One of the few guarantees you’ll find on Wall Street is that the stock market’s performance in the short run is completely unpredictable. In 2021, all three major stock indexes were regularly hitting new highs. Meanwhile, in 2022, they all fell into a bear market and delivered their worst returns since 2008.
But there’s another side to this story. Although the directional movement of stocks in the short term is something of a crapshoot, the long-term trend in the broader market is well defined. Excluding the 2022 bear market, every crash, correction, and bear market throughout history has eventually been cleared away by a bull-market rally. For long-term investors, patience has paid off every time.
To add to this good news, online brokerages have made it easier than ever to put your money to work on Wall Street. Most online brokers have done away with minimum deposit requirements and commission fees, which means any amount of money — even $400 — can be the right amount to invest.
If you have $400 that’s ready to invest, 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.
Airbnb
The first no-brainer stock that’s begging to be bought with $400 right now is hosting-and-travel company Airbnb (ABNB).
The biggest obstacles facing Airbnb at the moment are its valuation and the increased likelihood that a U.S. recession will materialize. In addition to recessions boding poorly for travel spending, investors tend to be more mindful of valuations when economic growth slows or reverses. Airbnb’s price-to-earnings (P/E) ratio has consistently hovered above the P/E ratio of the benchmark S&P 500 since the company became public in 2020.
But as you’ve probably surmised, both of these concerns are short-term headwinds that mask the industry-changing potential Airbnb offers.
Though Airbnb was founded nearly 15 years ago, it’s still just scratching the surface when it comes to its hosting potential. Globally, it has more than 4 million hosts and has seen bookings (including Experiences) jump from shy of 126 million in 2016 to an annual run rate of more than 484 million, based on the 121.1 million nights and experiences booked in the first quarter of 2023. Expanding the reach of the platform internationally and innovating within its hosting marketplace to make the system friendlier for all users can unlock sustainable double-digit hosting growth.
To build on the above point, Airbnb is enjoying tangible growth from long-term stays — defined as stays of at least 28 nights. In the wake of the COVID-19 pandemic, more people are working remotely than ever before. This means workers who aren’t tethered to any one location are the perfect candidates to take advantage of Airbnb’s marketplace.
Expanding beyond hosting is making waves as well. Airbnb introduced Experiences in 2016, which are adventures led by local experts. While these partnerships are paying off, they represent just the first step in what’ll likely be a laundry list of arrangements with travel and food chains. Airbnb has a real opportunity to disrupt the mammoth hotel industry while also snagging an ever-growing percentage of dollars spent within the $8 trillion travel industry.
The icing on the cake is that Airbnb isn’t as expensive as it might seem. Shares can be purchased for roughly 26 times next year’s forecast earnings, and Wall Street anticipates earnings growth will average nearly 19% over the coming five years. On a price-to-earnings-growth basis, Airbnb stock is, arguably, cheap.
Verizon Communications
A second no-brainer stock that you can confidently purchase with $400 right now is telecom giant Verizon Communications (VZ).
The biggest knocks against Verizon are its growth rate and its balance sheet. Investors simply haven’t been attracted to mature tech and telecom companies when growth stories like Apple and Microsoft exist. To boot, Verizon’s balance sheet is lugging around a significant amount of debt in an environment in which interest rates are rapidly rising. It’s possible that future debt-driven deals could eat into Verizon’s cash flow.
But in similar fashion to Airbnb, Verizon’s headwinds are much ado about nothing. A combination of macroeconomic factors and two well-defined catalysts should set this cash-flow juggernaut up for success.
In terms of the former, telecom stocks benefit from providing a near-basic-necessity service. Even if the U.S. enters a recession, consumers are unwilling to give up certain things. Although wireless access and smartphones aren’t exactly on par with food and beverages in terms of importance, historically low churn rates suggest one can pretty consistently count on Verizon’s cash flow in any economic environment.
As for the other well-defined catalysts, Verizon offers upside because of the 5G revolution and resurgence of broadband additions. After roughly 10 years of 4G LTE download speeds, businesses and consumers will be eager to upgrade their devices to enjoy 5G speeds. This device-replacement cycle should continue for years and lead to a notable uptick in data consumption. Data tends to be a high-margin growth driver for Verizon and can buoy the operating margin of its wireless division.
Although broadband was a major growth story 20 years ago, it’s once again in the spotlight for Verizon. The company spent close to $53 billion to purchase C-band spectrum in 2021, and the investment in 5G broadband is paying off. Verizon added a net of 437,000 broadband customers in the quarter that ended in March, which represents its best quarter for net-broadband adds in over a decade. The beauty of broadband customers is that they’re likely to bundle their services, which can lift Verizon’s operating margin.
Verizon is also quite de-risked at less than 8 times forecast earnings this year and with a dividend yield of 7.5%.
Etsy
The third no-brainer stock that makes for a surefire buy with $400 right now is e-commerce platform Etsy (ETSY).
For Etsy, the strongest headwind is the expectation of U.S. economic weakness. There hasn’t been an instance over the past 68 years in which the Federal Reserve has increased the federal funds rate by more than 3.1% without a recession following the rate-hiking cycle. We’re well past this point in the current cycle, which could bode poorly for retail-focused companies like Etsy.
On the flip side, recessions have lasted just 2 to 18 months since World War II. Though economic downturns are inevitable, they don’t last long. Comparatively, periods of economic expansion typically last for years, which is good news for retail-driven businesses.
What separates Etsy from the pack is the personalization its platform provides. While Etsy doesn’t hold a candle, in terms of sales and active buyers/sellers, to an e-commerce platform like Amazon, a giant like Amazon can’t match the level of product personalization that small merchants can offer buyers on the Etsy platform. This unique niche that Etsy occupies should shield it from larger competitors.
Despite some near-term weakness in retail sales, buyer trends for the company have been promising. In particular, habitual buyers have more than tripled compared to where they were prior to the start of the pandemic. Habitual buyers are those who have made six or more purchases over the trailing-12-month period, with aggregate buys totaling $200 or more. With reactivated buyers and habitual buyers well above pre-COVID figures, Etsy appears poised for ongoing growth.
Etsy’s innovations have also put the company in a position to succeed. On one hand, it’s investing heavily in various research and discovery initiatives designed to connect buyers with sellers. On the other hand, it’s had no trouble increasing service fees for sellers. Being able to boost its take rate while also growing the aggregate number of buyers and sellers using its marketplace demonstrates the power of the Etsy platform.
Though it could be a bit of a bumpy ride over the very short term if the U.S. dips into a recession, Etsy is well positioned to deliver for patient shareholders.
— Sean Williams
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Source: The Motley Fool