Author: Trevor Jennewine

HOOD – My Top Robinhood Stock to Buy Right Now

Demographics released about investors who use the Robinhood trading platform show that they tend to be younger, which suggests they have several decades before reaching retirement. That can have some influence on the stocks they decide to favor as investments.

And while the meme stock craze has dazzled some retail traders (including some Robinhood users) with the idea of instant riches, a long-term investment strategy is more likely to be rewarding for your average retail investor. That too can be influential in deciding the best stocks to pick for a portfolio.

Taking all this together, popular Robinhood stock Tesla (NASDAQ:TSLA) looks like it could be a smart investment, especially for younger investors. Here’s why.

Investor reviewing financial charts.

Image source: Getty Images.

Tesla’s present

The future of automobiles is undeniably on a path toward electric. And Tesla, a company that didn’t exist two decades ago, is the clear front-runner in the emerging electric vehicle (EV) industry. CEO Elon Musk’s focus on manufacturing efficiency is paying off: Tesla posted an industry-leading operating margin of 6.3% in 2020 while capturing an industry-best 16% of the EV market.

I believe the company can maintain that momentum. Unlike most rivals, Tesla was designed from the ground up for EVs, meaning it doesn’t have to overhaul factories intended for internal combustion engines. By comparison, General Motors (NYSE:GM), which plans to be all-electric by 2035, has 122 factories across the U.S., and only a few build EVs. That means the company will need to invest billions to retool existing infrastructure.

In short, Tesla has a considerable cost advantage. But that’s just the tip of the iceberg. In 2017, the company started making its 2170 battery cell. At the time, Musk called it the “highest energy-density cell in the world and also the cheapest.” Current estimates put Tesla’s cost at $142 per kilowatt-hour (kWh), 16% lower than those of its next closest competitor, which happens to be (you guessed it) General Motors.

And last September, Tesla delivered another blow to legacy automakers when it unveiled a new battery cell, the 4680. This innovation will cut costs by another 56%, boost the range by 54%, and reduce capital expenditure by 69%, according to management.

But there’s still one more piece to the puzzle.

Tesla is more than an automaker; it’s an artificial intelligence (AI) company. Today, it has over 1 million autopilot-equipped EVs on the road, all of which feed data to the AI models that power its self-driving software. Moreover, the company’s in-car supercomputer is estimated to be some six years ahead of its rivals’. In short, Tesla has more data and better tech, both of which give the company an edge.

Putting all the pieces together, Musk believes the company will release a fully autonomous $25,000 EV in the next three years. No other automaker is anywhere close to that.

Tesla Roadster parked in front of a house at twilight.

Image source: Tesla

Tesla’s future

Now the story gets interesting. Once Tesla has a self-driving EV, the company plans to launch an autonomous ride-hailing network. In fact, management at investment firm ARK Invest said it believes there is a 50% chance that Tesla will accomplish this by 2025. If that happens, ARK puts the market opportunity at $1.2 trillion by 2030. And given its clear advantage, Tesla is well-positioned to take the lion’s share of that sum.

After that, the story turns into science fiction. Morgan Stanley analyst Adam Jonas recently made a bold prediction: Tesla will launch a flying-car business by 2050. That’s right: a flying car business. And by that time, Jonas believes Tesla’s addressable market will reach $9 trillion. Of course, this is pure speculation right now. But Tesla is clearly an innovative company, and I wouldn’t be surprised to see its stylized “T” on a flying car in three decades.

Is Tesla a sure thing? Of course not. Nothing is guaranteed when it comes to picking stocks. And Tesla currently trades at an absurd valuation compared to its peers. But if you’re a young investor with decades before retirement, I think adding a few shares of Tesla to your portfolio makes a lot of sense.

A word of caution

On Aug. 16, the National Highway Traffic Safety Administration announced an investigation of Tesla’s autopilot system. Specifically, the agency is concerned by several incidents in which Teslas (using autopilot or cruise control) have collided with emergency vehicles.

