Over the previous yr, volatility has been the pal of millennial traders. We all know this as a result of on-line investing app Robinhood, which is understood for its commission-free trades and gifting of free shares of inventory to new members, gained roughly 3 million new customers in 2020. The common age of Robinhood’s member base is barely 31.
Whereas it is nice to see younger traders placing their cash to work on the earth’s best wealth creator, it is evident that many fail to grasp the significance of long-term investing or compounding. Robinhood’s leaderboard (i.e., the 100 most-held shares on the platform) is filled with penny stocks, momentum names, and in any other case terrible companies.
After perusing its ever-changing leaderboard, the next 5 corporations stand out as Robinhood’s most harmful shares.
There is not any approach a listing of Robinhood’s most harmful shares is not going to incorporate online game and equipment retailer GameStop (NYSE:GME), which has been whipsawed by retail traders for greater than a month.
Retail traders on Reddit’s WallStreetBets (WSB) chatroom had been primarily liable for sending GameStop increased by practically 900% on a year-to-date foundation (based mostly on after-hours buying and selling on Feb. 24). Retail traders have agreed to work collectively to buy shares and out-of-the-money calls on closely short-sold shares, with the aim of effecting a short squeeze. Since GameStop is essentially the most short-sold inventory of any publicly traded firm (as a proportion of its float), it made for a logical target by the WSB community.
The elemental downside for GameStop is that administration waited far too lengthy to take a digital strategy to gaming. Even with e-commerce gross sales up by triple digits through the vacation season, the corporate’s total sales continue to fall. GameStop’s plan of assault for now could be to shut shops with the intention to lower bills and backpedal its approach again into the black. Greater than probably, it would report its fourth consecutive annual loss this yr.
2. Inovio Prescription drugs
One other harmful Robinhood inventory that traders can be sensible to keep away from is clinical-stage drug developer Inovio Prescription drugs (NASDAQ:INO).
Inovio initially caught hearth final yr as one of many drug builders anticipated to guide in coronavirus illness 2019 (COVID-19) vaccine improvement. It caught a second wind earlier this yr when the WSB neighborhood chosen Inovio as one among its shares to focus on. Inovio has a relatively high level of short interest, which made it the proper goal for a brief squeeze.
However Inovio did not make it onto this listing by chance. The corporate’s COVID-19 vaccine had a partial clinical hold placed on its phase 2/3 trial by the U.S. Meals and Drug Administration (FDA) again in late September. Regardless that the partial maintain on the section 2 portion has been lifted, the FDA is requesting further data on its vaccine and supply gadget, generally known as Cellectra. As of now, the section 3 maintain stays in impact.
Moreover, Inovio hasn’t had any of its clinically developed therapies authorized by the FDA in 4 many years. The monitor report right here speaks loud and clear: Keep away from this inventory.
3. Riot Blockchain
There are loads of methods to spend money on Bitcoin (CRYPTO:BTC), the world’s largest cryptocurrency. The absolute worst way is to purchase right into a cryptocurrency miner like Riot Blockchain (NASDAQ:RIOT).
Cryptocurrency miners are folks or companies that use high-powered computer systems to unravel advanced mathematical equations, thereby validating teams of transactions (generally known as blocks). For doing this on Bitcoin’s community, a block reward of 6.25 tokens is paid. That is price greater than $300,000 at at the moment’s costs. For younger traders, Riot Blockchain is seen as a fast and simple technique to play Bitcoin’s ascent.
Nonetheless, Riot Blockchain is dealing with a number of points that makes its current valuation unsustainable. For example, the crypto mining house is rising extra crowded over time, and Bitcoin’s block rewards halve each couple of years. What’s extra, Riot has huge upfront prices to buy mining gear and ongoing prices to keep up it. As a substitute of innovation driving development, shareholders are utterly on the mercy of the worth of Bitcoin.
Contemplating that Bitcoin declined 80% on three separate events within the earlier decade, it is not even clear that crypto mining is a sustainable enterprise mannequin.
4. AMC Leisure
AMC’s skyrocketing share worth for the reason that yr started is the results of the corporate elevating sufficient capital to stave off chapter, in addition to the Reddit neighborhood piling right into a penny inventory with excessive ranges of brief curiosity. There’s additionally optimism that the reopening of the U.S. financial system in key states will result in a rush of customers again to film theaters.
The priority is that there is not any assure society will get again to regular anytime quickly. The proliferation of coronavirus variants and vaccine holdouts threaten to sluggish the achievement of herd immunity within the U.S.
Moreover, streaming operators present a threat to the standard movie show working mannequin. With AT&T‘s WarnerMedia set to launch its new films on HBO Max on the identical time they will hit theaters in 2021, the long-term outlook for movie show operators like AMC is squarely in focus.
5. Sundial Growers
One notch under AMC Leisure at No. 4 on the Robinhood leaderboard is Canadian marijuana stock Sundial Growers (NASDAQ:SNDL). Though hashish guarantees to be one of many fastest-growing industries of the 2020s, this is not a pot inventory you may need something to do with.
Whereas among the bullishness surrounding Sundial has to do with the opportunity of the U.S. legalizing hashish beneath the Biden administration, most of Sundial’s upside in February was the results of the WSB neighborhood piling right into a extremely liquid penny inventory. Sadly, there’s little substance behind this transfer.
Probably the most harmful factor about Sundial is its administration group. Hell-bent on elevating money, Sundial has buried shareholders in dilution. Following numerous share choices and debt-to-equity swaps, Sundial now has an estimated $680 million in money, however has issued more than 1.1 billion shares in five months. In additional than 20 years of overlaying equities, I’ve hardly ever witnessed dilution this profound.
The icing on the cake is that Sundial’s choice to shift its working mannequin from wholesale to retail will guarantee it continues to lose cash for the foreseeable future. In one of many fastest-growing industries on the planet, Sundial goes in reverse.
This text represents the opinion of the author, who might disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one among our personal — helps us all assume critically about investing and make choices that assist us turn into smarter, happier, and richer.