Weekly Wrap: Robinhood's IPO, Cheap Small-Cap Picks, and Funds With Power
We recap the week on Morningstar.com and note the most popular stocks, funds, and exchange-traded funds.
|Editor's note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.|
Robinhood made its stock market debut this week. The terribly popular online brokerage allowed users of its app to participate in its IPO, which is pretty novel--and seemingly in line with the company’s mission to “democratize investing.”
The idea of democratizing investing is noble--and the list of those who’ve done so is impressive. For instance, the late Jack Bogle did his part to democratize investing by launching The Vanguard Group, which focused on low costs and indexed products for retail investors. Charles Schwab democratized investing, too, by offering inexpensive, no-frills trading services to individual investors. And Morningstar founder Joe Mansueto wanted to democratize investing in his own way back in 1984--by making in-depth, independent information about mutual funds accessible to individual investors.
There’s certainly room to make investing more accessible to more people. In a column earlier this week, my colleague John Rekenthaler discussed how a rising stock market has essentially provided high-wage earners (who are more likely to invest than lower-wage earners) with a second income--concluding that the wage gap is only one reason why we’re experiencing a tremendous wealth gap in the United States. Against that backdrop, Robinhood’s free trades and no investment minimums should be welcome, because they put investing within reach for pretty much everyone.
But from my perspective, making investing accessible to all is just part of the challenge--providing investors with the information they need to successfully accumulate wealth over time is another.
Earlier this year, portfolio strategist Amy Arnott examined some of Robinhood’s most widely held stocks and found the collection to be a pretty volatile bunch, tiny in market cap, and of lower quality with less-than-stellar balance sheets. Not exactly the types of core investments most would advise new investors to start their wealth-building journey with. As respected author and advisor William Bernstein noted in a recent episode of the Long View podcast, those who’ve enjoyed gains by trading meme stocks and cryptocurrencies via easy-to-use platforms like Robinhood believe that wealth is “effortless.” Those of us with more experience know better. It takes time, discipline, and a decent savings rate.
Is it fair to expect Robinhood to better educate its users about the dangers of gamifying investing and to instead advocate for a less-risky way of building wealth? I guess we can add these questions to the list of legal and regulatory questions around Robinhood. But at the end of the day, democratizing investing should result in more people accumulating wealth. Only time will tell whether Robinhood contributes to that goal in a meaningful way.
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19 Elite Small-Caps on Sale
These wide- and narrow-moat small companies are undervalued according to our metrics.
The 411 on 2021 Required Minimum Distributions
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Robinhood Poised for What Could Be a Volatile IPO
Here’s what to know before the company goes public.
Must-Knows About Employee Stock Options
How to balance the tax and investment considerations.
Do Your Holdings Pass the Decluttering Test?
Asking how well your holdings are doing their jobs is a starting point for trimming your portfolio.
What the Last Year Taught Us About Low-Volatility ETFs
Are they living up to expectations?
Finding Winners in the Hydrogen Hype
We focus on quality companies in an environment where investors are engaging in rank speculation.
What Policy Changes Could Mean for BioPharma
Firms may face headwinds in U.S. sales, but our fair value estimates haven't budged.
Cannabis' Federal Legal Status Is Not a Total Buzzkill
The industry still has significant growth potential.
Will Vaccine Transport Boost the Industrial Cold-Chain Opportunity?
The market is warm to the idea, but we don't see a meaningful long-term impact for companies in this space.
Stock Analyst Updates
Lockheed Martin Reports Solid Second Quarter
We are slightly decreasing our fair value estimate.
Improved Near-Term Outlook for Tesla
We're raising our fair value estimate to $570 per share from $550.
Visa Snaps Back in Fiscal Third Quarter
While strong year-over-year results were largely due to comparisons against the lowest point of the pandemic, we see some positive signs even after adjusting for this.
Q2 Another Feather in GE Bulls’ Caps; FVE Raised
We slightly bump up our fair value estimate to $15.90 from $15.70 in what we see as a solid quarter confirming our bullish view.
