The past 10 weeks have been unlike anything Wall Street and retail investors have ever witnessed. The proliferation of the coronavirus disease 2019 (COVID-19) within the U.S. and around the globe has led to record levels of volatility in the stock market and neck-breaking moves up and down in the major U.S. indexes. In fact, we saw the benchmark S&P 500 push into bear market territory at a quicker pace than in any previous correction in history.
However, major downdrafts in the stock market have always proved to be advantageous opportunities to put your capital to work. That's because all corrections and bear markets are eventually put into the rearview mirror by bull market rallies. As long as you buy great companies and give your investment theses in these businesses ample time to be proved true, you have a very good chance of growing your wealth.
The thing is, you don't need to be a millionaire to make money in the stock market. If you have even $2,000 set aside that you won't need to pay bills or for emergencies, then the following three stocks could be the smartest buys you'll make.
Pretty much all companies in the financial sector are cyclical, which means they're going to feel some sort of pinch from the likely recession we've been pushed into by COVID-19. Credit-services giant Visa (NYSE:V) is no different, as it'll see the dollar amount transacted on its network decline as a greater number of Americans are laid off.
However, Visa has shown time and again that it's built to survive what are often relatively short downward moves in the stock market and U.S. economy. This is a company that currently holds more than half of all U.S. credit card market share by network purchase volume, which is an enviable position to be in considering that 70% of U.S. GDP is based on consumption. With the understanding that the U.S. economy spends far more time expanding than contracting, Visa should come out of this pandemic just fine.
What's more, Visa focuses solely on the processing side of the equation. Because it's not a direct lender, Visa isn't hurt by rising loan delinquencies that typically accompany and follow a recession. This allows Visa to rebound much faster than most of its credit-service peers and ensures that its profit margin, which is above 52% over the trailing-12-month period, remains superior.
Even though I'm an ExxonMobil (NYSE:XOM) shareholder, I'll admit it's far from a sexy pick. We've witnessed a disruption to the oil market like never before, and it's going to be some time before supply and demand are brought back into some form of harmony. This makes profitability virtually impossible in the near term for most oil stocks.
Yet over the longer run, ExxonMobil is well-positioned to thrive. Remember that this is an integrated oil giant that's not solely dependent on drilling and exploration. Don't get me wrong, drilling is what offers the company its greatest growth prospects. Nothing would please me more than seeing the Payara Project and its up to 220,000 barrels per day of production get off the ground before mid-decade. But this is a company with plenty of cash flow potential from its downstream operations, such as refining and petrochemical operations. ExxonMobil is expected to lean on its downstream segment, which should benefit from weaker crude prices, for the foreseeable future.
Exxon also has the luxury of cutting back on capital expenditures to control cash outflows during a period of unprecedented demand weakness. Recently, the company cut $10 billion off of its capital expenditure forecast for 2020 of $30 billion to $33 billion. The plan is to keep its dividend intact for now, but the company can save cash big time if it ever needs to dial back its payout.
In other words, ExxonMobil is going to be just fine.
Investors with $2,000 in spare cash would also be smart to load up on shares of pharma company Bristol Myers Squibb (NYSE:BMY). Its shares have outperformed the broad-based S&P 500 in 2020, albeit they were still down more than 6%, year to date, through this past weekend.
While there are obvious concerns that clinical research could be disrupted by the COVID-19 pandemic, healthcare stocks remain one of the most defensive categories throughout this mess. Because people don't get the luxury of choosing when they get sick or what ailment(s) they develop, demand for pharmaceuticals tends to remain consistent from one month to the next. This leads to predictable cash flow for Bristol Myers at a time when very little seems predictable.
Perhaps the biggest tailwind for the company is the recently completed acquisition of Celgene. Revlimid, Celgene's blockbuster multiple myeloma drug, may have a shot at $12 billion-plus in annual sales in 2020, and it will have its revenue stream protected from a flood of generic competition until the end of January 2026. That's a lot of cash flow headed Bristol Myers' way.
Furthermore, the company's cancer immunotherapy, Opdivo, is being tested in dozens of clinical trials, primarily as a combination therapy. We're talking about a drug that's already generating more than $7 billion annually in sales that could easily move past the $10 billion per year mark if it continues to expand its label.
At only 8 times next year's forecast profit, Bristol Myers Squibb looks like a screaming buy.