Whether you’re a new investor or have been putting your money to work alongside the professionals for decades, last year proved challenging. Unless you were betting against equities or had a sizable portion of your portfolio in energy stocks, you probably ended the year lower on an unrealized basis. All three of the major U.S. stock indexes produced their worst returns since 2008.
But the interesting thing about peril on Wall Street is that it always begets opportunity. Although we’ll never know ahead of time when a stock market correction or bear market will begin, how long it’ll last, or how steep the decline will be, we do know from history that every downturn is eventually cleared away by a bull market. It makes every double-digit decline a surefire buying opportunity for long-term investors.
Arguably, the best thing about investing on Wall Street is that you don’t need an exorbitant pile of cash to get started or to continue building wealth. Most online brokerages have done away with commission fees and minimum deposit requirements, which means any amount of money — even $100 — can be the ideal amount to put to work.
If you have $100 ready to invest and which isn’t going to be needed to cover bills or emergencies, the following three stocks make for no-brainer buys right now.
Walgreens Boots Alliance
The first surefire stock that’s begging to be bought with $100 is none other than pharmacy chain Walgreens Boots Alliance (NASDAQ: WBA).
The vast majority of the healthcare sector is exceptionally defensive and insulated from economic downturns. Because people can’t control when they become ill, demand for everything from prescription drugs to healthcare services remains consistent in any economic environment.
Interestingly, Walgreens Boots Alliance proved to be a rare exception to this rule. Since most of its revenue comes from its physical stores, initial lockdowns tied to the COVID-19 pandemic caused foot traffic to plummet. As you can rightly imagine, this adversely impacted Walgreens’ profits. But with the worst of the pandemic now likely in the rearview mirror, opportunistic investors have the chance to scoop up a highly profitable, well-known company at a dirt cheap valuation.
Walgreens Boots Alliance’s management team is multiple years into an operating transformation designed to boost margins and encourage repeat visits. Part of this evolution involves cost-cutting, such as reducing annual operating expenses by more than $2 billion and divesting its wholesale drug business to AmerisourceBergen for $6.5 billion. But cost-cutting only goes so far. What makes Walgreens an exciting investment is where it’s spending its cash.
One area where the company is aggressively spending is digitization. Though physical stores remain its key sales driver, the pandemic was a teaching moment that showed convenience is a necessity for today’s consumer. Beefing up the company’s online ordering site, as well as refining its supply chain, are ways Walgreens can lift its organic growth rate and improve its operating margin.
As a shareholder, I’m also quite excited about healthcare services growing into a larger percentage of total revenue over time. Walgreens and its partner, VillageMD — Walgreens is a majority investor in VillageMD — have opened 200 full-service health clinics that are co-located at Walgreens’ stores. The goal is to reach 1,000 operating clinics in over 30 U.S. markets by the end of 2027.
Walgreens Boots Alliance looks like a veritable steal with a dividend above 5% and the company valued at less than 8 times Wall Street consensus earnings for next year.
Sirius XM Holdings
A second no-brainer stock investors can buy right now with just $100 is satellite-radio provider Sirius XM Holdings (NASDAQ: SIRI).
Arguably, the biggest headwind for Sirius XM (and the entire media industry, for that matter) is the likelihood of the U.S. falling into a recession at some point relatively soon. Media stocks tend to be hurt by reduced ad spending when the U.S. economy struggles. With three recession-probability indicators screaming that an economic downturn is likely, investors have approached Sirius XM stock with caution.
However, Sirius XM offers a couple of sustainable competitive advantages that can help it excel, even if the U.S. economy struggles for a short period.
As an example, Sirius XM is a legal monopoly. There aren’t any other satellite-radio operators. While Sirius XM does still contend with terrestrial and online radio competition, being the lone satellite provider affords it exceptionally strong pricing power. In fact, Sirius XM is increasing the subscription cost for its services in March 2023.
Another key aspect of Sirius XM’s operating model is that it’s not ad driven, unlike most terrestrial and online radio companies. Even following its acquisition of Pandora Media in February 2019, only 20% of Sirius XM’s $9 billion in revenue last year came from advertising. Comparatively, 77% of its revenue is derived from subscriptions. Whereas advertisers are prone to pull back on their spending during economic downturns, subscriptions are stickier and less likely to be cancelled. This helps it weather downturns considerably better than its competitors.
This is also a good time to point out that Sirius XM benefits from a relatively predictable cost structure. Although royalties can certainly ebb and flow from quarter to quarter, the company’s equipment and transmission costs don’t change much regardless of how many new subscribers it adds. Over time, this can lift the company’s operating margin.
Lastly, Sirius XM has a solid capital-return program. It’s doling out a 2.1% yield and, including a special dividend in 2022 and share repurchases, returned close to $2 billion to its shareholders last year.
The third no-brainer stock you can buy right now with $100 is widely held FAANG stock, Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG). Alphabet is the parent company of internet search engine Google, autonomous vehicle company Waymo, and streaming platform YouTube, among other businesses.
Similar to Sirius XM, the threat of an advertising slowdown is Alphabet’s clear-cut headwind. But unlike Sirius XM, which has just 20% of its annual sales tied to advertising, the lion’s share of Alphabet’s sales derives from advertising. A recession would undoubtedly exert short-term pressure on its operating results.
But advertising is a two-way street that strongly favors long-term investors. Even though recessions are inevitable, they’re usually over in a couple of quarters. Meanwhile, periods of economic expansion often last for years. This means ad-driven businesses are enjoying strong ad-pricing power the vast majority of the time.
Alphabet’s core operating segment continues to be its internet search engine. On a four-year trailing basis, Google has accounted for no less than 91% of global internet search share. Having a roughly 90% share lead over your next-closest competitor affords Google significant pricing power with merchants wanting to target their message(s).
Yet there’s far more to Alphabet than just its cash-cow operating segment. For instance, Google Cloud has been steadily gaining cloud infrastructure service share. Tech-focused research firm Canalys notes that Google Cloud’s market share in global cloud infrastructure service spending tipped the scales at 10% in the fourth quarter. Enterprise cloud spending still looks to be in its early innings.
Alphabet is also leaning on growth from YouTube, which was acquired in 2006 for just $1.65 billion. Today, YouTube is the second most-visited social site on the planet. Aside from increasing premium subscriptions, Alphabet is focused on bettering the monetization of YouTube Shorts — short-form videos lasting less than 60 seconds. In roughly nine months, the average number of Shorts viewed daily rose from around 30 billion to more than 50 billion.
Relative to both forward-year earnings and cash flow, Alphabet is historically cheap and ripe for the picking.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet and Walgreens Boots Alliance. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.