Almost no one enjoys a bear market, except perhaps maybe short sellers. But they are a normal and necessary part of the market cycle. They also offer investors the chance to buy great companies on sale.
This can be especially helpful for investors without a ton of capital who may not have been able to chase stocks ever higher during the previous bull market. With these smaller investors in mind, I’ve put together a list of the best stocks to invest $500 in.
All of the names on today’s list are high-quality businesses that have seen their stocks caught up in the broader market sell-off. Because of this, they are trading at a hefty discount to their respective share prices one year ago, offering attractive entry points.
If you have $500 to invest, you could take an equal-weighted approach, dividing the capital into thirds and investing an equal amount in each of the three names. Or you could buy an equal number of shares of each, which based on current prices, would be about 1.8 shares.
Whatever allocation strategy you choose, here are the best stocks to invest $500 in.
Alphabet (GOOGL)
A look at Alphabet’s (NASDAQ:GOOGL) long-term chart shows this is not a stock that goes on sale often, at least not in the way it has lately. Shares are down 36% over the past 12 months, presenting a great opportunity for long-term investors.
On Oct. 25, the company announced weaker-than-expected Q3 results. While the 6% year-over-year revenue growth paled in comparison to the year-ago quarter’s 41%, we are likely heading into a recession, which is leading many businesses to reduce their advertising budgets. Yet, Alphabet still managed to grow its total advertising revenue slightly to $54.5 billion for the quarter. Management also announced a hiring slowdown to rein in costs.
While Alphabet’s latest quarterly results show the company is not immune to the economic slowdown, this is certainly not a business investors need to be worried about. The company owns the two most popular websites in the world — Google.com and YouTube.com. And its advertising business generates strong cash flow, providing stability despite short-term fluctuations.
Analysts expect revenue growth of around 10% this year and 8% next year. Admittedly, earnings are forecast to fall about 16% this year. However, this is likely already priced into shares, and analysts forecast a return to growth in 2023.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) shares have taken a 58% haircut over the past year. Investors’ aversion to tech stocks and growth stocks is the main culprit. But the company’s multiple revenue outlook reductions certainly didn’t help. Most recently, PayPal warned of a weak holiday quarter as inflation continues to weigh on consumers’ discretionary spending.
Still, third-quarter results, reported on Nov. 3, were better than expected. Revenue was up 11% year over year to $6.85 billion. Adjusted earnings per share of $1.08 were lower than a year ago but beat the consensus estimate of 96 cents. Meanwhile, total payment volume was up 15% year over year and PayPal saw nearly 3 million new active accounts added during the quarter. Perhaps most encouraging, though, is the fact that, despite economic headwinds, PayPal has raised its earnings outlook in back-to-back quarters.
Now trading at roughly 20 times this year’s earnings estimate, I think shares are an extraordinary bargain based on the company’s long-term growth estimates.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX) is the strongest performer on today’s list of the best stocks to invest $500 in. Year to date, shares are down 16%, slightly outperforming the broader market. However, this still presents a discount for investors looking to buy shares of a company that has proven time and again it can weather any difficulties that come its way.
Investors seem confident in the stock, which is up 44% since hitting a 52-week low in May and nearly 17% since the company reported better-than-expected fiscal Q4 results on Nov. 3. Revenue was up 3.3% year over year to $8.41 billion. U.S. same-store sales jumped 11% from a year ago, while global same-store sales rose 7%. Clearly, the company is doing something right to maintain its loyal customer base.
I recently included SBUX on a list of the best blue-chip stocks to buy, noting: “[C]onsumers continue to spend a great deal of money on Starbucks’ offerings. As anti-Covid measures in China continue to be eased, China, the company’s second-biggest market, could give SBUX stock a big lift in 2023.”
Analysts are forecasting double-digit annual revenue and earnings growth through 2025. Trading at 29 times forward earnings, shares look a little rich, but investors should pounce on any dip.
— Bret Kenwell
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Source: Investor Place