Volatility has been the name of the game on Wall Street since this decade began. In successive years, we’ve watched the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite trade off bear and bull markets.
Although the ageless Dow and benchmark S&P 500 have galloped to fresh record highs, the growth-focused Nasdaq Composite has yet to take out its previous peak, which was set in November 2021. Whereas some traders may view this as disappointing, long-term investors are liable to see this as an opportunity to purchase high-quality stocks at a perceived discount.
Image source: Getty Images.
What’s especially great about putting your money to work on Wall Street is that most online brokerages have torn down previous barriers to investment. Specifically, they’ve done away with minimum deposit requirements and commission fees for common-stock trades on major U.S. exchanges. It means any amount of money — even $500 — can be the ideal amount to invest.
If you have $500 you’re ready to put to work and are absolutely certain this isn’t cash that’ll be needed to pay bills or cover an emergency (should one arise), the following three stocks stand out as no-brainer buys right now.
Alphabet
The first amazing stock that can be scooped up with confidence by investors with $500 right now is none other than prominent FAANG member Alphabet (GOOGL -1.33%) (GOOG -1.16%).
In 2024, the biggest worry for Alphabet is the potential for a U.S. or global recession. Alphabet generates more than three-quarters of its revenue from advertising, and advertisers are known to reduce their spending at the first sign of weakness for the U.S. or global economy. With a couple of predictive indicators and money-based metrics forecasting a U.S. recession this year, there’s the possibility for ad weakness.
At the same time, investors should recognize economic downturns are short-lived. No recessions following World War II has surpassed 18 months in length. By comparison, most economic expansions have endured multiple years, with two hitting the decade mark. This means ad-driven businesses are perfectly positioned to thrive over long periods.
What helps Alphabet shine is the company’s unquestionably dominant internet search engine. In December, Google accounted for approximately 91.6% of worldwide internet search share. In fact, Google hasn’t held less than a 90% monthly share of global internet search dating back more than eight years. Being the undisrupted go-to for advertisers has afforded Alphabet exceptional ad-pricing power.
But don’t overlook Alphabet’s ancillary operations. YouTube is the second-most-visited social site on the planet, which should further fuel the company’s ad-pricing power and encourage users to purchase high-margin subscriptions.
Likewise, cloud infrastructure service platform Google Cloud is growing by a sustained double-digit rate and has delivered an operating profit in three consecutive quarters following years of operating losses. Cloud service margins are substantially higher than advertising margins, which suggests Google Cloud could become Alphabet’s primary cash-flow driver by the latter half of the decade.
Lastly, Alphabet remains historically inexpensive. Shares can be picked up right now for less than 16 times forward-year cash flow, which is a notable discount to its average multiple to cash flow over the previous five years.
AstraZeneca
A second no-brainer stock to add to your portfolio with $500 right now is pharmaceutical company AstraZeneca (AZN 0.01%).
The concern for drug developers is that novel therapies have finite periods of sales exclusivity. If drug companies aren’t constantly replenishing their pipelines via organic or acquisitive means, they could be eaten alive by the patent cliff. This was a genuine issue that held AstraZeneca’s stock back for two decades (from the late 1990s through the late 2010s).
What makes AstraZeneca so intriguing from an investment standpoint now is that three of its areas of focus are firing on all cylinders and delivering sustained double-digit sales growth. Two of these three areas of focus have been primarily driven by organic innovation. Oncology and cardiovascular have respectively produced 20% and 18% constant-currency sales growth through the first nine months of 2023.
AstraZeneca had at least four cancer-drug blockbusters last year, three of which likely grew by a double-digit rate. Meanwhile, next-generation type 2 diabetes drug Farxiga has grown sales by 40% on a currency-neutral basis through the first nine months of 2023 and should become the company’s best-selling drug.
The third fast-paced area of focus, rare disease, came courtesy of its acquisition of Alexion Pharmaceuticals in July 2021. While there are risks involved with targeting small pools of patients, the rewards, if successful, are bountiful. Rare-disease drug developers face little or no competition and usually endure little pushback from insurers on high list prices.
What makes this buyout even more favorable for AstraZeneca is that Alexion developed a next-gen replacement (Ultomiris) for its blockbuster drug Soliris. Having an effective replacement that improves patients’ lives will make it easy for AstraZeneca to hang onto its cash flow for a long time to come.
It’s rare that a Big Pharma company can offer investors sustained double-digit earnings growth, but that’s precisely what AstraZeneca brings to the table.
Image source: Getty Images.
ExxonMobil
The third stock that represents a no-brainer buy with $500 right now is leading energy company ExxonMobil (XOM 1.67%).
The health of the U.S and global economy is paramount to ExxonMobil’s success. If predictive indicators prove accurate and the U.S. dips into a recession in 2024, demand for oil and natural gas would be expected to decline. Since crude oil and natural gas spot prices are based on supply and demand, we’d likely see commodity prices fall, which would hurt the high-margin drilling segments of companies like ExxonMobil.
However, there are very clear macro factors working in the company’s favor. Russia’s ongoing war with Ukraine creates uncertainty over Europe’s energy supply needs. Meanwhile, more than three years of capital underinvestment tied to the COVID-19 pandemic will make it difficult for energy majors to, collectively, increase supply at a moment’s notice.
As long as crude oil supply remains globally constrained, there should be upward pressure on the spot price of crude oil. Higher commodity prices generally mean juicier margins for ExxonMobil’s upstream segment.
Another reason to be optimistic about ExxonMobil’s future is its aggressive $59.5 billion all-share acquisition of Pioneer Natural Resources, which was announced in October. Upon closing, this deal will more than double ExxonMobil’s Permian Basin production volume to north of 1.3 million barrels of oil equivalent per day. Most importantly, it’ll allow the company to more easily respond (i.e., increasing or decreasing production) to changing demand, with a cost of supply below $35 per barrel.
Despite being an energy juggernaut, ExxonMobil has done a phenomenal job of keeping its outstanding debt and costs under control. The company closed out September with roughly $8.3 billion in net debt and a debt-to-equity ratio below 20%. This gives ExxonMobil excellent financial flexibility in the energy space.
Further, management has already delivered $9 billion in cost savings since 2019 and anticipates an additional $6 billion in structural cost reductions by the end of 2027. This combination of production expansion and cost savings should steadily lift ExxonMobil’s operating cash flow and allow the company to support its market-topping 3.7% yield, as well as $20 billion in annual share repurchases in 2024 and 2025.
With ExxonMobil valued below its five-year average multiple to forward earnings and cash flow, now is the perfect time for long-term investors to pounce.