While this certainly isn’t good news, I don’t think long-term investors should be overly concerned. Tesla’s autopilot and full self-driving software are still in development, but eventually, these systems could be safer than human drivers. In fact, Elon Musk made the following comment during the most recent earnings call: “Autonomy will become so safe that it will be unsafe to manually operate the car, relatively speaking.”

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

NET – This Top Tech Stock Could Make You Richer

Digital transformation is a hot topic on Wall Street. This broad term encompasses everything from the digitization of manual or paper-based processes, to the modernization of outdated technologies. For example, enterprises are digitizing things like commerce, communications, and customer engagement.

More to the point, Cloudflare (NYSE:NET) provides the infrastructure that powers these trends. Here are three reasons this tech stock could help you build long-term wealth.

Person pressing digital dollar sign, overlaid with upward trending bar chart.

Image source: Getty Images.

1. Big market opportunity

Cloudflare’s mission is to build a better internet. Its global platform spans 200 cities across 100 countries, creating a network with 90 terabits per second (Tbps) of capacity. This architecture puts Cloudflare’s servers within 100 milliseconds of 99% of internet users worldwide. In short, this helps clients accelerate the performance and security of critical applications, websites, and workloads, while eliminating the need for costly on-site hardware.

For instance, Cloudflare Teams is a zero-trust security solution that helps clients protect internal resources. Cloudflare Pages is a tool that allows enterprises to build and deploy fast, secure websites. And Cloudflare Workers is a computing platform that enables developers to write code directly on the Cloudflare network.

In practice, these products address a range of use cases across virtually every industry. For instance, Cloudflare supports remote work by enabling employees to securely connect to corporate networks from any device or location. The company also helps its clients create a fast digital experience for their own customers, whether that’s as simple as a responsive website or as complex as an AI-powered application.

To that end, management puts Cloudflare’s market opportunity at $100 billion by 2024.

A person cheering in front of a laptop computer.

Image source: Getty Images.

2. Competitive advantage

Cloudflare faces tough competition from other content delivery networks like Fastly and Akamai, as well as public cloud providers like Amazon and Microsoft. Even so, Cloudflare has continued to grow rapidly, due in large part to two competitive advantages.

First, its platform is cloud agnostic, meaning Cloudflare is not biased toward any particular public cloud. In fact, its network supports a multi-cloud strategy, allowing clients to avoid vendor lock-in and work with the providers of their choosing. Specifically, Cloudflare routes traffic through the internet in the most efficient way possible, meaning clients can inexpensively manage and move data between multiple public clouds from a single platform.

Second, in order to ensure performance and reliability, Cloudflare has built a network with massive capacity. To utilize idle bandwidth, the company offers a free tier, meaning potential customers can try products before they buy them. Of course, this helps Cloudflare win new clients, but it has also resulted in massive scale.

In fact, Cloudflare powers 17.4% of the internet today. By comparison, Fastly and Amazon power 1.3% and 1.2%, respectively. This makes Cloudflare a valuable partner to internet service providers (ISPs). These ISPs allow Cloudflare to store hardware within their data centers, which results in reduced bandwidth and co-location expense. Put another way, Cloudflare’s scale creates cost advantages, which means the company can aggressively invest in its business.

3. Strong financial performance

In recent years, Cloudflare has benefited from strong demand as digital transformation has become a bigger priority for many enterprises. In fact, since going public in 2019, the company’s net retention rate has remained at or above 115%, meaning the average customer has spent at least 15% more each year.

Over the same period, Cloudflare has also grown its customer base quickly, and that dynamic — more customers compounded by increased spend per customer — has translated into strong top-line growth.

Metric

2019

Q2 2021 (TTM)

CAGR

Customers

82,882

126,735

33%

Revenue

$287.0 million

$530.6 million

51%

Data sources: Cloudflare SEC filings, Ycharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Also noteworthy, while Cloudflare is losing money on a GAAP basis, the company pumped out $24 million in cash from operations over the last 12 months, meaning its business is headed in the right direction. And during the recent earnings call, CEO Matthew Prince said he expects to reach breakeven by Q1 2022.

