Robinhood’s exposure to the cryptocurrency market may be a double-edged sword, but it has a lot more going on.
HCA Healthcare enjoys a long-term tailwind while demonstrating its ability to manage significant risk.
10 Stocks We Like Better Than Robinhood Markets ›
Investing in the stock market to generate significant returns in a short period, such as six months or a year, is generally not a good idea. In that period anything can happen that will sink the stocks of even the best corporations. However, over the course of a decade, we can be reasonably confident that stocks will generally perform well. We may be able to achieve even better than average returns, as long as we select the right stocks to invest in.
Consider these two that have been performing well recently: Robinhood Markets(NASDAQ: HOOD) and HCA Health(NYSE: HCA). Will they be able to offer more competitive returns until 2036? I think so, and here’s why.
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Robinhood Markets, an investing app that helped pioneer the commission-free trading model, has performed exceptionally well over the past two years, with revenue and profits increasing over this period. There are serious concerns about whether the company will be able to maintain that momentum over the next decade. Some will point to valuation. Robinhood’s forward price-to-earnings ratio of 46.5 seems high by almost any standard, especially compared to the 16.5 average for financial stocks.
Then there’s Robinhood’s reliance on cryptocurrency trading, which accounts for a significant (and fluctuating) percentage of total revenue. The cryptocurrency market can be quite unpredictable, so Robinhood’s revenue may drop as trading volume in that segment declines. Even with these caveats, Robinhood’s prospects look strong for the next 10 years. One reason for my optimism is that the company’s trading platform has been especially successful among younger investors.
The app has a modern digital feel, with perks including commission-free trading, fractional shares, social media-like features, and, yes, cryptocurrency trading, as younger generations are more likely to invest in cryptocurrencies. My view is that despite the volatility, given its popularity among young people and growing institutional adoption, the cryptocurrency market will make significant strides over the next decade. Additionally, Robinhood has significantly expanded its services and continues to do so.
Over the past 18 months, it launched a platform with advanced tools for active traders called Robinhood Legend, doubled down on its prediction markets, and introduced artificial intelligence (AI) trading tools. Meanwhile, adoption of Robinhood’s subscription service, Robinhood Gold, is growing steadily and offers a high-margin, recurring revenue stream. These and other opportunities could help Robinhood’s results remain strong.
What about the valuation? Robinhood’s pace in recent years justifies this to some extent. For those who want to hold the stock for the next decade, it is worth buying at current levels.
According to some projections, older adults ages 65 and older will outnumber those ages 18 and younger in the U.S. by 2035. This demographic shift is the result of better health care, which has led to longer life expectancy. Declining birth rates also play a role. As older people use more medical services, we can expect healthcare spending to increase significantly over the next decade.
HCA Healthcare should benefit from this. The company owns and operates a large network of diversified facilities, including urgent care centers, large hospitals, surgery centers and more, in the US and UK. HCA Healthcare’s performance was strong last year due to increased demand and utilization of its services and favorable reimbursement rates from third-party payers, among other factors.
However, it’s worth noting that the company faces reimbursement risk, as changes to programs like Medicare and Medicaid could impact its financial results. Still, the healthcare leader can manage this risk in several ways, including through a fairly diversified payer mix. In the third quarter, about half of the company’s revenue came from commercial insurance, with which it typically negotiates higher reimbursement rates than with government payers, while the rest was split among various government-sponsored programs.
HCA Healthcare also invests heavily in cutting-edge technology to attract patients and third-party payers. This is the playbook that has allowed it to grow its market share over the past 15 years while generating solid returns, and the company is well positioned to do so again through 2036.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends HCA Healthcare. The Motley Fool has a disclosure policy.
Two High Growth Stocks to Buy and Hold for 10 Years was originally published by The Motley Fool
