It’s amazing what a difference a year can make on Wall Street. In 2021, the broader market was virtually unstoppable, with all three major U.S. stock indexes seemingly notching one new high after another. In 2022, the wheels fell off and all three indexes tumbled into a bear market.
Although the stock market remains unpredictable over relatively short periods, the long-term trend for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite is well defined: up. Since every previous correction and bear market throughout history has eventually (key word!) been cleared away by a bull market, every sizable decline in the major indexes is a buying opportunity.
What’s more, it’s easier than ever to put your money to work on Wall Street. Most online brokerages have completely done away with minimum deposit requirements and commission fees. This means any amount of money — even $100 — can be just the right amount to invest.
If you have $100 that’s ready to put to work, and you won’t need this cash to pay bills or cover emergencies as they arise, the following three stocks stand out as no-brainer buys right now.
The first no-brainer stock that’s begging to be bought with $100 is none other than the famed House of Mouse, Walt Disney (DIS).
Despite Disneyland being dubbed “the happiest place on Earth,” Disney’s stock has inspired anything but happiness out of its shareholders over the past couple of years. The company was absolutely walloped by the COVID-19 pandemic for three years. Theme park closures and reduced movie theater attendance drastically lowered revenue in two core channels for Disney.
To boot, Wall Street has turned its attention to Walt Disney’s streaming segment, which has grown its user count rapidly, but also seen its losses soar. While these headwinds have been less than ideal for Disney, its clear competitive advantages put the company on solid footing for the future.
To start with the obvious, the worst of the COVID-19 pandemic looks to be over. The company’s theme parks have reopened and domestic movie theater attendance has somewhat bounced back. These are bread-and-butter cash-flow drivers for Disney.
Although Disney+ losing subscribers for a second consecutive quarter was one of the primary reasons the company’s stock took it on the chin following its fiscal second-quarter earnings release, this news isn’t nearly as bad as it might appear on the surface.
The 4 million subscribers lost (roughly 2% of its Disney+ base) comes as the company tightens its belt on spending and increases per-month subscription costs. On a year-over-year basis, direct-to-consumer operating losses shrank 26% to $659 million. Losing 4 million subs is a small price to pay to move meaningfully closer to an operating profit in streaming services.
Most importantly, none of these figures account for Walt Disney’s greatest strength: its brand. The characters, stories, theme parks, movies, and shows offered by Disney are irreplaceable. Moreover, the company is able to easily transcend generational gaps and connect family and friends through imagination. Virtually no other media company can accomplish this.
The advantage of an irreplaceable brand is pricing power. Disneyland’s theme park admission prices have outpaced the prevailing rate of inflation in the U.S. by a factor of 10 since 1955. Strong pricing power with an exceptionally loyal customer base is usually a profitable combination for patient investors.
The second no-brainer stock that’s begging to be bought right now with $100 is satellite radio operator Sirius XM (SIRI).
Pretty much every headwind Sirius XM is contending with at the moment ties into the belief that the U.S. will dip into a recession at some point in the not-too-distant future. The minutes from the Federal Open Market Committee’s March meeting showed the 12-member body that oversees monetary policy decisions has modeled a “mild recession” into its outlook for later this year.
There are two reasons recessions are viewed as bad news for Sirius XM. First, radio companies typically generate a significant amount of their revenue from advertising — and ad spending quickly tapers off when recessionary winds begin blowing.
The other issue is the company is reliant on new vehicle sales, which allow it to convert promotional subscriptions into self-pay subscribers. Since the auto industry is cyclical, a recession would be expected to reduce new auto sales, and therefore new trial subscription and self-pay opportunities for Sirius XM in the short term.
But as a shareholder and Sirius XM optimist, I am not concerned by either of these headwinds. For one, the company is a legal monopoly. While it does still face competition for listeners from terrestrial and online radio, it has significant subscription pricing power as the only legal satellite radio provider.
Another reason not to worry about Sirius XM is because it has a leg up on its competition in the revenue-generation department. Whereas terrestrial and online radio providers are notably reliant on advertising revenue, Sirius XM generated just 17.5% of its net sales from ads in the first quarter. Comparatively, just shy of 79% of net revenue derived from subscriptions. During economic downturns, subscribers are far less likely to cancel than corporate advertisers are to pare back their spending.
Furthermore, Sirius XM enjoys some degree of fixed operating costs. While expenses tied to talent and royalties fluctuate from quarter to quarter, the company can add a countless number of subscribers without impacting transmission and equipment costs. As long as subscriptions continue to modestly grow over time, Sirius XM should see its operating margin expand.
Valued at roughly 12 times forward-year consensus earnings, Sirius XM stock is about as cheap as it’s ever been.
The third no-brainer stock that represents a surefire buy with $100 right now is Detroit auto giant General Motors (GM).
As noted, the growing prospect of an economic downturn is the single biggest obstacle standing in GM’s way at the moment. If the nation’s central bank, and a host of other indicators and metrics, are correct in forecasting a recession in the coming months, demand for new vehicle sales would likely fall. That potentially means less pricing power for General Motors.
But in spite of this possible headwind, GM has been masterfully navigating the turbulence, even if its share price doesn’t reflect it.
Most auto investors are fixated on the electrification of consumer vehicles and enterprise fleets, and General Motors isn’t pinching pennies when it comes to its future. It plans to spend an aggregate of $35 billion through 2025 on electric vehicles (EVs), autonomous vehicles (AVs), and battery manufacturing, with the ultimate goal of introducing 30 new EV models globally through mid-decade. According to CEO Mary Barra, the company should be producing more than 1 million EVs annually in North America in 2025.
Though skeptics question how a veritable auto dinosaur will compete with the likes of Tesla, the proof is in the pudding. GM has more than a century of history in its corner and brand engagement that Tesla, at the moment, can’t match. It also has deep pockets and the infrastructure necessary to steadily make the switch toward an EV- and AV-dominated future.
Perhaps most importantly, General Motors has strong leadership and isn’t overextending itself as interest rates climb. Whereas Tesla set a cautious tone with its half-dozen price cuts in the U.S. since the beginning of the year, GM countered by increasing the midpoint of its adjusted automotive free cash flow in 2023 by $500 million. GM simply doesn’t have the inventory issues that are affecting younger automakers like Tesla.
General Motors is set up for success in China, too. China is the world’s largest auto market, and GM has an established presence. It’s not out of the question that GM becomes one of its key EV players by 2030.
At roughly 5 times forward-year earnings, all potential bad news appears baked into shares of General Motors.
— Sean Williams
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Source: The Motley Fool