However, Prince also emphasized Cloudflare’s commitment to long-term growth, meaning any excess cash will be reinvested into the business. So, investors shouldn’t expect GAAP profitability in the near term.

Here’s the big picture: Cloudflare has a massive market opportunity, a strong competitive position, and its platform is clearly resonating with clients. Moreover, management appears to be focused on long-term success rather than short-term gains. That’s why I think this tech stock could double (or more) in the next five years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

SNOW – My Top Warren Buffet Stock to Buy Right Now

In 1942, Warren Buffett bought his first stock when he was 11 years old, adding three shares of an oil company called Cities Service to his portfolio. That means he’s been investing longer than most people have been alive, and since making that first purchase, Buffett has earned a reputation as one of the greatest stock pickers of all time.

With that in mind, he added $735 million in Snowflake (NYSE:SNOW) stock to Berkshire Hathaway‘s portfolio last year. This move took many investors by surprise as Buffett has historically shied away from young public companies (Snowflake IPO’d in Sept. 2020). But so far, the decision has paid off as Berkshire’s stake in Snowflake is now worth over $1.4 billion.

But beyond Buffett’s stamp of approval, there are plenty of reasons to like this stock.

Group of investors discussing financial strategies.

Image source: Getty Images.

Snowflake simplifies big data

During the last four years, the average enterprise has seen a 70% jump in the number of applications it uses. This situation is further complicated by the increasing popularity of cloud computing, with the end result being that many organizations generate troves of data across multiple different systems every day.

Snowflake helps these companies integrate, analyze, and unlock value in that data. This allows clients to make more accurate decisions, build data-driven applications, and share data inside and outside of their organization. Moreover, because Snowflake’s platform is delivered from the cloud, clients don’t have to manage costly and complex infrastructure on site. This accelerates the time to value.

The company also provides tools for governance and security such as encryption, allowing its clients to control access to data according to corporate and regulatory requirements. This makes it possible to share information and collaborate with partners, customers, and suppliers — all without moving the underlying data.

Currently, management puts the company’s market opportunity at $90 billion, but that figure is expected to rise in the years ahead. Suffice it to say, Snowflake has plenty of room to grow its business.

Hands typing on keyboard, overlaid with interconnected data points.

Image source: Getty Images.

Strong financial performance

As this digital transformation has made data more abundant than ever, creating demand for effective data management and analytics solutions, Snowflake’s business has grown quickly. Customers across various industries have adopted its data cloud platform.

For instance, financial firms like BlackRock use Snowflake to aggregate and analyze investment portfolios. Restaurants like Chipotle rely on the data cloud to make informed supply chain decisions. And enterprise software tech giants like Adobe use Snowflake to build data-driven marketing applications.

Putting the pieces together, Snowflake has delivered impressive growth in recent years with its customer count quintupling in just two years’ time. Of the more than 4,500 customers reported as of the fiscal first quarter, 104 of them generated over $1 million of revenue for Snowflake over the past year. This high-value customer base more than doubled year over year.

Metric

2019

Q1 2022

Customers

948

4,532

Revenue

$96.7 million

$712.1 million*

Data source: Snowflake SEC filings. *For the trailing 12 months ending with Q1 2022.

Snowflake’s net revenue retention rate in fiscal 2020 and 2021 was 169% and 168%, respectively. Put another way, the average customer boosted their spending with the company over 60% in each of those years, and management expects that trend to continue through 2022.

That’s good for two reasons. First and most obvious, Snowflake’s sales rise when its customers spend more. Second, these high retention rates evidence the stickiness of the Snowflake data cloud — in other words, once a client starts using the platform, they derive so much value from it that they’re unlikely to seek out competing services.

The bottom line

Here’s the big picture: More enterprises are adopting digital solutions and putting data at the center of their operations. To help with this transformation, Snowflake’s platform addresses a range of use cases, from data governance and security to storage and analytics, all of which simplify big data.

