Please ensure Javascript is enabled for purposes of website accessibility

2 Smart Stocks to Buy With $20 Right Now

By Trevor Jennewine – Updated Sep 21, 2021 at 9:20AM

Key Points

  • Adding to your portfolio on a regular basis reduces the impact of market volatility.
  • Airbnb reimagines travel and tourism to enable unique stays around the world.
  • Zillow provides a comprehensive platform for residential real estate transactions.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These tech companies are disrupting massive markets.

Over the weekend, the S&P 500 index was sitting just 2% below its all-time high. This might have some investors feeling nervous, but it's important to remember that no one can consistently time the market because no one knows the future. Today's 52-week high could be the 52-week low a year from now. Or the market could crash tomorrow (as it did on Monday).

Either way, the best strategy is to invest on a regular basis, even if it's a small sum of money. This approach -- known as dollar-cost averaging -- helps minimize the impact of short-term market volatility on your total returns. With that in mind, here are two stocks that look like smart long-term investments that might best be purchased through dollar-cost averaging of say $20 with each buy-in.

Recreation of Winnie-the-Pooh's home in the Hundred Acre Wood, as listed on Airbnb.

Image source: Airbnb.

1. Airbnb

Travel and tourism combine to form one of the largest industries in the world, accounting for over 10% of the global economy in 2019. As such, that means Airbnb (ABNB -2.78%) is successfully disrupting a multitrillion-dollar market. Its platform connects more than 4 million hosts with potential guests, helping travelers find the types of immersive lodgings that just aren't financially feasible for traditional hotel chains to replicate.

For instance, Airbnb lists properties like private cottages along the coast, cozy fire lookouts in the mountains, and luxurious estates on sprawling vineyards. To add, the platform also lists 170,000 one-of-a-kind stays, like a detailed re-creation of Winnie-the-Pooh's home in the Hundred Acre Wood (as seen in the image above). Hotels can't match that level of privacy or that type of unique experience. But that's not Airbnb's only advantage.

By crowdsourcing real estate from hosts, the company can on-board new inventory in a matter of minutes, without paying a significant sum of money. That differs dramatically from hotels, which cost millions to build and take months (or years) to complete and just as long to finally profit from.

This means Airbnb can afford to operate in locations that wouldn't be profitable for companies like Marriott. And that fits perfectly with current travel trends. Through May 2021, 22% of nights book on Airbnb were for rural stays, up from 10% in 2015. The last time I checked, there weren't very many big hotel chains operating in rural locations.

Collectively, these advantages have translated into a solid financial performance over the past year, despite considerable headwinds created by the pandemic.

Metric

Q2 2020 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$3.9 billion

$4.4 billion

13%

Source: Airbnb SEC Filings, Ycharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

To put the company's performance in perspective, Marriott's sales were down 41% over the same time period. This shows the resilience of Airbnb's business model, and I think the company is well-positioned to maintain its momentum.

Collectively, Airbnb puts its market opportunity at $3.4 trillion. More importantly, it has a clear advantage over traditional hotels, and as travel rebounds in the wake of the pandemic, I think Airbnb's share price will soar. That's why this growth stock looks like a smart buy right now.

2. Zillow Group

Historically, residential real estate transactions have been complicated affairs, involving multiple different parties (i.e. agents, lenders, closing service providers). Zillow Group (Z -4.14%) (ZG -3.67%) is a tech company that aims to make the process less complex. Its platform helps people buy, sell, finance, and close on homes across the United States, offering an end-to-end solution that simplifies one of the biggest purchases most people will ever make.

In 2006, Zillow revolutionized the real estate industry when it introduced the Zestimate, its real-time home value estimate. This brought more transparency to the market and helped the company establish its brand. Today, Zillow has become synonymous with real estate, and its web properties and mobile apps receive far more visits than Realtor.com and Redfin combined. That advantage keeps the company's acquisition cost low.

Financially, Zillow is on solid ground. Gross profit has grown quickly in recent years, and the company is profitable on a GAAP basis, unlike fellow brokerage Redfin.

Metric

Q2 2018 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$1.1 billion

$1.982 billion

22%

Net income

($89.7 million)

$147.2 million

N/A

Source: Ycharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

During the most recent quarter, Zillow Offers -- the company's homebuying business -- sold 2,086 homes, up 45% from the prior year. And its gross profit per home more than doubled, suggesting that Zillow is successfully scaling its homebuying business.

At the same, Zillow Offers purchased a record 3,805 homes last quarter, showing management's confidence in its business model. Investors should look for strong home sales in the coming quarters, as the median sale price for existing homes is expected to rise 14.1% in 2021, according to the National Association of Realtors.

Looking further ahead, Zillow has plenty of room to grow. In 2020, U.S. residential real estate transactions totaled $1.9 trillion. Assuming a 5% commission, real estate transaction fees totaled $94 billion. However, when accounting for Zillow's mortgage and closing services, rental listings, and advertising, the company's addressable market is closer to $350 billion. That's why this growth stock looks like a smart long-term investment.

Trevor Jennewine owns shares of Airbnb, Inc. and Redfin. The Motley Fool owns shares of and recommends Airbnb, Inc., Redfin, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool recommends Marriott International and recommends the following options: long January 2023 $115 calls on Marriott International and short September 2021 $65 calls on Redfin. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.