Many investors have been reluctant to add positions or buy new stocks given the uncertainty in the market right now. There are concerns about interest rate hikes, but the larger question relates to inflation and the effect of Russia's invasion of Ukraine. Will it lead to a recession?
These are all legitimate concerns. But the other thing to remember is that there are stocks of some really good companies that are undervalued right now due to the correction. It is also important to keep in mind that while they may not necessarily generate returns in the short term, due to the uncertainties, there are some good buys out there right now that you'll be happy you bought in the long term.
If you have been reluctant to jump back into the water and want to dip your toe back in, here are two good stocks to buy right now with $200.
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1. Amazon
In case you haven't heard, Amazon (AMZN -2.70%), the e-commerce behemoth, is doing a 20-for-1 stock split on June 3. What this means is that Amazon's super-high share price, which is currently over $3,200, will be reduced by a factor of 20 after the stock split. This is being done, among other reasons, to make the stock more accessible to people who don't have the capital to plunk down $3,200 per share.
So, if you are a shareholder by the deadline of May 27, you will see the stock price reduced to about $160 per share, but you will now have 20 shares per one share at the current (soon former) price. If you own two shares, you'd get 40 shares at that $160 price, and so on.
But the thing is, you don't have to wait until June 3 to get Amazon at the lower share price. You can invest in one of the world's largest companies with any dollar amount you like through fractional shares investing. Fractional shares investing is a service that most brokerages offer where you can buy fractions of shares by the dollar amount. So, right now, you could invest $160 in Amazon, and it would buy you one-twentieth of a share. But after the stock split in June, you would own one full share of Amazon for that $160. If you bumped it up to a $500 investment, you'd have roughly three full shares.
Amazon is the largest online retailer in the world and has been an earnings beast in recent years. Its earnings have gone from just over $1 per share 10 years ago to about $64 per share at the end of 2021. The share price has posted an average annual return of about 32% over the past 10 years.
While it may take a hit when first-quarter 2022 earnings come out in April, as my colleague Sean Williams points out, this is due to an investment last year in electric vehicle manufacturer Rivian and not its own operating performance, which should be strong for years to come. There hasn't been this good an opportunity to own shares of Amazon in a long time.
2. JPMorgan Chase
We go from the largest online retailer to the largest bank in the U.S., JPMorgan Chase (JPM 0.03%). This is a fantastic time to buy stock in this company for a few reasons. One, the stock is very cheap right now, with a price-to-earnings ratio of about 8 --- the lowest it has been in 10 years, other than a dip when the pandemic hit in March 2020.
Second, the share price is expected to jump higher over the next 12 months, with a consensus price target of $175 per share, up from its current $139 per share -- an increase of about 26%. The primary reason is interest rate hikes.
The stock has increased about 7% in the last five days through March 21 in anticipation of the Federal Reserve's first interest rate hike since 2018 -- which occurred on March 16. It is just the beginning of what most economists expect to be multiple rate hikes, not just this year but into 2022, to combat rising inflation.
While many growth stocks don't perform as well in rising rate environments -- because it is more expensive to borrow money to invest and grow --- bank stocks flourish when interest rates are on the rise. That's because they can charge higher interest on their loans, which boosts their net interest income. In addition, loans are expected to grow in the high single digits, as more borrowers are expected to put their money to work in a growing economy. JPMorgan Chase CFO Jeremy Barnum said on the fourth-quarter earnings call that net interest income is expected to grow about $5.5 billion in 2022 to $50 billion.
JPMorgan Chase was trading at around $139 per share as of March 21, so a $200 investment would only buy you one full share, while a little more would get you two shares.
But this is a market leader, like Amazon, that has some tailwinds at its back that should move its share price up. And you could add to that initial investment every month with the knowledge that this bluest of blue-chip companies is one of the most stable in the world and should continue to grow for years to come.
