America's Favorite Stocks Are Full of Junk

Editor's note: Investors love a hot stock. But as Stansberry's Investment Advisory editor Whitney Tilson explains, the names attracting the most excitement often have little to show for the hype – and no chance of rising to the top.

That's why at 10 a.m. today, Whitney is revealing why the market's next leaders aren't where you might think. Until then, read on for how he separates true opportunities from money-losing fads...

What if I told you I can tell which stocks are most likely to lose you money without looking at a single financial statement?

It's true, and you can, too. You just have to listen to which ones everybody is talking about.

Think about the last "hot" stock tip you heard. Maybe it came from a guy at the bar or from your Uber driver. Maybe you heard about a breakthrough tech stock from a cousin at a barbecue, or from an excited voice on CNBC.

It had a great story. It was going to change the world. Its shares were a sure bet to go "to the moon."

I'd be willing to bet that more often than not, it turned out to be a terrible place to put your money.

That's not an accident. Today, I'm going to prove it to you.

The Most Popular Stocks Aren't the Best Opportunities

Robinhood is one of the most popular trading apps in America, especially with everyday investors. It publishes something called the Robinhood 100, a list of the 100 most-owned stocks among users.

In other words, it's a near-perfect snapshot of what the crowd is most excited about buying.

So my team and I did something simple... We looked at the Stansberry Score for all 100 names.

The Stansberry Score is a grade, from 0 to 100, that measures the underlying quality of a stock. We use it to rank thousands of stocks and figure out which companies are the best to own for the long haul.

Think of it like a "report card" for a business. It rates every company on capital efficiency, financial health, valuation, and momentum.

When we cross-checked the Robinhood 100 with our system, the results were almost embarrassing... Because a huge number of the most-owned stocks in America are, to put it bluntly, junk.

Let me show you what I mean...

The most-held stocks by Robinhood users include meme stocks GameStop (GME) and AMC Entertainment (AMC), microcap pot stocks Canopy Growth (CGC) and Tilray Brands (TLRY), and unprofitable carmakers Lucid (LCID) and Rivian Automotive (RIVN).

These aren't obscure names. Millions of people own them... or are ready to buy the dip. And almost without exception, their Stansberry Scores are down in the teens, twenties, and thirties – some of the worst grades in the entire market.

The performance tells the same story. As a group, these stocks have incinerated investor capital, down an average of roughly 30% over the past year...

Meanwhile, the broad S&P 500 Index is up 18% over the same time frame.

Here's what's worrying: None of this is based on hindsight. These weren't good companies that suddenly took a turn for the worse. They've carried low Stansberry Scores – and delivered miserable returns – for years.

Take Tilray. It sported a 36 Stansberry Score last August. Anyone who bought then has watched nearly 70% of their capital vanish.

Same thing with Lucid... Its score was 26 last August. And it's down almost 80% since.

Folks buy stocks like these because they're falling into a classic trap... They believe a popular stock must be a good stock. In fact, it's often the opposite.

By the time a stock is exciting enough that a stranger is telling you to buy it, one of two things is usually true... Either everyone who was going to buy it already has (and no one is left to push shares higher), or it never had a solid business to begin with.

Either way, you're the one left holding the bag.

The Quality Test Every Stock Should Pass

Now, to be fair, Robinhood's same list of 100 does contain some great businesses... blue-chip names like Apple (AAPL), Visa (V), Coca-Cola (KO), and Nvidia (NVDA).

So what sets these apart from the junk? It isn't that they're household names. Instead, they pair two things the crowd's favorites almost never have: real quality and a fair price.

When I judge a company's quality, I'm looking partly at the hard numbers – margins, balance-sheet strength, and free cash flow. But I mostly look at the things a single quarter can't show me... like its competitive position, "moat," growth prospects, and management.

The hard part isn't recognizing a great business that has already made it, though. It's spotting the next one before the rest of the crowd...

Think back to Nvidia in 2020. Could you have known then that it wasn't just another hyped-up tech stock?

There were clues. On September 1, 2020, while most of the market still saw it as just another expensive chip stock, Nvidia sported a Stansberry Score of 79. The score saw the quality long before the headlines did.

That's what the Stansberry Score is designed for. It runs thousands of companies through dozens of factors every single day, weighing quality, valuation, financial health, and momentum in a way that would be impossible to do by hand.

Put those together into a simple reading, and it showed a great company. Nvidia went on to upend the entire chipmaking industry... and deliver life-changing returns.

Remember, the stocks you hear about at your neighborhood bar are almost never the ones you should be buying.

Start by flipping the usual question on its head. Don't ask how exciting a stock is... Ask how good the underlying business is.

Take an honest look at the popular names you already own. The louder the story and the thinner the profits, the more skeptical you should be.

You want to own durable businesses with real earnings... bought at fair prices. Tilt your portfolio in that direction. That one discipline alone will keep you out of most of the wealth-destroyers the crowd is chasing.

Regards,

Whitney Tilson

Editor's note: The biggest names in the market may not lead the next leg higher. Whitney says Nvidia, Microsoft, and Tesla could be done leading this bull market... and a new group of unknown stories could take the lead. That's crucial – because he used the same opportunity in 1999 to make millions of dollars and build a reputation as a Wall Street legend.

So make sure you tune in to Whitney's announcement today... because at 10 a.m., he'll reveal which stocks he believes could become the next 1,000% opportunities.