It is a common misconception that you need a bucketload of money to enter the stock market. Stocks trading at $20 or less can also help you earn if chosen at the right time and from the right sector and held for the long haul. It is always wise to diversify your portfolio with growth stocks from different sectors.
The smartest stocks to buy with $20 right now are airline companies American Airlines (AAL 0.58%), Southwest Airlines (LUV 0.09%)and cannabis company Tilray Brands (NASDAQ: TLRY). These three belong to volatile sectors but also high-growth industries. Let's take a look at what makes them the right fit for your portfolio now.
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With summer travel demand rising, hopes spark for airlines
The airline industry might look like a risky bet now considering its performance ever since the global pandemic hit, along with geopolitical tensions. But the pandemic will end someday, and travel (both leisure and business) will rebound, making airlines stock skyrocket. Delta Airlines gave a hint of that in its recent earnings result, which showed the company returned to profitability in March. It also sparked hope by stating it expects a better operating margin and strong free cash flow in the next quarter, driven by a rebound in demand.
Since then, most airline stocks have gotten a boost. A good airline company to buy for $20 is American Airlines. The company is set to report its first-quarter 2022 results on April 21. Analysts expect a net loss of $2.4 per share but a revenue growth of 120% year over year to $8.8 billion, reflecting the slow rise in demand this year.
Management expects Q1 revenue to be down 20% to 22% from 2019 (pre-pandemic levels). It saw its revenue dip 17% year over year in Q4, which resulted in a net loss of $931 million, or $1.44 per share.
Talking about the future, American's chairman and CEO, Doug Parker, stated, "While we still have work to do as the recovery from the pandemic continues, I have no doubt the best is yet to come for American." The company has also succeeded in lowering its capital expenditure, which came in at $208 million, compared to $1.9 billion in 2020.
Southwest Airlines is set to announce its first-quarter results on April 28. Its previous quarter and year-end were profitable. After a dreadful last two years, the company saw its first quarterly profit of $68 million in Q4, or $0.11 per diluted share. Slowly but steadily the airlines are recovering.
The cannabis industry is just getting started
There is no doubt about the potential of the marijuana industry. Even though not all Canadian pot stocks are worth buying now, Tilray has proved its value post-merger with Aphria. The company has consistently delivered outstanding quarterly results, including those for its recent fiscal 2022 third quarter (ended Feb. 28). The company saw a net revenue jump of 23% year over year to $152 million. This resulted in its 12th consecutive quarter of positive adjusted earnings before interest, tax, depreciation, and amortization (EBITDA), which came in at $10.1 million, and a net income of $52.5 million. Tilray is also on track to earning cost synergies of $80 million by May 31 and an additional $20 million in fiscal 2023. Tilray has also worked out a strategic alliance with Canada-based pot company Hexo to pay off its $193 million in convertible debt, earning the right to own a substantial stake in Hexo later. This deal will help Tilray earn $18 million annually for "advisory services" and 5% annual interest on the debt, along with $80 million in cost synergies annually between them, within two years of completion of the deal.
Since the merger, the company has a better exposure in the European market and is also gearing up to take advantage of the U.S. cannabis market (if and when federal legalization happens). The company is on the path to achieving $4 billion in revenue by fiscal 2024.
All three stocks are cheaply valued now, trading more than 50% below their 52-week high. It makes now the right time to buy the stocks on the dip and hold them forever. Note that high-growth stocks take time to show their full potential, so patience and an appetite for risk are needed.
