Robinhood Markets, Inc. (HOOD) introduced zero-commission trading with no account minimums in 2013, forcing many other brokerage firms to later offer such benefits to compete. Last year saw a surge in first-time HOOD platform users, pushing the platform to the forefront again. HOOD’s platform also witnessed significant meme stock trading this year.

However, according to JPMorgan Chase & Co. (JPM) analysts, HOOD’s active-users metrics and app downloads plunged during the third quarter. And despite lacking solid fundamentals, many popular stocks on the platform have soared in price solely based on social-media hype surrounding them.

Given this backdrop, we think it could be wise to scoop up HOOD stocks Microsoft Corporation (MSFT) and Walmart Inc. (WMT), which are popular among the platform’s users and possess strong fundamentals. Conversely, HOOD stocks Snap Inc. (SNAP) and Peloton Interactive, Inc. (PTON) are best avoided because they look significantly overvalued at their current price levels.

Stocks to Buy:

Microsoft Corporation (MSFT)

Technology giant MSFT’s broad product portfolio includes personal computers (PCs), tablets, gaming and entertainment consoles, and related accessories. In addition, the Redmond, Wash.-based company is making several advances in the cloud space with the help of Microsoft Azure. It is ranked #2 among the top 100 Robinhood stocks.

On July 14, 2021, MSFT launched Windows 365, a cloud service that introduces a new way to experience Windows 10 or 11 to businesses of all sizes. The launch represents a significant step towards MSFT’s aim of creating a new category—the Cloud PC.

MSFT’s total revenue increased 21.3% year-over-year to $46.15 billion for its fiscal fourth quarter, ended June 30, 2021. Its revenue from the Intelligent Cloud segment increased 29.9% year-over-year to $17.38 billion. While its operating income came in at $19.10 billion, representing a 42.4% year-over-year rise, its net income increased 46.9% to $16.46 billion. Also, its EPS came in at $2.17, up 48.6% year-over-year.

For its fiscal year 2023, analysts expect MSFT’s revenue to be $217.22 billion, representing a 13.1% year-over-year rise. In addition, the company’s EPS is expected to increase 15% year-over-year to $10.11 in fiscal 2023. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters. 

MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

Also, the stock has an A grade for Sentiment, and a B grade for Stability and Quality. Within the Software-Application industry, it is ranked #17 of 158 stocks. Click here to see the additional POWR Ratings for Growth, Value, and Momentum for MSFT.

Click here to check out our Software Industry Report for 2021

Walmart Inc. (WMT)

One of the largest and most diversified retailers globally, WMT functions primarily through three segments, namely, Walmart U.S., Walmart International, and Sam's Club. The Bentonville, Ark.-based company operates roughly 10,500 stores and clubs under 48 banners across 24 countries and eCommerce websites. It is ranked #6 among the top 100 Robinhood stocks.

On August 24, 2021, WMT announced a new line of business—Walmart GoLoca—that helps expand its expertise in delivering goods to customers and companies. Tom Ward, WMT U.S. senior vice president, last mile, said, “Be it delivering goods from a local bakery to auto supplies from a national retailer, we’ve designed Walmart GoLocal to be customizable for merchants of all sizes and categories so they can focus on doing what they do best, leaving delivery speed and efficiency to us.”

For its fiscal second quarter, ended July 31, 2021, WMT’s net revenue increased 2.4% year-over-year to $141.05 billion. The company’s operating income came in at $7.35 billion, up 21.4% year-over-year. Its net income came in at $4.28 billion, up 56.6% sequentially. Also, its EPS increased 56.7% sequentially to $1.52.

WMT’s revenue is expected to be $580.04 billion in its fiscal year 2023, representing a 2.6% year-over-year rise. The company’s EPS is expected to increase 15.1% year-over-year to $6.31 in the current year. In addition, it surpassed the Street’s EPS estimates in three of the trailing four quarters. 

It’s no surprise that WMT has an overall B rating, which equates to a Buy in our proprietary POWR Rating system. In addition, it has an A grade for Stability, and a B grade for Value, Sentiment, and Quality.

WMT is ranked #8 of 41 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the additional POWR Ratings for WMT (Growth and Momentum).

Stocks to avoid:

Snap Inc. (SNAP)

SNAP in Venice, Calif., operates as a camera company in the United States and internationally. The company offers Snapchat a camera application with functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight. It is ranked #4 of the top 100 Robinhood stocks.

SNAP’s revenue for the second quarter (ended June 30, 2021) came in at $982.11 million, up 116.2% year-over-year. However, its total costs and expenses have also increased 53.6% year-over-year to $1.17 billion. Also, its total liabilities came in at $3.91 billion for the period ended June 30, 2021, versus $2.69 billion for the period ended December 31, 2020. Furthermore, its free cash flow came in at $115.71 million compared to $82.32 million in the year-ago period.

In terms of forward EV/S, SNAP’s 28.23x is 977.1% higher than the 2.62x industry average. And its 28.37x forward P/S is also 1528.2% higher than the 1.74x industry average. 

SNAP’s POWR Ratings reflect its poor prospects. It has an overall D rating, which represents a Sell in our POWR Rating system. The stock has a D grade for Value, Stability, and Quality.

Click here to access the additional POWR Ratings for SNAP (Momentum, Growth, and Sentiment). Also, SNAP is ranked #68 of 78 stocks in the F-rated Internet industry.

Peloton Interactive, Inc. (PTON)

PTON provides interactive fitness products in North America and internationally. It offers connected fitness products with a touchscreen that streams live and on-demand classes. Currently, its Peloton Digital app has around 5.9 million members. The New York City-based company’s stock is ranked #9 among the top 100 Robinhood stocks.

Last month, securities law firm Moore Kuehn, PLLC launched an investigation into PTON for potential breaches of fiduciary duties. It is alleged that in addition to the tragic death of a child, the company's Tread+ has caused a serious safety threat to children and pets as there have been multiple incidents of injury to both.

PTON’s total liabilities came in at $2.73 billion for the period ended June 30, 2021, compared to $1.3 billion for the period ended December 31, 2020. Its gross profit declined 12.2% year-over-year to $253.60 million for its fiscal fourth quarter, ended June 30, 2021. In addition, its net loss was $313.20 million, versus $89.10 million in net income in the year-ago period. Its loss per share came in $1.05 compared to $0.27 EPS in the previous year.

In terms of forward EV/Sales, PTON’s 4.81x is 236.4% higher than the 1.43x industry average. Also, its 4,83x forward P/S is 310.3% higher than the 1.18x industry average.

Analysts expect PTON’s EPS to decline 640% in the current year and remain negative in fiscal 2021 and 2022. 

PTON’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. In addition, the stock has an F grade for Sentiment, Stability, Value, and Growth.

We also have graded PTON for Quality and Momentum. Click here to access all PTON’s ratings. PTON is ranked #70 of 71 stocks in the D-rated Consumer Goods industry.

MSFT shares rose $0.28 (+0.09%) in premarket trading Friday. Year-to-date, MSFT has gained 37.26%, versus a 20.07% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

More...