A $500 budget may not sound like much to start or add to a stock portfolio. This is especially true in an environment where tech giants like Alphabet and Amazon feel they have to initiate stock splits to make their shares appealing to average investors.
However, $500 will fund starter investments in many stocks trading at a considerable discount. Given their potential, prospective buyers should consider taking a closer look at Innovative Industrial Properties (IIP) (IIPR -0.17%) and Qualcomm (QCOM 1.45%).
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Innovative Industrial Properties
IIP offers an unusual option for marijuana investing, so unique that it is technically not a cannabis stock at all. Instead, this equity real estate investment trust (REIT) leases land and facilities to cannabis growers.
This approach allows IIP the benefits of cannabis investing without many of the more severe drawbacks. As a real estate company, it does not face the Schedule I restrictions that tightly regulate the product grown on its properties. And according to Grand View Research, the cannabis market will grow at a compound annual growth rate (CAGR) of 27% through 2028. That should lead to high demand for IIP's facilities.
Additionally, it benefits from a sales leaseback program. Since growers struggle to obtain bank loans due to Schedule I restrictions, IIP will buy a property and lease it back to the former owner. This gives the REIT an additional option for expansion while helping fund its industry. Today, the company owns 108 properties totaling 8.1 million square feet.
Such options allowed IIP to generate $205 million in revenue in 2021, a 75% increase compared with 2020. During that period, it also generated $175 million in adjusted funds from operations (AFFO) income, a measure of a REIT's cash flow. AFFO income rose 78% from year-ago levels, easily covering the $132 million in overall dividend costs.
The most recent payout hike took the dividend to $7 per share annually. Not only does this give shareholders a 4.1% cash return, but it also allows investors to benefit from a payout that has increased in six of the last eight quarters.
Admittedly, the stock has fallen by 9% over the last year amid a generalized sell-off and share issuances to fund more property acquisitions. The analyst forecast for 37% revenue growth in 2022 also represents some slowing.
Nonetheless, the stock, which sells for under $170 per share as of the time of this writing, trades at about 24 times its 2021 AFFO income. With its industry expected to grow rapidly for years, this growth should drive IIP's stock to new highs.
Qualcomm
Qualcomm has long led the market in smartphone chipsets. It has accomplished this by inventing and patenting several technologies that competitors have struggled to copy. Thanks to this innovation, Qualcomm had remained the only developer of a critical chipset needed for 5G phones despite competitive and legal pressures.
Moreover, Qualcomm is taking the communication chipsets into many other products. In addition to chips for handsets, it also offers RF front-end chips, Internet of Things products, and a digital chassis that drives its automotive segment.
Its business model helped it generate $10.7 billion in the first quarter of fiscal 2022 (ending Dec. 26), 30% more than year-ago levels. That led to a net income of $3.4 billion, a 38% increase. Lower investment income and higher income taxes offset its slower expense growth.
It also earned $33.5 billion in revenue in fiscal 2021 (ending Sept. 26), 55% more than in the previous fiscal year. Furthermore, its $9 billion in net income grew 74%, boosted by an additional $1 billion in investment income.
Despite these innovations, Qualcomm stock has suffered in recent months amid a tech sell-off, a forecasted slowdown in 5G adoption, and a major competitive threat. Taiwanese chipmaker MediaTek has targeted the high-end phone market, a segment Qualcomm has long dominated.
Additionally, in 2021, a staggering two-thirds of its revenue came from China. With U.S.-China relations becoming more tense, the dependence on that country may concern some investors.
Image source: Qualcomm.
Qualcomm's stock price growth is flat over the last year. However, its current price of around $140 per share makes it affordable with a $500 budget. Its 16 P/E ratio takes it back to the valuation lows for the year and dwarfs the earnings multiple of Apple, which sells for about 27 times earnings. That could mean that even with slower increases, investors have many reasons to buy Qualcomm.
