For more than a year, investors have reveled in one of the best bounce-back rallies from a bear market bottom of all time. Through this past weekend, the nearly 125-year-old Dow Jones industrial Average, broad-based S&P 500, and tech-heavy Nasdaq Composite were respectively higher by 82%, 85%, and 103% since hitting a bear-market bottom on March 23, 2020.
The crazy thing is, investors can still find bargains, even with the indexes at or near record closing highs. If you have $3,000 in cash that won't be needed to pay bills or cover emergencies, you have more than enough money to buy the following trio of stocks, which could aptly be described as no-brainer investments.
First up is satellite-radio operator Sirius XM (SIRI 0.63%). Sirius may not be the high-growth stock it was 15 years ago, but it's evolved into a cash flow machine that's designed to be a moneymaker for investors over the long run.
To start with the basics, Sirius XM is the only satellite radio operator. Having a legal monopoly gives the company exceptional pricing power on its satellite radio subscriptions, and it makes Sirius one of the most popular choices for in-vehicle radio.
Arguably even more important than having a legalized monopoly is how Sirius XM generates its revenue. Although it did acquire Pandora, an advertising-driven operating model, in February 2019, the vast majority of Sirius XM's revenue is derived from subscriptions. Last year, $6.37 billion (79%) of the company's $8.04 billion in annual sales came from subscriptions. This is key, because consumers with a subscription are far less likely to cancel than advertisers are to pare back their spending during a recession or economic contraction. Despite the worst recession in decades last year, Sirius' subscriber revenue headed higher.
Another benefit of its operating model is that it deals with a couple of relatively fixed costs. No matter how many new subscribers the company signs up, transmission and equipment costs remain about the same. Though royalty and talent acquisition costs can vary from quarter to quarter, the Sirius XM operating model is set up to expand its margins over time.
The Square growth story began nearly a decade ago with its point-of-sale devices and analytics tools. This seller ecosystem has seen the gross payment volume (GPV) traversing its network catapult from $6.2 billion in 2012 to $112.3 billion in 2020. Excluding the slow growth experienced during the pandemic, the seller ecosystem averaged annualized GPV growth of 49% between 2012 and 2019.
Keep in mind that this growth story isn't even close to being over. Although Square's payment facilitation devices and services have primarily focused on small businesses, the company's operating results show that it's now attracting larger businesses. Back in the fourth quarter of 2018, 24% of total GPV came from businesses with $500,000 or more in annualized GPV. By comparison, 30% of GPV in the fourth quarter of 2020 came from these larger companies. Since the seller ecosystem is driven by merchant fees, it can't hurt to have bigger businesses latching onto the network.
However, the bigger growth story here, at least over the long run, is peer-to-peer payment platform Cash App. Cash App allows Square to generate revenue from merchant fees, bank transfers, investments, and Bitcoin exchange. Even though the latter has minimal margins, Bitcoin revenue skyrocketed by a factor of nine to $4.57 billion in 2020.
The beauty of Cash App is that it's costing Square very little to acquire new customers. According to the company, it spent less than $5 to acquire new monthly users in the fourth quarter. Comparatively, it brought in $41 in gross profit per monthly user in Q4. Suffice it to say, Cash App and its 36 million monthly active users is a monster in the making.
A third no-brainer stock you can put $3,000 to work in right now is social media giant Facebook (META -0.43%).
If it sounds like I've been pounding the table on Facebook an awful lot lately, it's because I have. There's arguably not a more fundamentally attractive megacap stock than Facebook. It's growing at 20% to 25% a year, is valued at a forward price-to-earnings ratio of 23, and has a price-to-earnings-growth ratio (PEG ratio) of just over 1. Growth stocks typically aren't priced like value stocks, but that's exactly what investors are getting with Facebook.
Another thing investors are getting with Facebook is utter dominance in the social media space. Facebook's namesake site drew 2.8 billion monthly active users during the fourth quarter, while Instagram and WhatsApp, which Facebook also owns, attracted 500 million unique monthly visitors. That's 3.3 billion people -- about 42% of the global population -- visiting a Facebook-owned asset each month. Advertisers are well aware that there's no social media platform they can go to where they're getting more impressive user breadth or targeting. This is why Facebook's ad revenue soared 21% last year in spite of the pandemic.
You might also be surprised to learn that Facebook isn't even fully depressing the gas pedal. Of the $84.2 billion in ad revenue collected last year, it almost exclusively came from Facebook and Instagram. Neither WhatsApp nor Facebook Messenger have been meaningfully monetized as of yet.
What's more, Facebook has ample opportunities to expand its revenue channels beyond advertising. A greater emphasis on payments platform Facebook Pay or its Oculus virtual reality segment could be all that's needed to really supercharge the company's growth prospects.