It's been a wild ride for the investing community over the past four years and change. Beginning in 2020, the iconic Dow Jones Industrial Average, broad-based S&P 500, and widely followed Nasdaq Composite, began trading off bear markets and bull markets in successive years.
While investors are hoping for a continuation of the running of the bulls on Wall Street, short-term directional moves in the major indexes have always been difficult to predict with any accuracy. The good news is that directional moves for Wall Street's three major stock indexes are crystal clear over the long run. Over time, the stock market has proved to be a wealth-building machine. As long as you have a long-term investment mindset, anytime can be the perfect time to put your money to work.
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Online brokerages have also made it easier than ever for retail investors to grow their wealth on Wall Street. In recent years, most online brokers have eliminated commission fees on common stocks trades and done away with minimum deposit requirements. For everyday investors, it means any amount of money -- even $500 -- can be the perfect amount to get started or add to your existing portfolio.
If you have $500 ready to invest, and you're absolutely certain you won't need this cash to pay bills or cover emergencies as they arise, the following three stocks stand out as no-brainer buys right now.
NextEra Energy
The first phenomenal company that would be a genius buy with $500 right now is the largest electric utility in the U.S. by market value, NextEra Energy (NEE -1.36%).
The lure of utility stocks has long been their reduced volatility and market-topping dividends. One of the very few things that tends to disrupt this harmony is rapidly rising interest rates. The Federal Reserve's aggressive rate-hiking cycle that began in March 2022 sent short-term Treasury yields soaring, which in turn made utility stocks less attractive to income seekers.
On the other side of the coin, the nation's central bank looks to be at the tail-end of its tightening cycle. Although shelter inflation remains stubbornly high, the prevailing rate of inflation has notably declined from its June 2022 peak of more than 9%. This suggests Treasury yields will fall and utility stocks like NextEra Energy will soon regain their luster.
But there's a lot more to like about NextEra than just a favorable macroeconomic outlook. What's set NextEra Energy apart from dozens of other publicly traded electric utilities is its investments in renewable energy. As of the end of 2023, the company has 72 gigawatts (GW) in operation, 36 GW of which are tied to renewable sources. The 24 GW of capacity NextEra generates from wind power, along with the 7 GW from solar, are both high-water marks globally from an electric utility.
Admittedly, investing in renewable energy projects isn't cheap. However, making these investments has led to outsized adjusted earnings growth. Thanks to meaningfully reduced electricity generation costs, NextEra's adjusted earnings have grown by annualized 10% over the trailing decade. It's effectively a growth stock in a sector known for low-single-digit earnings growth.
NextEra Energy isn't taking its foot off the accelerator, either. From the start of 2023 through the end of 2026, it expects to bring between 32.7 GW and 41.8 GW of renewables and storage solutions online. In short, its competitive advantage as a leader in clean-energy solutions is only growing.
Opportunistic investors have the opportunity to scoop up shares of NextEra Energy right now for 17 times forward-year earnings, which represents a 34% discount to its average forward-year earnings multiple over the trailing-five-year period.
SentinelOne
A second amazing stock that has all the hallmarks of a no-brainer buy if you have $500 ready to invest is cybersecurity company SentinelOne (S 1.70%).
Two weeks ago, SentinelOne released its fiscal fourth-quarter operating results (the company's fiscal year ends Jan. 31) and provided sales guidance for fiscal 2025. Wall Street was less-than-thrilled with the company's forecast of $812 million to $818 million in full-year sales for current year, compared to the consensus estimate from analysts of $818 million. In a richly valued market, companies that don't wallop Wall Street's expectations get creamed.
However, this looks like a classic overreaction if investors widen their lens. Though SentinelOne didn't clobber the consensus, the midpoint of its forecast ($815 million in full-year sales) implies year-over-year sales growth of 31%. That's not too shabby. In the coming four years, SentinelOne is expected to sustain a roughly 30% growth rate and triple its sales.
The catalyst behind its steady growth is its Singularity platform. Singularity relies on artificial intelligence (AI) and machine learning to proactively identify and prevent endpoint security threats. Leaning on AI should help Singularity become more effective over time.
This is a great time to mention that cybersecurity has become something of a basic necessity service. Businesses with an online or cloud-based presence don't have the luxury of crossing their fingers and hoping hackers won't steal their data. Regardless of how well or poorly the economy and stock market are performing, demand for third-party endpoint solutions should remain steady. In short, we're talking about a recipe for predictable operating cash flow.
Among the many key performance indicators headed in the right direction, the one that really stands out is the sheer number of customers now generating in excess of $100,000 in annual recurring revenue (ARR). SentinelOne closed out fiscal 2024 with 1,133 customers generating north of $100,000 in ARR, which is a 30% increase from the prior year. Bigger customers are its key to reaching recurring profitability in the current year.
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PayPal Holdings
The third no-brainer stock that's begging to be bought with $500 right now is none other than fintech leader PayPal Holdings (PYPL 2.90%).
Since reaching its all-time high during the summer of 2021, shares of PayPal have retraced around 80%. Increasing competition in the digital payment space, coupled with the fear of higher inflation reducing the discretionary spending power of consumers, has weighed on this former highflier. But there are plenty of reasons to be believe PayPal can shine bright, once more.
To start with the obvious, fintech solutions are still early in their growth ramp. According to estimates from Boston Consulting Group that were released in May 2023, global fintech revenue can grow sixfold to $1.5 trillion by 2030. There's more than enough room for multiple winners with an addressable opportunity this large.
More importantly, most of PayPal's key performance metrics point to sustained double-digit growth. Even amid stagnant active account growth, PayPal recorded $1.53 trillion in total payment volume (TPV) across its networks (primarily PayPal and Venmo) in 2023. That's up 12% on a currency-neutral basis. As I've pointed out previously, if PayPal can deliver 12% currency-neutral TPV growth amid palpable economic uncertainty and with active accounts stagnant, imagine what it can do when active account growth returns and the U.S. economy really finds its footing.
PayPal's active account engagement might be the top selling point to investors. At the end of 2020, the average active account was completing close to 41 payments on a trailing-12-month (TTM) basis. But when the curtain closed on 2023, the company's average active account had completed almost 59 payments on a TTM basis. PayPal is primarily driven by fees. If people are using the platform more frequently, it bodes well for an increase in gross profit over time.
New CEO Alex Chriss provides another reason for current and prospective shareholders to be optimistic. Prior to becoming PayPal CEO in late September, he headed Intuit's Small Business segment. He understands what growth initiatives will resonate with smaller merchants, but also isn't afraid to tighten PayPal's belt to improve its margins.
Shares of PayPal can be scooped up by growth and value seekers for less than 12 times forward-year earnings. That's roughly 50% below its average forward-year earnings multiple over the last five years.
