Here's the Top Consumer Stock Robinhood Traders Are Selling Today

Investing app Robinhood is taking the world by storm -- but that's not always good news for the stocks its users focus on. Case in point: Walt Disney (NYSE: DIS).

Thursday wasn't a great day for the stock market, with the Dow Jones Industrial Average closing down 0.3% and the S&P 500 falling 0.5%. Disney stock, however, got hit twice as hard as the average stock, falling 1.2% -- and Robinhood may be part of the reason why.

According to the Robintrack twitterbot that tracks Robinhood traders' purchases and sales of stocks on a daily basis, Disney was the second most-sold stock on Robinhood Thursday. Among consumer goods stocks in particular, no stock experienced a greater decrease in the number of investors owning it, on Robinhood, than did Disney.

More than 1,700 Robinhood investors sold their shares of Disney -- but why did they sell?

Young woman in mouse ears and makeup approaching a theme park

Image source: Getty Images.

Bad news from Wall Street

Not all the news out of Disney is bad these days, after all. Earlier this week, Disney announced a spin-off of its popular Clone Wars animated series that will begin airing in 2021. Taking advantage of the shutdown of live-action production of movie and TV entertainment in Hollywood during the corona crisis, Disney is playing to its strengths in animation, and serving up popular content to a viewing public starved for content.

Meanwhile in parks, on Wednesday Reuters reported that Disneyland Paris is back in business after a four-month hiatus during France's coronavirus shutdown. "Masks were mandatory and advance booking required," reports the news agency. Nevertheless, "a steady stream of visitors trickled in during the morning."

But here's the bad news: Thursday morning, analysts at Wall Street investment bank Cowen & Co. removed their "outperform" (i.e. buy) rating from Disney stock, downgrading the shares to "market perform" and cutting their price target to $97 a share. 

When you consider that Disney stock costs more than $119, it's certainly possible that Cowen's warning of an impending 18.5% drop in stock price could have spooked Robinhood traders out of the stock, causing Disney shares to underperform the market today.

What it means to Robinhood investors

Should you be scared?

Not just because Cowen is downgrading, certainly. While I understand how new investors might worry when a big-name Wall Street investment bank says their stock is about to tank, the truth of the matter is that any given Wall Street rating is just "one guy's opinion." When you consider further that, historically, more Wall Street analysts lose to the market than beat it -- as many as 80% or more of Wall Street's "experts" underperform their investing benchmarks -- the idea of selling a stock on some analyst's say-so makes even less sense. 

So what should you do when an analyst downgrades your stock -- be it Disney or some other company's shares? My advice would be to ignore the buy/sell recommendation per se, and focus instead on the facts the analyst has dug up. Then decide for yourself whether they warrant a "buy" or a "sell".

In the case of Cowen and Disney, for example, this analyst is worried that the need to enforce social distancing in Disney parks will impose "heavy capacity constraints" on Disney "until at least mid-2021," because the parks won't be able to admit as many guests as they once did while still providing six feet of personal space around each guest.

Cowen further notes that California's Disneyland park is closed and could remain so "due to California's more cautious approach in dealing with the virus," while Walt Disney World in Florida -- now open at diminished capacity -- "could be forced to close again" as coronavirus cases continue to increase. That could keep Disney parks from operating at full capacity until 2022 or later. And of course, Disney's studio entertainment business is continuing to suffer from the closure of movie theaters nationwide -- another bit of bad news expected to stretch well into 2021.

Now consider that domestic parks and studio entertainment are, respectively, Disney's first- and third-biggest businesses by revenue, accounting for 41% of the money Disney took in last year, and that it's possible neither one will be back and running full speed before late 2021 (if then). Disney stock, meanwhile, has declined only 15% in the past year. When you consider all of the above, it seems to me that yes, indeed, Disney stock does have further to fall.

Just not because Cowen says so.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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