When examined over an extended period, Wall Street is one of the greatest wealth creators in the world. But over the span of a couple of months or even a year or two, stocks can be unpredictable, as 2022 showed.
Last year, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite respectively lost 9%, 19%, and 33% of their value, which worked out to their worst full-year returns since 2008. To boot, all three indexes fell into a bear market at some point during the year.
While sizable moves lower in the major indexes can be unnerving, especially for newer investors who may not have experienced an extended downturn in stocks before, they’re historically a great time to put money to work. Even though we’ll never be able to predict with any preciseness when downturns will begin or how long they’ll last, history has shown that every decline in the major stock indexes has eventually been cleared away by a bull market. Being patient and putting your money to work during these downturns is a not-so-secret formula for success on Wall Street.
To boot, most online brokerages have completely done away with commission fees and minimum deposit requirements. As a result, any amount of money — even $200 — can be the ideal amount to invest right now.
If you have $200 that’s ready to be put to work, and you won’t need this cash to cover emergencies or pay bills, the following three stocks stand out as no-brainer buys right now.
Palo Alto Networks
The first phenomenal stock that makes for a surefire buy right now with $200 is cybersecurity company Palo Alto Networks (PANW).
If there’s an issue for Palo Alto, it’s the growing expectation that the U.S. economy will fall into a recession. Based on the Federal Open Market Committee’s March meeting minutes, the Fed is forecasting a mild recession for later this year. Since most tech stocks tend to be cyclical, there’s clear skepticism that order demand could slow. Additionally, companies with premium valuations — Palo Alto Networks trades at an estimated 39 times forward-year earnings — typically don’t fare well during recessions.
However, Palo Alto has both macroeconomic and company-specific catalysts in its corner that should allow it to successfully navigate an economic downturn, if one arises.
On a macrobasis, it’ll benefit from cybersecurity solutions becoming basic necessity services. Criminals don’t take a day off from trying to steal sensitive information just because Wall Street or the U.S. economy are struggling. With businesses shifting their data into the cloud at an accelerated pace following the pandemic, it’s third-party providers like Palo Alto that continue to benefit in any economic environment.
The biggest company-specific catalyst for Palo Alto Networks is its more than four-year shift toward cloud-based, software-as-a-service (SaaS) subscriptions. Even though the company continues to sell physical firewall solutions, SaaS now accounts for nearly 79% of total revenue.
Shifting its focus to subscription-driven SaaS was done with a purpose. Cloud-based SaaS is nimbler than on-premises security solutions, generally offers higher long-term operating margins, and does a much better job of helping to retain existing clients. In particular, Palo Alto is seeing a sizable uptick in existing clients purchasing multiple products, especially when it comes to the company’s cloud-to-cloud security platform, Prisma Cloud.
Steadily rising add-on sales is a recipe for a higher operating margin and growth that continually surpasses Wall Street’s expectations.
Wheaton Precious Metals
A second no-brainer stock investors can confidently buy with $200 right now is precious metal royalty company Wheaton Precious Metals (WPM).
The first thing investors should note about Wheaton is that it isn’t a traditional precious metal miner. What I mean by this is that it doesn’t own any mines or operate machinery to recover gold, silver, palladium, and other precious metals. Instead, it’s a royalty company that works out highly favorable deals with producers.
For instance, if a company wanted to expand an existing mine or develop a new mine and it didn’t have the cash to do so, it might approach Wheaton Precious Metals for the upfront capital. In return for this upfront cash, Wheaton receives a percentage of the mined assets at a price that’s well below the current market rate. Best of all, the contracts Wheaton works out tend to last for at least decade, if not the life of the mine.
There are a number of key advantages to Wheaton Precious Metals’ operating model. The first, as you can probably guess, is some form of cash-flow predictability. Even though the spot price for precious metals does vacillate, having contracts in place that typically last for 10 or more years leads to predictable cash flow.
Another advantage is industry-leading cash margins. Average cash costs per gold equivalent ounce (GEO) were just $443 in the first quarter. That compared to an average selling price per GEO of $1,827. This works out to a cash-operating margin of 76%. Between 2010 and 2022, Wheaton’s cash-operating margin has consistently stayed between 66% and 81%.
There’s also plenty of production diversity. Wheaton Precious Metals has deals in place with 20 operating mines and 12 developing mines, most of which are located in North, Central, and South America. If one or two mines has an unexpected production slowdown, it’s not going to sabotage Wheaton’s growth.
Lastly, there’s plenty of organic growth potential over the next decade. Wheaton Precious Metals expects average annual production to total 810,000 GEO and 850,000 GEO over the coming five- and 10-year periods, respectively. This would equate to organic GEO growth of more than 40%.
General Motors
The third no-brainer stock to buy with $200 right now is none other than auto stock General Motors (GM).
With a possible recession brewing, buying shares of an extremely cyclical company may not sound like the smartest idea. After all, demand for new vehicle purchases tends to decline during a recession.
But there are two sides to every economic cycle. Despite recessions being inevitable, they’re usually short-lived. The 12 recessions that have occurred after World War II have lasted just two to 18 months. Comparatively, periods of expansions have almost always been measured in years. Buying stakes in profitable, brand-name, cyclical businesses when they’re down in order to position yourself to take advantage of a long-winded bull market is often a smart move.
Most of the excitement surrounding General Motors has to do with the company’s push into electric vehicles (EVs). GM outlined plans to spend an aggregate of $35 billion on EVs and batteries through mid-decade, with the ultimate goal of launching 30 new EV models globally by the end of 2025. By mid-decade, General Motors aims to produce north of 1 million EVs annually in North America.
Not surprisingly, GM will be focused on its top-selling trucks, such as the Chevrolet Silverado EV and GMC Sierra EV. Bigger isn’t always better, but it tends to be in the auto industry. Trucks and SUVs usually (pardon the pun) drive higher automotive margins than sedans. Building up a sizable reservation base will be important. GM had north of 170,000 reservations for the Silverado EV as of October 2022.
China is another intriguing opportunity for General Motors. It’s the world’s largest auto market, and its EV industry remains relatively nascent. Since GM already has a presence in China (and is profitable in the country), it has a realistic path to meaningful EV market share over time.
If you need additional proof that General Motors is worth investing in, consider that it raised its adjusted automotive free-cash-flow guidance for 2023 by a midpoint of $500 million. Whereas other automakers (ahem, Tesla) are forced to fiddle with their prices to keep inventory levels in check, CEO Mary Barra is putting on a clinic of how to smartly grow the business during a challenging economic environment.
Smart management and a microscopic earnings multiple are an ideal combination for long-term investors.
— Sean Williams
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Source: The Motley Fool