It's been a challenging 2022 for much of the investing community. Both the iconic Dow Jones Industrial Average and the widely followed S&P 500 entered official correction territory in March (i.e., they fell at least 10% from their all-time closing highs). Meanwhile, the growth-stock-propelled Nasdaq Composite is flirting with bear market territory once again.
Although big declines in the market can occur without warning, and the downside velocity associated with these moves can be scary, corrections are historically the ideal time to put your money to work in high-quality stocks. Throughout history, every major tumble in the broad-market indexes has eventually been wiped away by a bull market rally.
Best of all, with most online brokerages eliminating minimum deposit requirements and commission fees, any amount of money (even $100) can be a perfect amount to put to work during corrections and bear markets.
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If you have $100 ready to invest, which won't be needed for bills or to cover emergencies, the following are some of the smartest stocks you can buy during the market sell-off.
Starbucks
One of the smartest stocks investors can buy during the market pullback is coffee giant Starbucks (SBUX 0.29%). Shares of the company have retraced 37% since hitting their all-time high nine months ago.
Starbucks is contending with a multitude of issues that have Wall Street concerned. A handful of its stores have voted to unionize at a time when the labor market is tight and workers have more bargaining power than at any other point in recent memory. We're also witnessing historic domestic inflation (the highest in 40 years), which could reduce spending for lower-income consumers and tighten Starbucks' margins. Lastly, the pandemic threatens to temporarily close select international locations.
Despite all of these concerns, Starbucks continues to execute well on virtually all fronts. The company has such a loyal following of customers and such a widely recognized brand that raising its prices to offset inflation has rarely ever been an issue. Even with coffee prices climbing, I have little doubt that Starbucks can outpace inflationary pressures just as it has many times before.
Equally important, Starbucks' digitization and loyalty initiatives are paying dividends. The company ended its fiscal first quarter (on Jan. 2, 2022) with 26.4 million active Rewards members. That's up 21% from the prior-year period. It's no secret that these Rewards members spend more than non-Rewards customers. They're also more likely to store their payment information on their smartphones to expedite payment or ordering. By dangling digital rewards, Starbucks has boosted sales and found ways to make its operations more efficient.
Other innovations continue to hit home as well. For instance, the redesigned drive-thru ordering board allows drivers to video chat with Starbucks associates, and it suggests food and drink pairing options. This couples with the company's ongoing push to offer healthier and higher-margin food options.
It's been a long time since investors could buy shares of Starbucks for less than 21 times Wall Street's forward-year earnings forecast. Now looks like the perfect time for opportunistic investors to pounce.
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Trulieve Cannabis
Another one of the smartest stocks investors can buy with $100 during the market sell-off is U.S. marijuana stock Trulieve Cannabis (TCNNF -2.17%).
U.S. pot stocks have been taken to the woodshed for the past 13 months (and counting). When President Joe Biden took office, the expectation was that a Democratic Congress would have little issue passing cannabis reforms at the federal level. However, with other issues taking precedence (ahem, COVID-19), what marijuana reforms have been proposed have stalled in the Senate. Without a clear path to federal legalization or banking reforms, investors have shunned cannabis stocks.
However, I'd argue this is shortsighted. While federal legalization would certainly alleviate select operating challenges for multi-state operators (e.g., being able to transport cannabis between states), it's not necessary for high-quality multi-state operators to thrive. Trulieve is evidence of this.
One of the reasons Trulieve stands out is its unique expansion model. Whereas most multi-state operators planted their flags in as many legalized markets as possible, Trulieve almost exclusively focused its efforts on saturating the medical-marijuana market of Florida until about the midpoint of last year. At the moment, around 115 of the company's roughly 165 operating dispensaries are in the Sunshine State.
Why saturate Florida? For starters, it'll likely be one of the top-selling weed markets by 2024. More importantly, embedding the Trulieve brand throughout the state helped save on marketing costs. As a result, the company has gobbled up roughly half of the state's market share in dried flower and oils, and it's been profitable on a recurring basis for almost four years.
Trulieve's next chapter involves expanding outside of Florida. During the fourth quarter of 2021, it completed the acquisition of multi-state operator Harvest Health & Recreation. Though this deal gave Trulieve a presence in the mid-Atlantic region, the crown jewel of this acquisition was nabbing the No. 1 share of the Arizona market. That state legalized recreational cannabis in November 2020 and commenced adult-use sales two months later. It could soon reach $1 billion in annual weed sales.
Trulieve, the most nominally profitable pot stock, checks all the appropriate boxes for growth-seeking investors.
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Palantir Technologies
A third smart stock that's ideal to buy with $100 during the market sell-off is data-mining company Palantir Technologies (PLTR -3.40%).
Palantir finds itself in the same boat as a lot of previously high-flying tech stocks (i.e., it's been clobbered). Since hitting a pandemic high of $45 in late January 2021, shares have lost more than 70% of their value. Everything from the company's lofty price-to-sales ratio to the prospect of higher interest rates quelling economic growth has weighed on the company's share price in recent months.
But there's still plenty of reason to be optimistic, especially if your investing time frame is measured in years. For example, one of the greatest aspects of Palantir is the uniqueness of its operating model. There isn't a company that's a direct comparator, which is probably why it's had no trouble securing large, multiyear contracts from the federal government. The company's Gotham platform caters to government entities, with much of its recent sales growth attributed to large contract wins.
Over the long term, the company's Foundry platform will likely become its greatest asset. Whereas the customer ceiling for Gotham is limited (e.g., we'll never see Palantir's data-mining software being used by China), the potential for Foundry to streamline corporate operations by breaking down big data is seemingly limitless. Palantir is just scratching the surface with its enterprise potential, but has seen the number of commercial customers triple to 147 over the past two years.
Perhaps most impressive of all is the spending Palantir coaxes out of its existing clients. Though it's great to see the company adding new commercial clients, what really stands out is the 150% net dollar retention rate from U.S. commercial clients and 146% net dollar retention rate from total government clients during the fourth quarter.
In simple terms, these figures mean U.S. commercial and global government clients spent a respective 50% and 46% more during the fourth quarter of 2021 than they did in the prior-year period. Existing clients spending more on a software-based model is a recipe for adjusted gross margin to hover in the low-to-mid-80% range.
Palantir is slated to grow its annual sales by around 30% through the midpoint of the decade, which makes its recent pullback a savvy buying opportunity.
