This has been a crazy year that the investment community won’t soon forget. In a roughly six-month stretch, the broad-based S&P 500 lost more than a third of its value and gained it all back. It was the quickest bear market decline in history, followed by the fastest rally back to new highs from a bear market low on record.
What’s been particularly interesting about the heightened volatility during the coronavirus disease 2019 (COVID-19) pandemic is how it’s brought millennial and novice investors out of the woodwork and into the stock market.
Online investing app Robinhood, which is best known for its commission-free trades, fractional-share investing, and gifts of free shares of stock to new users, has seen its member count soar by the millions this year. The average age of Robinhood’s millions of accountholders is just 31.
On the one hand, putting money to work in the stock market at a young age is fantastic. Since the broader market and high-quality businesses tend to increase in value over time, the potential to compound wealth is very much in young investors’ favor.
Then again, the Robinhood platform hasn’t done a very good job of giving millennials and novice investors the tools they’ll need to succeed over the long term. Instead, Robinhood investors are known for chasing penny stocks or generally awful companies.
If Robinhood investors want to be successful and build serious wealth, they’ll need to adjust their game plan in two ways. First, they need to think long-term to allow their investment thesis to play out. Second, they must seek out higher-quality businesses to invest in.
As long as they have a horizon-focused view, these are three perfect stocks for Robinhood investors to buy now.
With time as their ally, young investors should make growth stocks the mainstays of their portfolio. That’s why edge cloud platform services provider Fastly (NYSE:FSLY) is a company that can be bought hand over fist by millennial investors.
As you may recall, Fastly took a pounding recently after reducing its third-quarter sales guidance to a new range of $70 million to $71 million from a prior forecast of $73.5 million to $75.5 million. The company cut revenue because of weakness from the company’s top customer, TikTok, which President Trump has threatened to ban stateside. Apparently, this threat slowed TikTok usage in the recently ended quarter.
It’s unfortunate that a company that accounted for 12% of Fastly’s revenue in the first half of 2020 saw its data usage needs decline in the third quarter, but this is far from an end-of-days scenario. Fastly’s reduced guidance still implies 42% year-over-year sales growth at the midpoint. Furthermore, Fastly reported its fastest uptick in new client growth during the second quarter since its initial public offering. It’s safe to say that most of its clients are spending more money as content delivery demand rises. This should be a positive for Fastly’s gross margin.
Ultimately, the company’s sales revision could prove to be a blessing in disguise for long-term investors.
Another perfect stock that offers game-changing potential for Robinhood investors willing to hold over the long term is Square (NYSE:SQ). Although Square is pricey, it still offers exceptional upside from its two key growth drivers.
Square’s best-known growth segment is the company’s seller ecosystem, which provides point-of-sale devices, data analytics, and even loans to businesses. Square’s seller ecosystem has primarily been a growth driver for small businesses, but this merchant-fee-driven segment is now increasingly used by medium- and large-sized businesses. Square defines these businesses as having annualized gross payment volume of at least $125,000. In the first half of 2020, 52% of total GPV crossing Square’s network came from these medium or large businesses. If this trend continues, merchant-fee revenue could soar.
The rapid growth of peer-to-peer payment platform Cash App is even more exciting for Square. Between the end of 2017 and June 2020, Cash App’s monthly active user count more than quadrupled from 7 million to 30 million.
Cash App allows Square to grow in a variety of ways, as the company collects merchant fees with purchases, expedited service fees for bank transfers, and bitcoin exchange fees. By 2022, Cash App should be Square’s leading profit driver.
Robinhood investors would also be wise to consider buying into Singapore-based Sea Limited (NYSE:SE) for the long term.
You might have heard that Southeast Asia could offer superior growth in the decades to come. There are few standout companies highly focused on this developing region of the world. Sea Limited gives investors that focus, as well as sustainable high double-digit sales growth potential.
Sea’s gaming division generates the bulk of its revenue. The company’s mobile hit game, Free Fire, peaked with over 100 million global daily active users in the second quarter. Monthly paying users more than doubled on a year-over-year basis in July 2020.
But it’s not the company’s gaming arena that will draw investors in droves to its stock. Rather, it’s the company’s e-commerce platform Shopee, as well as its venture into digital financial services.
Online shopping platform Shopee has the potential to be what MercadoLibre has become to South America. Though losses are currently huge as Sea reinvests heavily in its e-commerce platform, the second quarter saw adjusted revenue for e-commerce nearly triple, with gross orders accelerating by 150%. This region has a burgeoning middle class that’s found comfort in ordering products online during the pandemic. Even in a post-pandemic world, the Shopee platform is here to stay and is expected to see serious growth.
Additionally, Sea noted that the number of paying mobile wallet customers surpassed 15 million in the second quarter.
It has many ways to make money, which makes it a logical buy for Robinhood investors.