Volatility and uncertainty are givens on Wall Street. Through the first four years of this decade, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite oscillated between bear and bull markets in successive years.
But for more than a century, time has proven to be an undefeated ally of investors. Though we’ll never know ahead of time when stock market corrections or bear markets will begin, how long they’ll last, or how steep the decline will be, we do know that all of Wall Street’s major stock indexes rise over time and eventually put these downturns in the back seat. In other words, for long-term-minded investors, there is no such thing as a “bad” time to put their money to work on Wall Street.
Best of all, a majority of online brokers have eliminated barriers that had previously kept retail investors from participating in this long-term wealth creator. Most brokers have completely done away with minimum deposit requirements and commission fees on common stock trades, which means any amount of money — even the $10 you have in your wallet — can be the perfect amount to invest.
If you have $10 that’s ready to be put to work, and this isn’t cash you’ll need to cover basic expenses or your bills, the following three stocks stand out as no-brainer buys for the second half of 2024.
Sirius XM Holdings
The first magnificent company that stands out for all the right reasons and can confidently be bought by investors with $10 for the second half of 2024 (and beyond) is satellite-radio operator Sirius XM Holdings (SIRI).
Aside from recently getting the boot from the Nasdaq-100, the primary concern surrounding Sirius XM stock is the health of the auto market. Sirius XM counts on new vehicle purchases to turn a certain percentage of promotional listeners into self-pay subscribers. If auto sales and/or the U.S. economy are weakening, there’s a good chance Sirius XM will see self-pay subscriber conversions fall.
While being cyclical can, occasionally, be a crutch for the company, it has a number of competitive advantages in its sails.
The clearest catalyst for Sirius XM is that it’s the only licensed satellite-radio operator. Although it still faces competition for listeners with terrestrial and online radio companies, being a satellite-radio monopoly affords Sirius XM meaningful subscription pricing power. Historically, it’s been able to increase its monthly service price without scaring off its subscribers.
Arguably the biggest differentiating factor between Sirius XM and other radio operators is how it generates revenue. For terrestrial and online radio companies, advertising accounts for the lion’s share of sales. As for Sirius XM, less than 19% of its first-quarter revenue can be traced back to advertising. This is noteworthy given that advertisers are quick to pare back their spending at the first signs of trouble for the U.S. economy.
By comparison, Sirius XM generated 78% of its first-quarter sales from subscriptions. The company’s subscribers are far less likely to cancel their service than businesses are to reduce their ad spending. On paper, Sirius XM has an easier path to navigate during periods of economic uncertainty.
Lastly, Sirius XM Holdings is cheaper than it’s ever been as a publicly traded company. Investors can pick up shares right now for 8 times forward-year earnings, which represents a greater-than-50% discount to its average forward-year earnings multiple over the trailing-five-year period.
Nio
A second no-brainer stock that long-term-minded investors can comfortably add to their portfolios with $10 for the second half of the year (and well beyond) is China-based electric-vehicle (EV) manufacturer Nio (NIO).
Nio, like most EV makers, has plummeted from its all-time high. With competition in the EV industry growing, Nio and its peers have had to reduce their prices, which has had a deleterious effect on margins. Even though Nio isn’t going to work through its challenges at the drop of a dime, the risk-versus-reward profile for the company now appears to decisively favor optimists.
Innovation has been Nio’s driving force. The company has been introducing at least one new EV model annually, and has primarily targeted more-affluent consumers. The well-to-do are less likely to alter their buying habits if economic growth slows or shifts into reverse.
In particular, sales for the company have ramped up since its introduction of the NT 2.0 platform. Nio’s launching of NT 2.0, which improved/added a number of advanced driver assistance features, is a big reason why year-to-date deliveries, as of May 2024, are up by 51% compared to the comparable period in 2023. Demand has certainly not been a problem, which is more than can be said for some EV manufacturers.
Nio also has a competitive edge with its battery-as-a-service (BaaS) solutions. With BaaS, drivers can charge, swap, upgrade, and even lease batteries for their Nio EVs. Expanding BaaS helps to keep EV buyers loyal to the brand, as well as lines the company’s pockets with a potentially higher-margin revenue stream.
The final puzzle piece is that Nio is well-capitalized. It closed out March with $6.3 billion in cash, cash equivalents, and marketable securities. Even factoring in ongoing losses, Nio’s cash likely accounts for around 60% of its current market cap. As noted, the risk-versus-reward profile favors upside.
Warner Bros. Discovery
The third no-brainer stock that’s begging to be bought with $10 for the second half of 2024 is none other than media titan Warner Bros. Discovery (WBD). This is the company created from the combination of WarnerMedia, which was spun off by AT&T, and Discovery in April 2022.
Things have been far from perfect since Warner Bros. Discovery emerged from its shell. The advertising landscape has been uncertain, and historically high inflation has encouraged the Federal Reserve to undertake its most-aggressive rate-hiking cycle since the early 1980s. For companies with sizable debt loads (ahem, Warner Bros. Discovery), it means any future deals or refinancing could be costlier.
In spite of these challenges, the light at the end of the tunnel for Warner Bros. Discovery looks to be getting brighter.
For starters, the latter half of 2024 should represent a silver lining for ad-driven businesses. A significant uptick in political spending on the heels of the 2024 election cycle should fuel advertising revenue for Warner Bros. Discovery’s legacy Networks segment.
Additionally, Warner Bros. has demonstrated that its streaming segment has meaningful pricing power. In an effort to move its direct-to-consumer (DTC) segment to profitability, the company has been increasing its monthly subscription price. As a result, global average revenue per user is climbing, right alongside its global DTC subscriber count. With mindful spending reductions, its streaming segment should soon be a positive contributor to the bottom line.
This is also a company that’s making strides to reduce its outstanding debt. Warner Bros. is generating massive amounts of cash flow (in excess of $3 per share each year), which can be used to improve its financial flexibility.
Though it may be difficult to see the trees through the forest, Warner Bros. Discovery’s foundation remains strong, and a clear strategy is in place to improve its bottom line.
— Sean Williams
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Source: The Motley Fool