Apple Records New June Quarter Highs; FVE up to $124
We are raising our fair value estimate for narrow-moat Apple to $124 per share from $115 as we incorporate a stronger near-term outlook due to the current 5G iPhone cycle and ongoing work- and learning-from-home dynamics bolstering Mac and iPad segments.
Starbucks' Strong U.S. Results Outshine International
We anticipate raising our Starbucks fair value estimate to $109 from $107 prior, on operational improvements, an impressive ability to defray inflationary pressure, and sustained strength in consumer-packaged goods.
Alphabet's Q2 Beats Expectations; Raising FVE to $3,200
An impressive increase in search ad revenue was accompanied by continuing growth in YouTube advertising and subscription revenue, combined with Google gaining further traction in the cloud market. We continue to believe the stock is attractive.
Microsoft Shines; Lifting FVE to $325
Quarterly strength along with upside to guidance and the annual roll of our DCF model drive our fair value estimate to $325 from $278 per share. We continue to see upside to this high-quality name from here.
AMD Raises Full-Year Revenue Growth Guidance to 60%
We’re raising our fair value estimate for narrow-moat Advanced Micro Devices to $109 per share (up from $101) on a probability-weighted basis as we await AMD’s acquisition of Xilinx.
We Lower 3M's FVE Because of Expected U.S. Tax Reform
Wide-moat 3M had solid second-quarter results. However, we lower our fair value estimate to $195 per share from $199 due entirely to our probability-adjusted U.S corporate tax rate of 26% beginning in 2022.
McDonald's Supersized Earnings Impress
We're raising our fair value estimate to $234 per share for the wide-moat fast food company.
Pfizer Posts Strong Q2, Led by COVID-19 Vaccine Sales
We expect to slightly raise Pfizer’s fair value estimate based on the strong growth, but we view the stock as largely fairly valued.
As Fed Holds Rates Steady, Tapering Debate Looms Large
It’s reasonable to expect tapering to start toward the end of 2021 or beginning of 2022.
Facebook Posted Impressive Q2 Results; FVE up to $407
We are increasing our fair value estimate of Facebook to $407 from $390. The firm reported better than expected second quarter top- and bottom-line results driven by user growth and growing monetization.
Boeing Posts Profit in Second Quarter; FVE $260
We are raising our fair value estimate for Boeing to $260 per share from $257 as we raise our near-term targets for the defense business this year and we decrease our near-term working capital estimates.
Ford Fights Through Wholesale Drops To Post Q2 Profit
We are raising our fair value estimate to $20 from $17 on higher revenue growth and improved 2021 profits, a 70-basis-point increase in our midcycle EBIT margin to 5%, time value of money, and a lower cost of debt.
ServiceNow Raises Guidance; FVE up to $630
Wide-moat ServiceNow delivered strong results. After adjusting our model for results and guidance, we are raising our fair value estimate to $630, from $587.
Volume Bounces Back for AB InBev
However, commodity inflation clouds loom in the second half.
Merck Reports Solid Q2, Buoyed by Hospital Drug Sales
We continue to view the stock as undervalued with the market not appreciating Merck’s strong immuno-oncology position and developing pipeline, key areas that reinforce our wide moat rating.
Market Gains Lift T. Rowe Price's AUM to Record
We expect to raise our fair value estimate to $202 per share from $193 to account for continued improvements in the company's assets under management.
Tesla Shares Rally on Infrastructure Bill
Our view for the company is unchanged and we maintain our $570 per share fair value estimate and narrow moat rating.
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Carl Richards: It Should Be OK to Relax Out Loud
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U.S. Sustainable Fund Assets Reach a New Milestone in 2021’s Second Quarter
Flows took a break for the summer after their first-quarter peak.
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Why the Government Should Learn Which Annuities Are Useful
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Speculative Trading Is Like Eating 'Nothing but Twinkies'
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