If you have $500 to invest, you might think you're limited to stocks trading below that price, but you would be mistaken. Most brokerages allow you to buy fractional shares of a company. That means you could buy a stock that's trading for $1,000 per share with $500, and you'll get half of one share.
And that's what I'm going to recommend. For those with $500 to invest right now, I suggest a fractional share of e-commerce giant Amazon (AMZN 0.24%). It's currently trading at a little over $3,300 per share, so with $500, you would get roughly 0.15 of a share. But there is little to no difference in owning a fractional share of an expensive stock versus a whole share of a cheaper ticker.
Making a case for Amazon stock
Sales surged for Amazon during the pandemic. Million of people were looking to avoid stores and trying to stay home as much as possible. They turned to Amazon for their everyday needs, and it delivered with few hiccups. Undoubtedly, that has gained it some consumer loyalty, and many of the people who joined Amazon during the pandemic will stick around in its aftermath. Why make repeated trips to your local brick-and-mortar store when you can have the same products delivered to your doorstep for roughly the same price?
Indeed, Amazon started 2020 with 150 million Prime members, and it now has 200 million. These are paying members who appreciate the value of fast and free shipping and a host of other benefits, including Prime Video.
Those high-value customers are partly what is attracting advertisers to Amazon. Ad revenue accelerated in its most recent four quarters, going from 41% year-over-year growth to 49%, 64%, 73%, and 83% progressively. Marketers have few other places to gain the attention of 200 million buyers who are one click away from making a purchase.
Lastly, Amazon's highly profitable cloud segment is still in its growth stage. Amazon Web Services earned $14.8 billion in revenue and $4.2 billion in operating income in its most recent quarter. That's an operating profit margin of 28% compared to the company's overall operating profit margin of 6.8%. Businesses continue moving their computing to the cloud, a trend that accelerated during the pandemic.
A good time to buy
Admittedly, Amazon's growth might decelerate as economies reopen and folks return to some of their shopping habits from before the outbreak. Still, an increasing share of shopping will be done online over the long run, where Amazon has a dominant position. It's already more convenient than shopping at brick-and-mortar retailers, and the company is spending billions on making shipping even faster.
Amazon is trading at a price-to-earnings ratio of 57.86, the lowest in the last five years, making the investment case even better. Moreover, investors are pessimistic about the company's near-term prospects as economies are reopening, and that's creating an opportunity for long-term investors who can withstand near-term volatility.