When stock market volatility strikes, the nail-biting often begins. But that’s not been the case for millennial and/or novice investors. These young investors have been attracted like magnets to the market’s volatility over the past year, and apparently the perception of getting rich quick…
Online investing app Robinhood, which is known for offering commission-free trades, fractional share investing, and gifts free shares of stock to new members, have been particularly adept at luring millennial investors. The average age of its user base is only 31, and Robinhood added an estimated 3 million new members last year.
While it’s great to see young people putting their money to work in the world’s greatest wealth creator, it’s also terrifying to see the companies they’ve been buying. Instead of buying brand-name or innovative businesses, millennials and novice investors have been chasing momentum plays and penny stocks. Suffice it to say, Wall Street doesn’t think too highly of their choices.
According to Wall Street, three of the eight most-held Robinhood stocks could fall at least 69% over the next year, if consensus one-year price targets prove accurate.
Sundial Growers: Implied downside of 77%
Though it rocketed up Robinhood’s leaderboard in a matter of months, and is now the fourth most-held stock on the entire platform, Canadian marijuana stock Sundial Growers (NASDAQ:SNDL) is being projected by Wall Street to lose 77% of its value over the next 12 months.
Shares of Sundial have catapulted over the last four months from a combination of two catalysts. First, there’s growing optimism that the U.S. might legalize cannabis at the federal level. Joe Biden’s victory in November, followed by the Democrats taking back the Senate in early January, offers hope that reform legislation could reach the Senate floor this year. Legalization would allow Sundial and its peers to enter the more lucrative U.S. weed market.
The other key driver for Sundial is the retail investor-fueled Reddit rally. Members of the WallStreetBets (WSB) chatroom on Reddit effectively banded together to buy shares and out-of-the-money call options on heavily short-sold companies or penny stocks. Sundial primarily falls into the latter category.
While it’s had an excellent four-month run, Sundial lacks the characteristics long-term investors are typically looking for in a company. For instance, even though it’s sitting on an estimated $680 million in cash (this figure takes into account Sundial’s recent investment in Indiva and the exercising of 98.3 million warrants), management completely disregarded wealth creation by drowning investors in more than 1.1 billion new outstanding shares since the end of September. With approximately 1.66 billion shares, it’s going to be almost impossible for Sundial to generate a meaningful profit or exit penny stock territory.
Furthermore, the company’s management team made the decision to move away from wholesale cannabis and toward higher-margin retail operations. With the shift ongoing, Sundial’s year-over-year sales comparisons have fallen off a cliff. Sundial has also endured a couple of sizable writedowns.
Penny stocks are usually priced low for a reason, and Sundial Growers is a perfect example of that.
AMC Entertainment: Implied downside of 69%
One notch above Sundial Growers on Robinhood’s leaderboard is movie theater chain AMC Entertainment (NYSE:AMC). Unfortunately, popularity doesn’t always equate to profits on Wall Street. Robinhood’s third most-held stock is expected to decline by 69% over the next 12 months.
This dire projection from Wall Street comes after AMC nearly quadrupled since mid-January. Fueling AMC’s historic rise are three catalysts. First off all, the company raised $917 million between mid-December and mid-January, which took the prospect of bankruptcy off the table — at least for now.
Secondly, there’s growing optimism that the U.S. economy will meaningfully reopen in the second-half of 2021. As of this past weekend, there are now three emergency-use authorized coronavirus disease 2019 (COVID-19) vaccines. We’ve also seen New York lay out a plan to open most of their theaters by the end of this week.
Third, AMC is one of the…
Continue reading at THE MOTLEY FOOL