Wall Street volatility has been on display since this decade began. In each of the past four years, the ageless Dow Jones Industrial Average, broad-based S&P 500, and growth-fueled Nasdaq Composite, have traded off bear and bull markets in successive years.
For the moment, the bulls are running wild on Wall Street, with all three major indexes rallying to record-closing highs in 2024. But just because the Dow, S&P 500, and Nasdaq Composite are breaking through their previous ceilings, it doesn’t mean amazing deals can’t still be uncovered by opportunistic investors.
With most brokerages doing away with barriers to investment, it’s an especially smart time to put your money to work on Wall Street. In recent years, most online brokers have eliminated minimum deposit requirements and commission fees associated with common stock trades on major U.S. exchanges. For retail investors, it means any amount of money — even $300 — can be the perfect amount to invest.
If you have $300 that’s ready to be put to work, and you’re absolutely certain this isn’t cash you’ll need to pay bills or cover emergency expenses when they arise, the following three stocks stand out as no-brainer buys right now.
Bank of America
The first reliable industry leader that looks like a phenomenal deal for investors with $300 in available cash is Bank of America (BAC), which is commonly referred to as “BofA.”
If there’s a knock against U.S. bank stocks, it’s that they’re inherently cyclical. This is to say that they ebb-and-flow with the health of the U.S. economy. Over the past couple of months, quite a few money-based metrics and economic indicators have raised red flags and pointed to the growing likelihood of a recession in the not-too-distant future. When downturns take shape, it’s not uncommon for bank profits to decline as they set aside more capital for loan losses.
However, the economic cycle is a two-way street that undeniably favors the patient. In the 78-plus years since World War II ended, nine of the 12 U.S. recessions resolved in under a year. Meanwhile, the remaining three failed to surpass 18 months. Comparatively, most periods of growth have lasted multiple years. Disproportionately long periods of expansion allow banks to steadily grow their loan portfolios and generate higher profits over the long run.
What makes BofA ideally suited for investors’ portfolios right now is its interest rate sensitivity. Over the past two years, the Federal Reserve has increased its federal funds rate at the fastest pace in four decades. When interest rates rise, lending institutions almost always benefit by collecting more net-interest income from outstanding variable-rate loans. No U.S. money-center bank is better positioned to benefit from higher interest rates than Bank of America. The Fed’s hawkish stance has added billions of dollars in net-interest income each quarter to its bottom line.
As I’ve previously pointed out, Bank of America’s digitization initiatives are paying dividends, too. Although BofA certainly isn’t the first name that comes to mind when you think of financial technology (fintech) investments, the company’s efforts to encourage digital banking have worked. As of the end of 2023, 75% of its consumer households were banking digitally, and nearly half of all loan sales were completed online or via mobile app. These digital transactions are considerably cheaper for the company than in-person interactions, and they’ll help improve BofA’s operating efficiency over time.
Bank of America’s valuation is also enticing. Shares can be picked up right now for roughly 10 times Wall Street’s consensus earnings in 2025, and for just a shade above its listed book value, as of Dec. 31, 2023. High-quality banks trading for right around their book values are often steals.
Alibaba
A second no-brainer stock that’s begging to be bought by opportunistic investors with $300 right now is none other than China’s leading e-commerce company Alibaba (BABA).
The biggest concern with China stocks for the moment is that recent economic data has disappointed. China’s economy has traditionally grown at a superior pace to most developed markets. A subpar growth rate, coupled with the heightened (and occasionally unpredictable) oversight of Chinese regulators, can make China-based stocks riskier investments.
The counter to the above argument is that Chinese regulators were guided by a very strict COVID-19 mitigation strategy for three years, which led to extended and unpredictable lockdowns that crippled supply chains and consumer/enterprise buying power. Although China ended this controversial practice in December 2022, it’s going to take time for China’s economy to regain its luster. Once it finds its footing, China’s economy can outpace most developed countries in the growth department.
To add to the above, China’s emerging middle class should help sustain double-digit growth for online retail sales in the world’s No. 2 economy by gross domestic product. Based on estimates from the International Trade Administration in April 2023, Alibaba’s Taobao and Tmall combined for a nearly 51% share of e-commerce in China.
Beyond what should be steady e-commerce growth, Alibaba is also the clear leader in cloud infrastructure service spending in mainland China. Tech-analysis firm Canalys estimated this past June that Alibaba Cloud accounted for 34% of the $7.7 billion in enterprise cloud infrastructure spending in China during the first quarter of 2023. The margins associated with cloud services are considerably higher than those for online retail sales, which means this segment could be the company’s core cash-flow driver throughout the remainder of the decade.
Lastly, Alibaba is cheap and absolutely swimming in cash. It ended last year with nearly $92 billion in cash, cash equivalents, short-term investment and other treasury investments, and its board has authorized in excess of $35 billion for share buybacks. Excluding its cash, Alibaba is valued at less than 5 times forward-year earnings, which represents a potentially generational buying opportunity.
Johnson & Johnson
The third no-brainer stock long-term investors can confidently buy with $300 right now is healthcare conglomerate Johnson & Johnson (JNJ), which is best-known by its shorthand, “J&J.”
The reason J&J has lagged the iconic Dow and S&P 500 in the return column over the past two years is because of the uncertainty of outstanding litigation regarding its now-discontinued talcum-based baby powder. Around 100,000 lawsuits allege that J&J’s baby powder causes cancer. Though the company has attempted to settle this litigation on two separate occasions, both offers were thrown out in court. As a general rule, Wall Street dislikes financial uncertainty.
On the other hand, Johnson & Johnson is one of only two publicly traded companies that Standard & Poor’s (S&P), a division of S&P Global, has anointed with its highest possible credit rating (AAA). Thanks to J&J’s cash-rich balance sheet and its highly predictable annual cash flow, S&P has the utmost confidence that the company can service its debt obligations and eventually put this matter in the back seat.
What really makes Johnson & Johnson tick is the company’s pharmaceutical segment. Even though its medical technologies division is well-positioned to grow as the U.S. and global population ages, the company’s decisive shift to generate more of its sales from brand-name drugs has helped lift its adjusted operating earnings almost every year over the past four decades. Novel therapies offer high margins and provide J&J with exceptional drug-pricing power.
Another under-the-radar key to Johnson & Johnson’s long-term success has been its consistency in key leadership positions. J&J’s CEOs have historically stuck around for a decade, or longer. Continuity at the top has helped J&J’s operating growth stay on track.
The final piece of the puzzle is that Johnson & Johnson stock is historically inexpensive. Its forward price-to-earnings ratio of 14.6 represents a nearly 10% discount to its average forward-year earnings multiple over the trailing-five-year period. As a bonus, the company has increased its base annual dividend for 61 consecutive years.
— Sean Williams
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Source: The Motley Fool