The free stock trading app has become a popular brokerage option for people who have a small amount of money to invest. But the 100 Most Held Stocks on Robinhood show that many users make investing more difficult than it should be by buying risky stocks.
One easy way to dramatically increase the odds of success is to stick with buying stocks from companies you already know about and have a track record of investor performance.
Three stocks that I would buy today are AT&T (NYSE: T), Amazon (NASDAQ: AMZN), and Zynga (NASDAQ: ZNGA). Here’s why these stocks should offer a good return on your investment.
Many investors have turned to AT&T for its high dividend yield, which recently hovered around 7%. But the stock recently sold off after AT&T announced a deal with Discovery to combine the entertainment and sports assets of the two companies into a stand-alone company. Investors didn’t like AT & T’s decision to cut the dividend, but it’s the right move that will allow AT&T to reduce its debt and potentially deliver a higher total return (dividends plus capital appreciation). ) to shareholders.
Under this agreement, AT&T shareholders will own 71% of the new company. The deal is designed to allow the two companies to focus on what they do best. AT&T can focus on expanding its 5G wireless and fiber broadband business, while the new entertainment company can accelerate its growth in streaming services with HBO Max and Discovery + under one corporate roof.
AT&T also said it would reduce the dividend to a payout ratio of between 40% and 43% of expected free cash flow of $ 20 billion or more. This would place the dividend yield at around 3.7% based on the current share price, which is still well above the market average. It would be on par or slightly below Verizon Communications“Current 4.3% dividend yield, depending on where AT&T free cash flow goes.
The deal could unlock significant value for AT&T shareholders. AT&T will reduce debt as the new company invests more in content to increase streaming subscribers. Lower debt and better growth prospects are a recipe for higher valuation. The stock is already trading at a low price / free cash flow ratio of 7.3.
Management certainly sees the stock rising. CEO John Stankey and CFO Pascal Desroches just bought shares of AT&T. The deal is not expected to close until next year, so it may take some time for investors to figure it out. , but AT&T looks like a promising value stock to hold onto for the next three to five years.
Some investors look at Amazon’s stock price (currently around $ 3,200) and wonder how in the world it can go higher, but what matters is the growth of the company itself. The company continues to show impressive growth and its performance suggests that Amazon has still not hit a cap in its quest to enter the global retail market.
Amazon increased its revenue by 44% year-over-year in the first quarter, with free cash flow increasing at the same rate. Even before the pandemic sent more people shopping online, Amazon reported above average 21% year-over-year revenue growth in the fourth quarter of 2019.
Amazon has grown into a massive business, spanning retail operations, digital entertainment, and cloud services (Amazon Web Services). Over the past four quarters, the company has generated $ 26.4 billion in free cash flow. Management continues to use this money to invest in more order fulfillment centers, data centers to expand its cloud infrastructure and to enjoy additional benefits for its 200 million Prime members.
The main benefits, such as video streaming, help Amazon further penetrate new geographies and expand into retail. In the first quarter, international revenue grew 60% year-over-year and accounted for 28% of Amazon’s total revenue.
Amazon is far from reaching its potential as a global retail business. This is why there is still more growth stock to consider holding for the long term.
The company behind the successful mobile game Words with friends has generated an impressive return of 306% over the past five years. Zynga ended the first quarter with 38 million daily active users, up 81% from the quarter last year. Part of that increase was due to the acquisitions of two new game studios last year (Peak and Rollic), which expanded Zynga’s mobile franchise portfolio with the addition of Toon Blast and Go Knots 3D, among others.
Zynga made smart use of acquisitions to grow its business and expand its in-game advertising capabilities. Advertising revenue more than doubled in the first quarter to $ 123 million. Zynga recently announced an agreement to acquire Chartboost, which allows the company to potentially increase advertising revenue across the mobile market.
Most of Zynga’s revenue comes from in-app purchases, so making games that retain gamers is very important. Zynga has a diverse portfolio of top games that generated in-app revenue of $ 557 million last quarter, up 62% year-over-year. Management cited the momentum of new games in its first quarter earnings report, such as Harry Potter: puzzles and spells, in addition to new opportunities to develop in the fast-growing hyper-casual gaming market.
With just $ 2.2 billion in 12-month revenue, Zynga is only scratching the surface of the $ 90 billion mobile gaming market. There is a huge long term benefit here.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.