History has proved time and again that patience pays on Wall Street. Despite the S&P 500 undergoing 38 double-digit percentage declines since the beginning of 1950, every single one of these drops was eventually erased by a bull-market rally and proved to be a buying opportunity. In other words, there's no such thing as a bad time to put money to work in the stock market, as long as your holding time frame is measured in years.
There's also no wrong amount of money to put to work in stocks. With most online brokerages eliminating commissions and minimum deposit requirements, any amount of money -- even $500 -- can be the perfect amount to put to work right now.
If you have $500 ready to invest, these are some of the smartest stocks to buy in 2022.
Image source: Getty Images.
Sea Limited
Great businesses don't go on sale very often. But investors with $500 have the opportunity to buy Singapore-based Sea Limited (SE 0.79%) following a more than 50% pullback in three months.
What makes Sea such an incredible gem of a company is that it has not one or two, but three rapidly growing, diverse operating segments. All three can deliver sustained double-digit growth throughout the decade.
First, there's the digital entertainment segment, which is the only one generating positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at the moment. Sea has benefited immensely from its hit mobile game, Free Fire, which played a big role in attracting 729 million mobile active gamers in the third quarter. More importantly, 12.8% of its active users were paying to play in an industry where the pay-to-play conversion rate is often closer to 2%. As long as Sea can keep its conversion rates up, it shouldn't have any trouble generating recurring positive adjusted EBIDTA from its gaming segment.
Second, there's Sea's relatively new digital financial services operations, which provide mobile wallet services to underbanked and emerging-market regions. The company ended September with over 39 million mobile wallet customers and saw payment volume more than double to $4.6 billion. Considering that parts of Southeast Asia remain underbanked, this could be a surprisingly fast-growing segment for Sea.
The third segment, and easily the one creating the most buzz, is e-commerce platform Shopee. The middle class is burgeoning in the emerging markets Sea is targeting, which has led to insanely fast growth. To put into context just how quick Shopee's ascent has been, the company moved $16.8 billion in gross merchandise value (GMV) during the third quarter, working out to an annual run rate of $67 billion. In 2018, Shopee did $10 billion in GMV the entire year!
Sea is investing heavily at the moment, but its operating cash flow is on track to skyrocket in the years that lie ahead.
Image source: Getty Images.
Vertex Pharmaceuticals
Another incredibly smart stock to buy with $500 in 2022 is specialty biotech stock Vertex Pharmaceuticals (VRTX +0.63%).
One of the best aspects of healthcare stocks is that they're highly defensive. This is to say that no matter how well or poorly the economy or stock market perform, demand for prescription drugs, medical devices, and healthcare services remains strong. Since we can't control when we get sick or what ailment(s) we deal with, companies like Vertex are among the safest stocks to buy.
What makes Vertex so appealing is the company's overwhelming success in developing treatments for cystic fibrosis (CF). CF is a genetic disease characterized by thick mucus production that can obstruct the lungs and/or pancreas. While it has no cure, Vertex has created four generations of treatments approved by the U.S. Food and Drug Administration (FDA) to improve lung function for patients.
Combination therapy Trikafta, the newest of these four treatments, received its approval from the FDA five months ahead of its scheduled review date. Because Trikafta targets the most common mutation of CF (F508del), it's become a viable treatment option for around 90% of patients aged six and up. Based on third-quarter sales of $1.56 billion, Trikafta is already outpacing Wall Street's consensus of $6 billion in annual sales, on a run-rate basis.
Beyond CF, Vertex has more than a half dozen other compounds in development. This includes CTX001 for sickle cell disease and transfusion-dependent beta thalassemia, and VX-880 for type 1 diabetes. Vertex has partnered with promising gene-editing company CRISPR Therapeutics for the development and testing of CTX001.
Lastly, Vertex is sitting on a treasure trove of capital -- about $7 billion in cash, cash equivalents, and marketable securities, to be precise. This cash ensures Vertex can remain aggressive while funding its research, and might even make it an acquirer of clinical-stage assets.
The all-electric GMC Hummer is one of 30 EVs GM is launching by 2025. Image source: General Motors.
General Motors
A third genius stock investors can confidently buy with $500 in 2022 is auto giant General Motors (GM 0.52%).
Traditionally, auto stocks have received little praise on Wall Street. The large debt loads that U.S. automakers carry on their balance sheets, coupled with the highly cyclical nature of the industry, has held back valuations for a long time. But with a multi-decade opportunity on GM's doorstep, a single-digit price-to-earnings ratio no longer seems warranted.
This "opportunity" for General Motors is the electrification of consumer vehicles and enterprise fleets. This vehicle replacement cycle will be ongoing for decades, with most countries around the world aiming to fight back against the effects of climate change.
For its part, GM is investing heavily in an electrified future. In June, the company announced that it was increasing its planned spending on electric vehicles (EVs), autonomous vehicles, and battery research/production to $35 billion through 2025. The goal is to have two battery plants up and running by 2023, with 30 EVs launched worldwide by mid-decade. If the roughly 60,000 non-binding pre-orders for the nearly $113,000 GMC Hummer EV, as of November, are any indication of interest in an electrified future, GM is in great shape.
The company has an intriguing growth runway outside the U.S. as well. While GM is known for its Detroit roots, it can't be overlooked that 2.9 million vehicles were delivered in China last year. China is the world's leading auto market, and market share for EVs is ripe for the picking. Considering that General Motors has over a century of history in its sails and the infrastructure necessary to shift its focus to EVs, China could well be GM's greatest source of growth within a few years.
A forward-year price-to-earnings ratio of 9 simply doesn't do justice to GM considering its long-term growth prospects.