More importantly, the company creates tremendous value for its customers, as evidenced by the impressive growth of its customer base and their retention rates. That advantage should help Snowflake capitalize on its $90 billion (and growing) market opportunity in the years ahead, and that’s why you should consider adding this Warren Buffett stock to your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

ROKU – This Top Growth Stock Could Supercharge Your Portfolio

Roku (NASDAQ:ROKU) has been a great investment since its initial public offering (IPO) in 2017. The stock is up a whopping 2,750% from its IPO price, while the broader S&P 500 has gained just 73% over the same period.

So what’s fueling that outperformance? More consumers are tuning into streaming services on connected TVs, allowing Roku to establish itself as a key player in the digital ad space. Even so, the shift away from traditional TV is far from complete, and Roku retains strong prospects for future growth.

Young adults enjoying popcorn while watching streaming content.

Image source: Getty Images.

The leading streaming platform

Roku is the most popular CTV operating system in North America. As of late 2020, the company had 38% and 31% market share in the United States and Canada, respectively. Its platform allows viewers to access premium and ad-supported streaming services, including its own ad-supported content on The Roku Channel.

This business model creates a flywheel effect. As Roku adds more content, viewers spend more time engaged with the platform. That, in turn, should bring more marketers and ad dollars to Roku, increasing its ability to invest in new content and engage viewers.

The company’s ad tech platform, Roku OneView, is a critical part of that equation. OneView allows marketers to target ads and measure performance in a way that’s not possible with traditional TV. Moreover, Roku’s status as the top streaming platform means it has more first-party data than its rivals, which should allow marketers to target ads more effectively.

That’s why Roku dominates the CTV ad market. In the fourth quarter of 2020, 46% of all programmatic CTV ad spend went to Roku devices, while second-place Samsung captured just 11%. As a result, Roku’s gross profit surged 63% last year. That strength carried into the first quarter of 2021 — ad impressions delivered on Roku’s platform more than tripled, and gross profit surged 132%, marking a significant acceleration.

Taking a step back, Roku’s solid financial performance is nothing new. The company has consistently posted strong growth in recent years with revenue climbing from $513 million in 2017 to $1.78 billion last year. And in that same period, gross margin expanded from 39.0% to 45.4%, while free cash flow increased 135% to $66 million.

A big market opportunity

Roku should benefit from several tailwinds in the coming years. First, research from Parks Associates suggests 43% of U.S. broadband households that pay for traditional TV will cut the cord in the next 12 months. This should spark a shift in ad dollars as brands continue to follow consumers to streaming platforms.

Second, Roku is more aggressively pursuing exclusive content, which should accelerate the flywheel that powers its business. In March, CYPHER debuted on The Roku Channel, and it became the top-ranked show during its first weekend. Then in May, 30 “Roku Originals” launched on The Roku Channel, driving record-breaking engagement in the two weeks that followed.

Finally, the company is expanding globally. In 2020, Roku brought its first streaming device and smart TV to Brazil, doubled the number of Roku TV brands in Mexico, and launched The Roku Channel in the U.K.. Each of these moves should help it capture more TV ad spend — a market that hit $278 billion worldwide last year, according to IMARC Group.

That’s why I own this growth stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

TSLA – 2 Things Tesla Shareholders Need to Know

Tesla (NASDAQ:TSLA) has seen a flurry of press coverage in recent months, much of which has been focused on its troubles in China. But there’s another story evolving as well, and this one deals with the company’s pursuit of self-driving cars.

Both of these stories could have short- and long-term impacts on the stock. Here are two things investors need to know about Tesla.

1. Trouble in China

In early 2019, Tesla started construction of Gigafactory Shanghai, making it the first foreign automaker to operate a wholly owned plant in China — the world’s largest electric vehicle (EV) market in terms of cars on the road.

Tesla Model Y parked along a river.

Image source: Tesla.

