Whereas the Robinhood stock-investing app has been round since 2015, it actually solely hit its stride in 2020. The onset of the coronavirus-induced stock market droop — which noticed the main indexes shed about one-third of their value — piqued the curiosity of many novice traders.
Robinhood’s easy-to-use interface, no-fee buying and selling choices, and the provide of 1 free share of stock to those that open an account have been efficient enticements to fledgling traders. Roughly 6 million on-line funding accounts have been opened in the course of the first six months of 2020, and a minimum of half of these have been Robinhood accounts, in keeping with a report by Barron’s.
Sadly, this group of largely inexperienced traders has gained a popularity for making dangerous (if not downright harmful) stock trades. Let’s take a look at two stocks that Robinhood traders would do nicely to keep away from as if their monetary well being relied on it — as a result of it simply would possibly.
Picture supply: Getty Pictures.
1. Nikola: Stunning developments
Robinhood traders have been little question intrigued by the current success of Tesla (NASDAQ:TSLA), as the electrical car (EV) pioneer has had a yr worthy of the file books. After producing its fourth quarter of consecutive income and initiating a much-publicized stock break up, Tesla stock hit a file excessive, sending Robinhood traders trying to find the following massive factor.
Many determined they’d discovered it in Nikola (NASDAQ:NKLA), an up-and-comer within the EV ranks. The corporate developed the Badger EV, a sequence of electrical semitrailer vans, and was additionally engaged on electrical/hydrogen gasoline cell hybrid expertise. Common Motors (NYSE:GM) not too long ago introduced it will take a $2 billion stake within the firm, as nicely construct its flagship Badger, and be the unique provider of its gasoline cells for many markets.
The stock appeared unstoppable, that is till the wheels got here off. A report issued earlier this month by famous short-seller Hindenburg Analysis began the slow-motion automobile wreck. The report accused Nikola founder Trevor Milton of constructing “dozens of false statements” and exaggerating the extent of Nikola’s proprietary expertise. Inside days, different studies revealed that the Securities and Change Fee (SEC) and the U.S. Division of Justice (DOJ) have been investigating allegations that the corporate misled traders.
After initially denying the allegations and calling it a “hit job,” Milton tweeted that he could not touch upon the recommendation of counsel. On Monday, the opposite shoe dropped and Milton resigned as government chairman. It is vital to notice that whereas each Milton and Nikola have denied the allegations, the stock has crumbled below the burden of the assertions, dropping almost a 3rd of its value.
Taking issues from dangerous to worse, the corporate has but to convey a single car to market and continues to lose cash hand over fist. Within the second quarter that amounted to a lack of $87 million, worse by 403% from a lack of $17 million within the prior-year quarter.
With investigations continuing from each the SEC and the DOJ, Robinhood traders should not contact Nikola stock with a 10-foot pole.
Picture supply: Getty Pictures.
2. Eastman Kodak: Not image excellent
Whereas older traders will affiliate the title Eastman Kodak (NYSE:KODK) with cameras and movie, the images innovator missed the transfer to digital and needed to discover a new line of labor. The corporate’s been struggling financially for years within the business printing enterprise, however has not too long ago pivoted to expertise and — within the wake of the coronavirus — prescription drugs. It is Kodak’s newest endeavor that captured the creativeness of Robinhood traders, however may be the corporate’s undoing.
The corporate revealed in late July that it certified for a $765 million U.S. authorities loan to supply crucial pharmaceutical elements to assist jump-start drug manufacturing associated to COVID-19. This information initially despatched its stock hovering as a lot as 1,900% within the days that adopted. That was additionally when the issues began.
A report revealed that Kodak had awarded its high executives probably profitable stock choices simply previous to publicly releasing the details about its authorities contract win. Administration’s windfall was reduce quick when the federal government subsequently put the loan on maintain and launched an investigation by the SEC to find out if the corporate engaged in insider buying and selling.
A regulation agency employed by Kodak to carry out an unbiased investigation cleared the corporate of any wrongdoing, however the SEC has but to launch its findings.
Even worse are Kodak’s legacy enterprise operations, that are troubling to say the least. For the second quarter, income of $213 million fell 31% yr over yr, whereas its loss from operations of $5 million was roughly equal to the prior-year quarter. Whereas administration cites the coronavirus because the offender, this downward development has been ongoing for a number of years.
Regardless of fledgling traders’ optimism, even when the corporate is ultimately cleared of wrongdoing, Kodak is clearly on life assist and ought to be prevented in any respect prices.
Picture supply: Getty Pictures.
A standard thread
Astute traders can have seen that these two firms share one thing in frequent: hassle with the SEC. I haven’t got many investing guidelines which might be etched in granite. Nevertheless, as soon as the SEC will get concerned, it is a massive crimson flag for me.
It is doable that both or each of those firms could possibly be utterly vindicated. Then again, with so many high quality stocks on the market, why take the prospect?
