Investors on the fee-free trading platform Robinhood are often willing to take on risk in exchange for the potential to earn some mammoth returns. It’s why shares of Hertz Global Holdings skyrocketed last year even as investors learned that the company was in danger of going out of business. Taking the contrarian approach was tempting to some — after all, if Hertz turned things around, its share price would double, triple, maybe even quadruple in value. But positions like that can destroy your portfolio.
And it’s not just ultra-risky stocks that can cause problems. As investors saw last March, a market crash affecting all sectors can devastate — quickly. Another one could be coming this year, especially with the markets potentially near their peak. The Dow Jones Industrial Average hit another record high this month even as the economy continues to struggle due to the coronavirus pandemic. Three popular Robinhood stocks that could be especially vulnerable in a market crash are Aurora Cannabis (NYSE:ACB), Walt Disney (NYSE:DIS), and Snap (NYSE:SNAP).
1. Aurora Cannabis
Aurora is a risky investment even on the best of days. It’s rallying lately because in November, voters in Arizona, Montana, New Jersey, and South Dakota chose to legalize recreational marijuana. Joe Biden’s election win and a Democratic majority in Washington, D.C., also improve the prospects of federal legalization, which would open up the market for the Canadian cannabis producer. So it’s no surprise that since November, shares of Aurora have been soaring — it’s up more than 150%, blowing past the S&P 500‘s 16% returns during that time.
Even though the Canadian cannabis producer may not directly benefit from these recent developments (at least not anytime soon), bullishness in the cannabis industry is contagious and usually benefits most pot stocks. The problem is that Aurora could quickly give those gains back. In February, the company will likely release its earnings results, which could bring its shares back down — posting underwhelming numbers has been the norm for Aurora.
When the company released its first-quarter earnings on Nov. 9, its net revenue of 67.8 million Canadian dollars for the period ending Sept. 30 was down 1% from the previous quarter. That’s not inspiring for a growth stock in one of the hottest sectors in the world. And the further you look down Aurora’s income statement, the more troublesome it becomes. Its hefty first-quarter loss of CA$109.5 million was actually tame compared with the previous quarter, in which it incurred a staggering net loss of CA$1.9 billion, with impairment charges, restructuring, and all sorts of nonoperating items crippling its bottom line.
Aurora’s stock looks good right now, but with earnings coming up next month and a market crash potentially not far away, even Robinhood investors should consider cashing out before the very probable nosedive takes place.
Go to the news source: 3 Top Robinhood Stocks to Sell Before the Next Market Crash