Apple has been dethroned as the most held Robinhood stock – here’s what replaced it

Last year, retail investors made their presence on Wall Street known like never before. Online trading platforms such as Robin Hood (HOOD 9.02%), which have been particularly popular with the retail crowd, rolled out the red carpet for everyday investors to put their money to work on Wall Street. When that happened, retail rocked the boat and sent a number of heavily short-selling shares up.

Robinhood offers commission-free trading on major US exchanges, allows its clients to make fractional purchases, and gives away free shares (at random) to new members.

A person holding a smartphone showing a volatile stock chart with buy and sell buttons above it.

Image source: Getty Images.

Apple has been Robinhood’s main investor holding for some time

While Robinhood’s retail loyalists have proven to love chasing momentum games, penny stocks, and heavily short-selling companies, there has been one consistency: the tech boss. Apple (AAPL 0.02%) it was regularly the most held stock on the platform.

There is no shortage of reasons why investors love Apple. For starters, it’s easily one of the most recognized brands in the world. In fact, a report from Brand Finance pointed to Apple as the most valuable brand in the world in recent years. The report cited Apple’s product diversification, its push for subscriptions, and “strengthening its privacy and environmental credentials” as reasons it took the top spot once again.

Apple’s innovation was also a key factor in its share price outperformance. For example, Apple’s introduction of a 5G-compatible iPhone during the fourth quarter of 2020 boosted its share of the US smartphone market. Since the release of the 5G iPhones, Apple’s share of home smartphones has dropped to below 50% in just one quarter.

But this innovation can be seen beyond just the company’s successful product line. CEO Tim Cook is overseeing Apple’s ongoing transition into a service-oriented company. By promoting subscription services, Apple has the opportunity to further strengthen its already impressive brand loyalty, as well as increase its long-term operating margins. Perhaps most importantly, as subscription sales grow at a greater percentage of net revenue, the fluctuations in sales often seen with product replacement cycles are expected to decrease.

Apple’s return on equity program also gives investors more than enough reasons to buy. Since starting a stock buyback program in 2013, Apple has repurchased common stock worth approximately $ 520 billion. To start, it analyzes more than $ 14 billion annually in annual dividends to its shareholders.

Move over, Apple! There is a new number 1 in town

However, change is a key part of Wall Street; and there has been a big change to the top of the Robinhood chart (the list of the 100 most held titles on the platform). As of the beginning of August 2022, electric vehicle (EV) manufacturer. Tesla (TSLA 1.10%) had dethroned Apple as the most held title on Robinhood.

Before delving into the fundamentals behind retail investor love for Tesla, I would be remiss if I didn’t indicate that its shares soared by more than 1,800% over the three-year period and more than 17,100% for the final decade. Robinhood investors love momentum stocks, and Tesla has certainly shown that it fits the definition.

Another reason investors are excited about Tesla is the company’s success in building itself from the ground up. While other automakers have tried a bottom-up approach, Tesla was the first in over five decades to reach and support mass production. Even with the semiconductor chip shortage and component challenges related to the COVID-19 pandemic, Tesla appears to be able to surpass the 1 million vehicle production threshold in 2022.

Tesla has also, decisively, pushed into the profit column. In each of the past five quarters, Tesla generated profits of between $ 1.14 billion and $ 3.32 billion under Generally Accepted Accounting Principles (GAAP). This appears to have further allayed concerns about the company’s long-term profitability.

And let’s face it: retail investors are big fans of CEO Elon Musk. The outspoken CEO has promised that a number of innovative technologies are on the way, including wider comprehensive autonomous driving, as well as Tesla Bot, a robotic humanoid currently under development by the company. Musk also owns tokens from the popular cryptocurrency Dogecoin and began accepting DOGE coins for a small handful of Tesla merchandise.

A Tesla Model S plugged into a wall socket for charging.

A Tesla Model S in charge. Image source: Tesla.

Robinhood investors could be headed for a slump

When viewed with a wide angle lens, investors can be excited about the electric vehicle industry and its long growth path. But when that goal focuses solely on Tesla and its $ 942 billion market cap, a series of red flags emerge.

For starters, Tesla’s valuation has exploded higher on the premise that its competitive advantages are sustainable. While it has a notable advantage when it comes to battery capacity, range and power, we are already seeing a number of new and legacy automakers catching up on range.

For instance, NioThe recently introduced sedans, the ET7 and ET5, have battery upgrades that buyers can purchase that increase their range to 621 miles, according to the company. It’s far better than Tesla’s affordable Model 3 and premium Model S. In other words, the deep pockets of legacy auto companies and the innovative ability of new auto companies like Nio could quickly dent Tesla’s “competitive edge.”

While Elon Musk is a big reason retail investors bought Tesla, it could easily be the main reason investors avoid him like the plague. This is because Musk has a habit of over-promising and under-delivering projects. Remember the fully electric Conceptual Tesla Semi that was unveiled in late 2017? The first production model is not expected until 2023. Remember when Elon Musk promised to have 1 million robot axes without steering wheels or pedals on the roads by the end of 2020? That promise has been pushed back to 2024. That’s not to say Musk won’t ultimately deliver on what he set out to achieve. Rather, it demonstrates that Tesla’s CEO is rarely able to deliver on his promises in a timely manner.

Tesla’s income statements are yet another reason for pause. Although the automotive gross margin improved until the last quarter, Tesla still relied on the sale of regulatory credits to other automakers to increase its profits. With the continuing shortage of semiconductor chips, rising inflation, and China’s provincial COVID-19 blockade negatively impacting the Shanghai gigafactory, it’s unclear how Tesla will sustain its automotive gross margin going forward.

In an industry where single-digit price-to-earnings (P / E) ratios for a forward year are the norm, Tesla stands out as a sore thumb with a forward P / E ratio of 57.

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