For the past three years, Wall Street has been testing the conviction of investors. All three major indexes have been mired in two bear markets (2020 and 2022), as well as a bull market (2021) that was fueled by fiscal stimulus. Short-term market gyrations have proved no more predictable than a coin flip.

But things change quite a bit when investors’ horizons are expanded.

If you were to, hypothetically, hold an S&P 500 tracking index for one day, history shows that you’d have been profitable about 54% of the time, dating back to 1929. But if you were to hold an S&P 500 tracking index for one month, one year, or five years, your probability of making money grows to 62%, 75%, and 90%, respectively, when back-tested to 1929. When examined over a 20-year period, the S&P 500 has been a flawless moneymaker for investors, dating back more than a century.

What’s truly great about putting your money to work on Wall Street is that online brokerages have virtually eliminated barriers to entry. Commission fees for stock trades on major exchanges, along with minimum deposit requirements, are now a thing of the past. It means any amount of money — even the $20 you have sitting in your pocket — can be the perfect amount to invest.

If you have $20 that’s ready to be put to work, and you’re certain this isn’t cash you’ll need to pay bills or cover other expenses, three stocks stand out as no-brainer buys right now.

AT&T
The first no-brainer stock to buy with $20 is none other than telecom behemoth AT&T (T).

Shares of AT&T have effectively been halved since the beginning of March 2020. With quite a bit of debt on its balance sheet, the fastest Fed rate-hiking cycle in four decades has investors concerned about future interest expenses.

AT&T is also reeling from a Wall Street Journal report in July that detailed potential financial liabilities legacy telecom companies may have tied to their use of lead-clad cables. Considering how much debt the legacy telecom companies are lugging around, they can ill afford unexpected financial liabilities.

However, this latter concern appears to be much ado about nothing. Though AT&T does have lead-sheathed cables in its network, they make up only a small percentage of what’s in use. Additionally, there’s nothing concrete that suggests AT&T will face any financial liability tied to the use of lead-clad cables. Even if a financial figure is determined, it’ll probably take years to come to that conclusion in court.

While AT&T’s best growth days are long gone, it’s still a company that can modestly move the profit needle higher. The ongoing upgrade of wireless networks to support 5G download speeds is helping in two key ways. First, it’s encouraging more data consumption. Data happens to be the core margin driver for AT&T’s wireless segment. Second, the ability to offer 5G speeds to its broadband customers has helped the company continue its streak of adding at least 1 million net-broadband customers each year.

Furthermore, AT&T’s balance sheet has meaningfully improved since spinning off WarnerMedia in April 2022. When WarnerMedia was spun off and merged with Discovery to create Warner Bros. Discovery, the new media entity took responsibility for certain lots of debt, as well as paid cash to AT&T. Since reporting $169 billion in net debt on March 31, 2022, AT&T’s net debt has shrunk to $132 billion as of June 30, 2023. In other words, the company’s 7%-plus yield appears safe.

With AT&T valued at roughly 6 times forward-year earnings, you’d struggle to find a cheaper supercharged dividend stock.

Sirius XM Holdings
A second no-brainer stock to buy with the $20 you have in your pocket right now is satellite-radio operator Sirius XM Holdings (SIRI).

The two biggest headwinds Sirius XM is facing relate to its outstanding debt and the health of the U.S. economy. Similar to AT&T, Sirius XM could find future deals and refinancings pricier following the most aggressive rate-hiking cycle in more than 40 years.

Sirius XM is also highly cyclical. If multiple economic datapoints are correct and the U.S. economy weakens in the coming quarters, it wouldn’t be a surprise to see new vehicle sales slow or shift into reverse. Sirius XM relies on converting promotional customers via new-vehicle sales into paying subscribers.

Though these are tangible concerns that can temporarily limit Sirius XM’s ceiling, they also ignore the incredible safety of its floor.

To start with the obvious, Sirius XM is America’s only legal satellite-radio operator. Though it’s not free of competition — terrestrial and online radio are still competing for listeners — being the only satellite-radio operator does afford Sirius XM strong subscription-pricing power.

The company’s revenue mix is another key advantage. For terrestrial and online radio providers, advertising tends to be the No. 1 source of revenue. Unfortunately, ad spending is cyclical and therefore prone to downturns at the first hint of economic weakness.

By comparison, Sirius XM generated less than 19% of its first-half sales in 2023 from advertising. Meanwhile, nearly 78% of its sales come from subscriptions. The important point here is that subscribers are far less likely to cancel their plan than advertisers are to pare back their spending. This should help Sirius XM navigate market downturns better than other radio operators.

Sirius XM also has certain “fixed” expenses that can lead to rising operating margin over time. Though its royalty revenue will deviate from quarter to quarter, transmission and equipment costs are more or less fixed no matter how many subscribers the company has. If Sirius can continue to build on its subscriber count, its shares should offer abundant upside for long-term investors.

Teva Pharmaceutical
The third no-brainer stock to buy with $20 right now is brand-name and generic-drug company Teva Pharmaceutical (TEVA).

Of the three companies being discussed, Teva has the clearest set of headwinds. It’s faced a mountain of litigation tied to its role in the opioid crisis, and it’s also been buried by debt following, in hindsight, its grossly overpriced acquisition of generic-drug company Actavis. Although it’s a slow turnaround process, Teva has been making big strides and now looks incredibly cheap for what it can offer investors.

The single biggest catalyst for Teva is that it settled the aforementioned “mountain” of opioid litigation from virtually every U.S. state for roughly $4.25 billion. While it would have been ideal for the company to have no financial liability, having 13 years to cover these payments puts a clear gray cloud for the company into the rearview mirror.

Teva Pharmaceutical has also made significant progress reducing its debt since its acquisition of Actavis closed. Under previous CEO Kare Schultz, Teva’s net debt was practically halved from a peak of more than $35 billion. Schultz cut billions in annual operating expenses, sold off noncore assets, and used the company’s abundant operating cash flow to steadily lower the company’s debt load and improve its financial flexibility. Under new CEO Richard Francis, Teva’s net debt has further shrunk to $18 billion, as of June 30.

Teva’s “pivot-to-growth strategy” should excite investors, too. Whereas Teva had previously focused heavily on its world-leading, generic-drug operations, it’ll now be diverting a lot of its research and development budget to bringing novel drugs to market. Brand-name therapies offer significant pricing power and can boost margins in a way that generic drugs simply can’t.

I’d be remiss if I didn’t also mention that healthcare stocks are exceptionally defensive. We don’t get to choose when we become ill. Patients will need generic and brand-name drugs in any economic environment.

A forward price-to-earnings (P/E) ratio of less than 4 simply doesn’t do justice to the progress Teva has made over the past six years.

— Sean Williams

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Source: The Motley Fool