The list of the most popular stocks on the Robinhood app runs the gamut from speculative names to meme stocks to blue chip companies. The trading in some of those names could be considered nothing less than gambling.
But serious investors who hope to beat the market in the long term can also find intriguing opportunities from that list. They don't need to be boring, either. Two names that offer diversification in risk level and industry sectors and are both interesting to follow are Walt Disney (NYSE:DIS) and Canadian cannabis company Tilray (NASDAQ:TLRY).
History could repeat itself
Long-term holders of Disney stock have done well versus the general market as measured by both the S&P 500 index and the Dow Jones Industrial Average. Its 10-year total return dwarfs that of both indexes.
It's not because of something anyone wanted, but Disney's business is at an interesting turning point in large part due to the pandemic. It's recovering, as revenue grew 45% in the fiscal quarter ended July 3, compared to the year-ago quarter. But the company still has a long way to go. In the nine months leading up to that same date, Disney's cash generated from operations was still 50% below the prior-year period, and free cash flow was down 82%.
And while its traditional business segments work their way back to pre-pandemic levels, the direct-to-consumer streaming business grows toward profitability. That has been largely driven by the growth in Disney+. As of July 3, the company had grown the service to 116 million paid subscribers just about 18 months after it was launched. Management now estimates it will be operating Disney+ at a profit in fiscal 2024.
The pandemic damaged Disney's business but not its brand. There's every reason to think its theme parks, media, and cruise businesses will return to previous levels. There are always risks, and its films and streaming services still need to live up to high expectations. But if they do, it doesn't seem to be a stretch to think that the past success of Disney stock will continue into the future.
Planning for new highs
When Canadian cannabis companies Aphria and Tilray merged earlier this year, CEO Irwin Simon of the new Tilray knew the business combination was just one step in the growth he envisioned. Prior to that merger, Aphria had already bought U.S. craft brewer SweetWater Brewing in part to establish infrastructure in the U.S. Since the closing of the merger, Tilray has acquired a majority position in the convertible notes of U.S. cannabis retailer and multi-state operator (MSO) MedMen Enterprises (OTC:MMNFF).
The company said the investment "provides Tilray a potential accelerated path into U.S. cannabis market upon federal legalization." Simon has a plan to grow the company to achieve $4 billion in revenue by the end of fiscal year 2024. That compares to $513 million in revenue for the full fiscal year 2021, which ended May 31.
Federal legalization in the U.S. would open a huge market for Canadian companies, but Simon and Tilray aren't just counting on that. The company says it already has the top market share in Canada, and it has a growing international medical cannabis business in Europe, Australia, and New Zealand. It believes the European medical cannabis market alone could be a $1 billion business.
The path to success won't be easy or direct. Shareholders should expect dilution as the company issues new shares to raise further capital for growth. And, of course, there's no guarantee that the U.S. will continue on the path many states have taken toward legalization. But Tilray shares can offer aggressive investors a balance to a more stable company like Disney and still provide a path to market-beating returns if the company executes and the trends toward legalization continue.