Over the previous yr, volatility has been the good friend of millennial traders. We all know this as a result of on-line investing app Robinhood, which is thought 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 simply 31.
Whereas it is nice to see younger traders placing their cash to work on the planet’s biggest wealth creator, it is evident that many fail to know the significance of long-term investing or compounding. Robinhood’s leaderboard (i.e., the 100 most-held shares on the platform) is full of penny shares, 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 isn’t any manner an inventory 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 chargeable for sending GameStop larger 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 brief squeeze. Since GameStop is probably the most short-sold inventory of any publicly traded firm (as a share of its float), it made for a logical goal by the WSB group.
The basic downside for GameStop is that administration waited far too lengthy to take a digital method to gaming. Even with e-commerce gross sales up by triple digits throughout the vacation season, the corporate’s complete gross sales proceed to fall. GameStop’s plan of assault for now’s to shut shops with a view to lower bills and backpedal its manner again into the black. Greater than possible, it is going to report its fourth consecutive annual loss this yr.
2. Inovio Prescription drugs
One other harmful Robinhood inventory that traders could be good to keep away from is clinical-stage drug developer Inovio Prescription drugs (NASDAQ:INO).
Inovio initially caught fireplace 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 group chosen Inovio as one in all its shares to focus on. Inovio has a comparatively excessive stage of quick curiosity, which made it the right goal for a brief squeeze.
However Inovio did not make it onto this checklist accidentally. The corporate’s COVID-19 vaccine had a partial medical maintain positioned on its section 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 system, often called Cellectra. As of now, the section 3 maintain stays in impact.
Moreover, Inovio hasn’t had any of its clinically developed therapies accepted by the FDA in 4 a long time. The observe document right here speaks loud and clear: Keep away from this inventory.
3. Riot Blockchain
There are lots of methods to put money into Bitcoin (CRYPTO:BTC), the world’s largest cryptocurrency. Absolutely the worst manner is to purchase right into a cryptocurrency miner like Riot Blockchain (NASDAQ:RIOT).
Cryptocurrency miners are individuals or companies that use high-powered computer systems to unravel advanced mathematical equations, thereby validating teams of transactions (often called 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 in the present day’s costs. For younger traders, Riot Blockchain is seen as a fast and simple strategy to play Bitcoin’s ascent.
Nonetheless, Riot Blockchain is dealing with a number of points that makes its present valuation unsustainable. As an example, the crypto mining area 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 tools and ongoing prices to keep up it. As an alternative of innovation driving progress, shareholders are fully on the mercy of the value 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
The third most-held inventory on your complete Robinhood platform, movie show chain AMC Leisure (NYSE:AMC), is completely an organization that long-term traders ought to keep away from.
AMC’s skyrocketing share worth because the yr started is the results of the corporate elevating sufficient capital to stave off chapter, in addition to the Reddit group piling right into a penny inventory with excessive ranges of quick curiosity. There’s additionally optimism that the reopening of the U.S. economic system in key states will result in a rush of customers again to film theaters.
The priority is that there is no 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 current a menace to the normal movie show working mannequin. With AT&T‘s WarnerMedia set to launch its new films on HBO Max on the similar time they’re going to hit theaters in 2021, the long-term outlook for movie show operators like AMC is squarely in focus.
5. Sundial Growers
One notch beneath AMC Leisure at No. 4 on the Robinhood leaderboard is Canadian marijuana inventory 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 will need something to do with.
Whereas among the bullishness surrounding Sundial has to do with the opportunity of the U.S. legalizing hashish below the Biden administration, most of Sundial’s upside in February was the results of the WSB group 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 greater than 1.1 billion shares in 5 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 determination 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 could disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one in all our personal — helps us all assume critically about investing and make selections that assist us grow to be smarter, happier, and richer.