For years things went very well. Tesla delivered its first China-made Model 3 in late 2019. And despite the coronavirus pandemic, it ramped Model 3 production and started making the Model Y in Shanghai last year. But the trouble arose in April 2021, when an angry customer’s protest about quality issues and the safety of Tesla vehicles at the Auto Shanghai expo went viral.

This sparked a consumer backlash in China, as people took to social media, voicing anger over Tesla’s perceived arrogance and quality problems. Shortly afterward, the company issued a public apology, promising to create a customer-satisfaction unit in the region.

Then Tesla hit another speed bump in June. After an investigation, a Chinese regulator said the cruise-control system in Tesla vehicles could be inadvertently activated, causing unexpected acceleration. To fix the issue — which regulators termed a recall — affected customers had to upgrade the cruise control software remotely (i.e. without a trip to the dealership). In total, over 285,000 vehicles were affected.

That’s bad news for Tesla, especially after the recent consumer backlash. But there’s a silver lining here: After dipping in April, demand for Tesla vehicles has rebounded in China, as evidenced by growing unit sales on a month-over-month basis.

Unit Sales in China

March 2021

April 2021

May 2021

June 2021

Monthly change

94%

(67%)

88%

28%

Data source: China Passenger Car Association.

China is currently Tesla’s second-biggest market behind the U.S., but CEO Elon Musk believes it will eventually be the largest. That makes sense given that the country currently represents nearly half of the EV market worldwide.

Between January and May 2021, Tesla captured 12% of the EV market in China, ranking the company third behind SAIC-GM-Wuling Automobile and BYD Auto. Investors should keep an eye on these figures — if Tesla is to be a long-term global leader, it needs to be a major player in China.

2. Full self-driving software

Since early 2019, all Tesla vehicles have come equipped with hardware 3.0 — the third-generation supercomputer that powers its autopilot and full self-driving (FSD) software. Notably, the computer chip used in this hardware is 1,000% more powerful than the previous generation, and Musk has called it “[objectively] the best chip in the world.”

Of course, Musk has never shied away from bold claims. In fact, during the company’s battery day event last September, he told investors: “About three years from now, we’re confident we can make a very compelling $25,000 electric vehicle that’s also fully autonomous.”

In early July, Tesla moved a little closer to that goal when it released version 9.0 of its FSD software to beta testers. In April, Musk teased the launch on Twitter, saying: “FSD Beta V9.0 will blow your mind.” Musk also said the software is achieving higher safety performance with pure vision rather than vision plus radar, referencing the company’s decision to rely solely on cameras to provide the input data used by its self-driving cars.

Tesla Roadster parked in front of a house at twilight.

Image source: Tesla.

That’s what makes this debut so momentous — FSD 9.0 is the first version of the software that no longer uses input from radar sensors. This strategy stands in stark contrast to that of rivals like General Motor‘s Cruise, Intel‘s Mobileye, and Alphabet‘s Waymo, all of which rely on radar and lidar to build maps with centimeter-level accuracy.

However, Tesla believes this map-based approach is flawed, citing its lack of scalability. For instance, self-driving cars built on map-based technology would only work safely on roads that have been extensively mapped out. And even then, the slightest change (e.g. a piece of debris) could wreak havoc. By comparison, if Tesla’s vision-based approach works, it would theoretically be instantly scalable.

Investors should pay close attention to how well (or poorly) FSD version 9.0 is received. This could be a turning point in Tesla’s pursuit of autonomy — one way or the other.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

ROKU – Forget AMC: This Growth Stock Is a Better Buy

AMC Entertainment Holdings (NYSE:AMC) has crushed the market this year, with the stock surging 2,080% since January. However, the Reddit-fueled enthusiasm surrounding AMC has also made it a very dangerous investment.

Over the past six months, retail investors have orchestrated campaigns across social media, urging people to buy the stock. They’ve done so in the hopes of sparking a short squeeze, an event that occurs when rising prices force short sellers to cover their position by purchasing the stock, creating a snowball effect that sends the stock price even higher.

