The bulls made their presence known in a big way in 2023. Following the 2022 bear market, the benchmark S&P 500 and Nasdaq Composite screamed higher by 24% and 43%, respectively, while the iconic Dow Jones Industrial Average climbed to a record high.
Despite these sizable gains, a fresh high still eludes the Nasdaq Composite, while the small-cap-driven Russell 2000 remains nearly 18% below its all-time high set in the latter-half of 2021. In other words, bargains can still be found for investors willing to seek them out.
What’s great about putting your money to work on Wall Street is that online brokers have steadily torn down barriers for everyday investors. Most online brokerages have eliminated minimum deposit requirements and commission fees for common stock trades on major U.S. exchanges. This means any amount of money — even $300 — can be the ideal amount to put to work.
If you have $300 to invest, and you’re absolutely certain this isn’t cash you’ll need to pay bills or to cover emergency expenses, the following three stocks stand out as no-brainer buys right now.
Realty Income
The first magnificent stock to add to your portfolio with $300 is none other than premier retail real estate investment trust (REIT), Realty Income (O). Realty Income sports a 5.4% yield, doles out its distribution on a monthly basis, and has raised its payout 123 times since becoming a publicly listed company in 1994.
All stocks face headwinds, and Realty Income is no exception. With the Fed set to begin cutting interest rates in 2024, which’ll make REITs more attractive from a yield perspective, Realty Income’s clearest headwind is the growing possibility of a U.S. recession. A couple of money-based metrics and recession indicators suggest a downturn is likely in the new year. Economic contractions may make it tougher for Realty Income to collect rental income on time, as well as raise rates on lease renewals.
But let me be clear: Realty Income isn’t your run-of-the-mill retail REIT. It’s the retail REIT other companies envy.
One of the big keys to Realty Income’s ongoing success is the composition of its commercial real estate (CRE) portfolio. The company estimates that greater than 90% of total rent collection is “resilient to economic downturns.” Dig a bit deeper and you’ll find that more than a third of the company’s annualized contractual rent derives from grocery stores, convenience stores, dollar stores, and drug stores. These are businesses that consumers will visit in any economic climate, which substantially lessens the concerns about rental delinquencies from its tenants.
To build on this point, Realty Income aims to increase its adjusted funds from operations (AFFO) through diversification. It completed two deals over the past two years in the gaming industry, and at the time of this writing is expected to close on its $9.3 billion all-share acquisition of son January 23. Aside from being immediately accretive to AFFO, Spirit’s CRE assets will further diversify Realty Income’s portfolio.
Did I mention that Realty Income is also historically inexpensive? Shares are currently valued at a shade over 13 times Wall Street’s consensus cash flow estimate for 2024. This represents its lowest multiple to cash flow in more than a decade.
Walgreens Boots Alliance
A second no-brainer stock to buy with $300 right now is a company that’s collectively disliked by Wall Street analysts. I’m talking about pharmacy chain Walgreens Boots Alliance (WBA).
Whereas investors really have to do some digging to find Realty Income’s headwinds, Walgreens’ stock chart makes it clear the company has been contending with some challenges. Growing online competition in the pharmacy space, coupled with a recent (but expected) dividend cut, has made Walgreens Boots Alliance akin to Wall Street’s chopped liver. But it’s not all bad news for this once high-flying healthcare stock.
The biggest catalyst for Walgreens in 2024 (and beyond) is the recent hiring of Tim Wentworth as CEO. Before becoming CEO of Walgreens, Wentworth headed Evernorth, Cigna Group‘s health services platform. He was the CEO of Express Scripts, as well, which was acquired by Cigna in 2018. The key point being that Walgreens purposefully brought in a CEO with healthcare experience, which is something it was sorely lacking with its previous CEO, Rosalind Brewer.
Walgreens is also currently in the midst of implementing a multipoint turnaround plan designed to reduce its expenses, broaden its margins, and improve customer loyalty. What I’d argue is most important about Walgreens’ turnaround efforts is the company’s shift into healthcare services.
For far too long, Walgreens relied on horizontal expansion. This is to say that it kept adding to its network of brick-and-mortar locations to reach new consumers. The company’s new vertical approach will help to expand its margins and is likely to be beneficial with regard to customer loyalty.
Walgreens and VillageMD — Walgreens is a majority investor in VillageMD — intend to open 1,000 full-service, physician-staffed health clinics co-located in Walgreens’ stores in 30 major U.S. markets by 2027. Being physician-staffed means these clinics can treat far more patients and ailments than the healthcare clinics found at most pharmacy chains.
The valuation makes sense, too. Despite aforementioned challenges, Walgreens Boots Alliance stock can be scooped up right now for a little over 6 times forward-year consensus earnings per share. Not only does this represents its lowest forward-year earnings multiple in at least a decade, but patient investors will enjoy a 4.5% annual yield to boot.
Okta
The third no-brainer stock to buy with $300 right now is cybersecurity company Okta (OKTA).
While most cybersecurity stocks have soared of late, Okta hasn’t enjoyed nearly as much success. That’s because the company admitted in November that hackers gained access to data on all of its customers from late September through mid-October. It’s not uncommon for cybersecurity companies to lose out on near-term revenue in the immediate aftermath of a security breach.
While breaches aren’t ideal, they’re not a long-term game changer for Okta or its sustained double-digit growth potential.
Okta aims to be the premier name in identity verification solutions. The company’s platform is cloud-native and leans heavily on artificial intelligence (AI) and machine learning to grow more effective at spotting and responding to potential threats over time. Though it’s clear there’s more learning to be done by Okta’s AI solutions, the company’s cloud-native platform has a clear long-term advantage over on-premises security solutions.
In November 2022, Okta estimated the identify verification market to be an $80 billion addressable opportunity. With sales expected to reach $2.24 billion in fiscal 2024 (the company’s fiscal year ends on Jan. 31, 2024), it’s evident that Okta’s growth runway is just getting started.
The acquisition of Auth0, which closed in February 2022, should also be a key growth driver for the company. Despite higher-than-expected integration costs, Auth0 provides Okta with a way to gain share in the $30 billion Customer Identity market. Further, Auth0 should help Okta expand into international markets, which is sorely needed to sustain a double-digit growth rate.
Lastly, don’t overlook that cybersecurity has evolved into a basic necessity service. Any business that has an online or cloud-based presence needs to protect their data and that of their customers from attacks by hackers. Protecting access to data is increasingly falling to third-party providers like Okta, which should lead to highly predictable operating cash flow from one year to the next.
Although Okta’s forward-year earnings multiple of 42 might look lofty, expected annualized earnings growth of 25% over the coming five years means it’s cheaper than most investors probably realize.
— Sean Williams
Where to Invest $99 [sponsor]Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.
Source: The Motley Fool