsoft has doubled its quarterly payouts over the past seven years. It's hard to argue with Robinhood investors about embracing the software king's shares.
Disney (NYSE: DIS) comes in at No. 8 on the Robinhood list of top stocks. The House of Mouse's gains over the past year have been stronger than Microsoft and Amazon, even outperforming the soaring Nasdaq over that span.
Two themes are driving Disney right now. First, its Disney+ streaming service shows that the company isn't blind to the erosion in its core cable TV business, and its success in getting subscribers indicates how valuable its content is. At the same time, many investors see Disney as a recovery play, as its theme parks and cruise ships look to reopen fully.
Turning on the tap for all of Disney's revenue sources could produce impressive short-term growth. That's music to the ears of smart investors both on Robinhood and elsewhere, and that explains why the entertainment stock has gotten such a good reception lately.
Perhaps the most speculative stock on this list is the Robinhood No. 5 pick, Ford Motor (NYSE: F). The stock has soared nearly 150% in the past year, including a 70% rise just since the beginning of 2021.
Ford's recovery has stemmed from a couple of sources. On one hand, the automaker's shares have offered a great value play for years, with its earnings multiple having been in the single digits for a long time before finally perking up. That provides a margin of safety that value investors can appreciate.
At the same time, though, Ford is finally revealing its electric vehicle strategy, and cutting-edge investors like the prospects of seeing popular models like the F-150 pickup become available in an EV format. A full transition will take time, but with so much production infrastructure already in place, Robinhood investors are betting on Ford to pass up wannabe start-ups looking to cash in on rising EV demand.
Lastly, Apple (NASDAQ: AAPL) is the second-most popular stock on Robinhood. That shouldn't come as a major surprise, given its better than 500% return over the past five years.
Apple has something for just about any investor. Massive stock buybacks and a modest dividend show the iPhone maker's commitment to returning capital to shareholders and boost its per-share business metrics. Meanwhile, incremental features added to its latest smartphone line have captured consumers looking to make the upgrade to 5G networks, and that stands to be an accelerating factor as 5G spreads across the globe.
Other products and services also add to Apple's long-term appeal. Combine all that in a single company and give its stock a valuation that's not ridiculously expensive compared to peers, and Robinhood investors' confidence in Apple's prospects doesn't look misplaced.
Don't count Robinhood out
It's easy to think of retail investors as lacking knowledge about the stock market. But at least judging from these five picks, Robinhood investors seem to know what they're doing. You could do a lot worse than investing in these five stocks.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Dan Caplinger owns shares of Amazon, Apple, Microsoft, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, Microsoft, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.