Over the past four years, investors have been taken on nothing short of a roller-coaster ride on Wall Street. The COVID-19 crash of 2020, irrational exuberance of 2021, bear market of 2022, and rip-roaring bull market over the past year and change, have whipsawed investors and their emotions.
But when push comes to shove, the stock market has a way of delivering for patient investors. Despite never knowing when downturns will occur, how long they’ll last, or how steep the ultimate decline will be, history has conclusively shown that the major indexes will, eventually, climb to all-time highs. This means value can always be found, no matter how well or poorly the stock market is performing.
Perhaps an even bigger perk of putting your money to work on Wall Street is that most online brokerages have eliminated barriers that had previously kept retail investors on the sidelines. Nowadays, most brokers don’t have minimum deposit requirements, and they don’t charge commission fees for common stock trades made on major U.S. exchanges. For everyday investors, it means any amount of money — even the $10 bill you may have in your wallet — can be the perfect amount to put to work.
If you have $10 that’s ready to invest, the following three stocks stand out as no-brainer buys right now.
Sirius XM Holdings
The first amazing stock that makes for a surefire buy with $10 right now is none other than satellite-radio operator Sirius XM Holdings (SIRI).
The prevailing concern for radio operators is the health of the advertising industry. Businesses are often quick to pare back their spending when the first hint of trouble with the U.S. economy is detected. While U.S. economic growth is currently strong, a couple of money-based metrics and predictive indicators strongly suggest a downturn is likely in the not-too-distant future. If the U.S. economy were to contract, advertising spending would decline, too.
What makes Sirius XM so special is that its revenue stream is markedly different than traditional radio operators. Whereas terrestrial and online radio companies generate the lion’s share of their sales from advertising, Sirius XM tallied just 20% of its revenue last year from ads (via Pandora, which it acquired in February 2019).
Comparatively, Sirius XM brought in roughly 77% of its sales in 2023 from subscriptions. Not only is subscription revenue far more predictable than ad spending, but Sirius XM’s subscribers are far less likely to cancel their service during an economic downturn than advertisers would be to pare back their spending during a recession. This makes Sirius XM ideally positioned to deal with anything the U.S. economy throws its way.
To state the obvious, it’s also the only licensed satellite-radio operator. While it does still fight for listeners with terrestrial and online radio providers, being the lone satellite-radio operator affords Sirius XM strong subscription pricing power that often outpaces the prevailing rate of inflation.
If investors need another great reason to gobble up shares of Sirius XM Holdings, take a closer look at its valuation. Shares can be purchased right now for less than 13 times forward-year earnings, which represents a 36% discount to its average forward-year earnings multiple over the trailing-five-year period.
Redfin
A second stock that makes for a no-brainer buy with $10 right now is technology-driven real estate company Redfin (RDFN).
After more than a decade of rising housing prices and strong home sales, the party ended for real estate companies like Redfin in 2022. The Federal Reserve began aggressively hiking interest rates to tackle the highest prevailing rate of inflation seen in the U.S. in 40 years. As Treasury yields climbed, mortgage rates followed in tow. After years of historically low mortgage rates, 30-year fixed mortgage rates in the 7% range have stymied the buying and selling activity of existing homes.
While this has been one of the most-challenging environments Redfin has operated in since its founding in 2002, it brings well-defined competitive advantages to the table that can help it thrive.
Before I get into those competitive edges, let me first say that the Fed is likely to undertake a rate-easing cycle later this year. Though this doesn’t guarantee that mortgage rates will necessary decline anytime soon, a rate-easing climate is far more conducive to existing home sales than one where the central bank is rapidly raising interest rates. In other words, the worst for Redfin may be over.
One area where Redfin undeniably beats its traditional competition is in the cost department. Whereas traditional real estate companies charge a listing fee or commission that can range as high as 2.5% to 3%, Redfin charges either 1% or 1.5%, based on how much prior business has been done with the company. Based on the national median existing-home price of $379,100 in the U.S. for January, it means the median homeowner could save up to $7,600 in costs going with Redfin. That’s not pocket change.
Beyond its price advantage, Redfin is aggressively investing in its agents and its services. In October, it announced a new pay plan for its agents known as Redfin Max, which is designed to bolster their earning power and draw in top-notch agents. Redfin also offers its Concierge service, which helps homeowners maximize the sales price of their home. Traditional real estate companies simply can’t match the personalization that Redfin can bring to the table.
Warner Bros. Discovery
The third no-brainer stock to buy with $10 right now is beaten-down legacy media company Warner Bros. Discovery (WBD).
Warner Bros. Discovery has been hit by a triple whammy since its formation in April 2022. First, advertising revenue has taken a hit with businesses concerned about a possible downturn in the U.S. economy. Secondly, rapidly rising interest rates have weighed on businesses like Warner Bros. Discovery that are lugging around a sizable amount of debt. And third, cord-cutting has coerced the company to invest in streaming, which has thus far been a money-losing venture.
While this has been a less-than-ideal start to the merger of WarnerMedia and Discovery, there does appear to be light at the end of the tunnel.
The first catalyst is the expectation that advertising should pick up. Not only has the most-expected recession of the decade not materialized, but we’re in an election year. A double-digit uptick in political ad spending, relative to the 2020 election cycle, should be beneficial to legacy media operators.
Another reason to be optimistic about Warner Bros. Discovery’s future is the company’s pricing power with its streaming segment. Even though it raised subscription prices and increased its average revenue per user by 7% on a currency-neutral basis during the fourth quarter from the prior-year period, the company saw its total number of direct-to-consumer (DTC) subscribers climb by nearly 1 million from the prior-year period, including the acquisition of BluTV. This is a good indication that losses will continue to narrow with the company’s DTC operations.
Warner Bros. Discovery is making steady progress with its balance sheet, as well. Looking beyond its annual loss, the company generated $6.2 billion in free cash flow and reduced its net debt by $5.4 billion. While work remains to be done to improve its financial flexibility, Warner Bros. has the tools to generate in excess of $3 per share in annual cash from operations. This makes its current share price of around $8 extremely compelling for opportunistic long-term investors.
— Sean Williams
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Source: The Motley Fool