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Robinhood has taken the investing world by storm, arming a new generation of investors with the tools they need to start making money on the stock market. Many young adults are entering equity investing for the very first time, and app-based commission-free brokerage has a lot to do with opening the door to those who were previously reluctant to invest.
However, Robinhood investors don’t always follow Wall Street rules. They often like speculative stocks which have the chances of significant gains but also disproportionate risks. Many of them trade frequently and sometimes buy shares of doomed companies in the hope of making a quick profit in the short term.
As a result, many of Robinhood’s favorite stocks have come under fire from Wall Street stock analysts. In particular, four of the stocks on the Robinhood Top 100 popularity list stand out with favorable ratings of less than 10% from analysts. Who is right: Robinhood or Wall Street investors? Read on to take a closer look.
Image source: Getty Images.
1. Carnival
Carnival (NYSE: CCL) has garnered a lot of attention over the past year, as the cruise ship giant has arguably been the company hardest hit by the COVID-19 pandemic. The stock is down 57% in the past year, although it has jumped 140% from its worst levels in late March and early April. Of the 18 analyst ratings tracked by Robinhood, only one rates Carnival as a buy, compared to four sell ratings and 13 hold ratings.
It’s easy to see why Wall Street isn’t excited about Carnival. The company hasn’t been able to set sail for nearly a year now, and with the most recent spate of COVID-19 cases, even the vaccine release hasn’t allowed Carnival to set any firm expectations on when he can leave. on the high seas again. Meanwhile, the company expects to lose an additional $ 2 billion in the fourth quarter and continues to burn cash at an alarming rate.
The hope among optimistic shareholders is that at some point the pandemic will be under control, and when it is, cruise fans will be delighted to finally take the cruises they have had to postpone for so long. But in the meantime, Carnival has had to keep raising cash, diluting the interests of current shareholders. This means that an eventual rally might not benefit the stock as much as Robinhood investors would like. Carnival will likely survive, but it might not show up in much higher stock prices.
2. Aurora Cannabis and 3. HEXO
Marijuana stocks are back in the news, and hopes of legalization in the United States are leading many investors to bet big on cannabis. However, Wall Street is not convinced. Aurora Cannabis (NYSE: ACB) gets only one buy rating among 17 analysts, with four sells and 12 takes. HEXO (NYSE: HEXO) is not much different, with one buy, 12 takes and one sell.
Aurora and HEXO had a terrible time in 2020, dropping 68% and 42% respectively. But they bounced back to start the new year. HEXO has almost doubled, while Aurora is up 40%.
Bullish investors are hopeful that a new administration in Washington will work to decriminalize marijuana at the federal level. This will not automatically open markets in all states, but will make it much easier for companies like HEXO and Aurora to do business in the United States, especially in jurisdictions that have already legalized cannabis for medical purposes and / or recreational.
Skeptics point to Aurora’s track record of dilutive stock offerings, which appear to be happening just as stock prices start to rise. For HEXO, however, a joint venture with Molson coors (NYSE: TAP) Launching CBD infused drinks in Colorado could be a good entry point from which to consider other growth opportunities. Nonetheless, both companies face competitive challenges and must overcome the operational inefficiencies that have held them back.
4. Slack Technologies
Finally, Slack Technologies (NYSE: WORK) completes the list of the least beloved Robinhood stocks on Wall Street. The stock only gets one buy rating out of 22 analysts, while the other 21 are firm in their neutrality by having sustaining ratings.
In Slack’s case, “hate” is too strong a word to describe the mood of Wall Street. Indeed, the hold ratings likely stem from the impending acquisition of Slack by salesforce.com (NYSE: CRM). Under the terms of the deal, Salesforce will pay $ 26.79 per share in cash, and Slack investors will also receive 0.0776 Salesforce share, which is currently worth around $ 17 at recent prices.
So much of owning Slack comes down to investing 40% of your money in Salesforce and keeping the remaining 60% in cash. Salesforce has a strong outlook for the future, with 35 out of 43 analysts giving it a buy rating, as Robinhood reports. It’s a strong vote of confidence for the tech giant, and keeping the shares will give Robinhood investors exposure to Salesforce without further tax consequences if the deal goes through.
Who is right: Wall Street or Robinhood investors?
Of these actions, Slack appears to be the safest bet for generating long-term gains, assuming shareholders keep their Salesforce shares after the merger is complete. However, HEXO, Aurora and Carnival still face major uncertainties.
That doesn’t mean Wall Street investors are right and Robinhood investors are wrong – but it does mean that if you are considering buying those stocks, you need to know exactly what you are getting into before you invest.
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