A year for equities has brought investors of all sorts out of the woodwork. Although the ferocity of the decrease that is first-quarter a bit unnerving for all, it supplied one heck of an opportunity for long-lasting investors to put their money to work in top-quality businesses.
The same can’t be said for short-term traders, or those chasing whatever happens to be this week’s or thirty days’s hot stock on Wall Street. A look that is quick the investment activity by members of online investing app Robinhood verifies that some awful businesses are being bought.
Robinhood has been especially successful at courting young and/or novice investors; the age that is average of people is 31. Aren’t getting me wrong — it is fantastic to see people that are young early and placing their money to get results in the stock market. However, Robinhood is neglecting to supply the tools or education essential for these newbies to succeed. The company’s leaderboard (i.e., the 100 most-held stocks on the platform) is a mishmash of bad organizations as a result.
Three of these top Robinhood stocks may go bankrupt in the couple that is next of.
As of today, fuel cellular vehicle that is electricEV) manufacturer Nikola (NASDAQ:NKLA) posseses an abundance of cash. It finished its first quarter as a company that is publicfollowing its reverse merger) with $698.4 million in money and cash equivalents, and appears become closing in on a $2 billion equity investment from industry titan General Motors (NYSE:GM) as of Tuesday, Sept. 29. Year this deal would undoubtedly give Nikola plenty of financial freedom to execute its vision of mass-producing the Badger EV fuel cell truck by as quickly as next.
But just because Nikola has plenty of cash now doesn’t mean the company’s vision shall translate to success. Nikola has been the target of a report that is short-side Hindenburg Research, which presented multiple allegations of fraud up against the company and its particular founder, Trevor Milton. The Securities and Exchange Commission has since exposed a probe into Hindenburg’s allegations.
Though investors have actually learned to take these reports that are short-side a grain of salt (the companies issuing these reports usually have vested short interests in the businesses they accuse of fraudulence), there’s a lot that merely doesn’t include up with Nikola. Founder Trevor Milton recently exited his role as Executive Chairman of the board via a tweet that is middle-of-the-night and he’s because been accused of sexual abuse in two separate instances.
In addition, Nikola intends to lean on General Motors to provide the fuel and battery cell technology which will be used in manufacturing the Badger. If Nikola’s technology can be as impressive as the ongoing company has suggested, it’s a bit odd that General Motors would be tasked with providing the battery supply.
Investors should expect growing problems from Nikola — which, in my view, may not survive throughout the run that is long the serious dark clouds overhanging the company linger.
Brendan Kennedy, the CEO of Canadian licensed cannabis producer Tilray (NASDAQ:TLRY), suggested in an interview earlier this with BNN Bloomberg he would not be amazed if another dozen cannabis stocks went bankrupt as funding for the industry dries up year. Regrettably, I think that his company might be one that fails to survive over the run that is very long.
In theory, Canada was allowed to be the blueprint of success for the rest of the world. It became the first country that is industrialized greenlight recreational marijuana in the modern era, and licensed producers like Tilray were expected to be clear and obvious winners. But nothing of this kind has happened. Instead, regulatory-based supply constraints have crushed any hope of a substantive increase in running margins.
Perhaps the most damning facet of the Canadian adult-use market is that licensed producers have experienced no option but to introduce value brands to go head-to-head with cheaper cannabis that is black-market. The normal attempting to sell price per gram of cannabis for Tilray and its peers has fallen like a stone as a outcome. This is sapping any opportunity these marijuana that is canadian had to push in to the green.
Another issue for Tilray is that its purchase that is pricey of Harvest hasn’t quite yielded the expected benefits. Manitoba Harvest is a hemp foods business that Tilray purchased to use of the company’s profitable distribution network that is retail. The plan would be to distribute cannabidiol (CBD) products throughout North America. However, CBD sales growth slowed to a crawl in the U.S. following the Food and Drug Administration’s decision year that is late final not approve CBD as a food or beverage additive.
With more than $435 million in outstanding convertible records and Tilray money that remains losing over fist, its survival is not guaranteed.
American Airlines Group
Finally, despite being one regarding the most-held that is top-10 on the complete platform, American Airlines Group (NASDAQ:AAL) probably won’t survive without looking for a reorganization through bankruptcy protection.
If there exists a side that is bright United states Airlines, it’s that the organization has been able to access capital during the steepest downturn in the economy in decades. The company surely could raise billions through convertible debt offerings and newly issued stock. American Airlines also qualified for a coronavirus disease 2019 (COVID-19) relief loan of $5.5 billion — but this is where the news that is good.
Fundamentally speaking, the airline industry looks like damaged products. It’s impossible to tell when people are likely to feel comfortable taking towards the skies again. That’s a big problem for an organization that’s piled on debt like no other airline stock, and that operates in a capital-intensive but industry that is low-margin.
As my Foolish that is airline-focused colleague Levine-Weinberg pointed out in 2018, United states Airlines retired commercial planes well before their usage period was up. The company buried itself in debt that minimized its financial freedom before COVID-19 hit by updating its fleet.
As of the absolute most quarter that is recent American Airlines had $9.8 billion in cash and cash equivalents, but was sitting on $40.1 billion in total debt. Also after suspending share buybacks and dividend payments, the company’s future isn’t guaranteed. It’ll be crushed by higher interest repayment for a long time to come, and it is forecast to lose $1.4 billion in 2021, in accordance with Wall Street’s current consensus.
Put simply, the airline industry isn’t built to withstand significantly more than a light hiccup that is economic. The breeze that is rigid by COVID-19 could be enough to topple American Airlines. A year for equities has brought investors of all sorts.