Unfortunately, that type of short-term thinking is tantamount to gambling. There’s no guarantee it will work, and many retail investors are likely to get burned in the process. So, rather than waste money on meme stocks, investors should look for better ways to build long-term wealth. For example, Roku (NASDAQ:ROKU) looks like a better buy. Here’s why.

Movie theater marquee displaying the word: closed.

Image source: Getty Images.

AMC Entertainment Holdings

Before the pandemic, the movie theater industry wasn’t doing so well. Between 2010 and 2019, box office revenue grew at less than 1% per year. But things got much worse when the coronavirus forced theaters to close.

After shutting the doors, AMC was left with over $4.7 billion in long-term debt and $5.0 billion in lease liabilities, but virtually no income. In fact, attendance and revenue plunged 79% and 77%, respectively, last year. And despite the reopening of many theaters in the first quarter, attendance and revenue continued to fall, dropping 89% and 84%, respectively.

Even worse, AMC was forced to issue more debt and sell new shares throughout the pandemic. And while those kept the company in business, its financial situation is now dire. Long-term debt has ballooned to $5.4 billion and the company’s balance sheet is insolvent, meaning it has more liabilities than assets.

To that point, the company recently raised $1.2 billion in equity during the second quarter; and while that decision makes sense, as it allows AMC to convert its soaring share price into currency, the move also further dilutes shareholders. Notably, since the end of 2019, AMC’s outstanding share count has surged 380%.   Moreover, even after this recent at-the-market offering, AMC is still in trouble.

In fact, in order to meet its minimum liquidity requirements (i.e. pay rent and interest), attendance must reach 85% of pre-pandemic levels by Q4 of 2021. If that doesn’t happen, AMC would have to restructure its liabilities, either by liquidating assets or filing for bankruptcy..  And in either case, shareholders would “likely suffer a total loss of their investment,” according to management. Moreover, AMC’s credit rating — currently at Caa3 in Moody’s rating system, indicating substantial risk — would be further damaged for years. That’s why I wouldn’t buy this stock with free money.

Roku TV in a nicely furnished living room.

Image source: Roku.

Roku

Unlike AMC, Roku appears to be on the right side of history. The company is capitalizing on the rise of connected TV (CTV) and streaming entertainment, which have slowly taken share from traditional options like cable and satellite. Specifically, Roku allows users to access and manage all of their streaming services (subscription and ad-supported) from one location.

In large part, Roku monetizes its business through digital ad sales. That’s why it acquired ad tech specialist dataxu in 2019. This move allowed Roku to combine its own first-party data with dataxu’s attribution tools, creating Roku OneView — an ad tech platform that helps marketers plan and launch data-driven campaigns across mobile, desktop, CTV, and linear TV, reaching four out of five homes in the U.S.

But Roku didn’t stop there. The company has also invested aggressively in its own ad-supported streaming service, The Roku Channel. For example, it acquired programming from Quibi in January, and added 30 original series to The Roku Channel in May.

So far, this ad-powered growth strategy is paying off. During the first quarter of 2021, ad impressions delivered through the OneView platform nearly tripled. And the company reported record streaming on The Roku Channel in early June, following the launch of its original content.

What’s more, Roku’s investments have also translated into a strong financial performance.

Metric

Q1 2018 (TTM)

Q1 2021 (TTM)

CAGR

Active accounts

20.8 million

53.6 million

37%

Revenue

$549.6 million

$2.0 billion

55%

Data source: Roku SEC filings. TTM = trailing 12 months. CAGR = compound annual growth rate.

Looking ahead, Roku should benefit from several catalysts. First and foremost, more consumers are cutting the cord each year, shifting away from traditional linear TV. As that trend plays out, Roku should continue to see strong growth for active accounts. That, in turn, should bring more advertisers to its platform, driving revenue higher.

Likewise, Roku’s pursuit of original programming could supercharge this dynamic. As it adds new entertainment options to The Roku Channel, more viewers should stream ad-supported content. If that happens, it would likely drive an even greater uptick in ad spend on the platform. That’s why investors should consider adding this growth stock to their portfolios.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.