Investors have had a rough start to the year. Since hitting all-time closing highs during the first week of January, the benchmark S&P 500 and widely followed Dow Jones Industrial Average have dipped into correction territory (i.e., a decline of at least 10%). Meanwhile, the growth-focused Nasdaq Composite briefly entered into a bear market.
Although moves lower in the market can be scary because of their unpredictability, one thing that's certain is that every notable decline in the broad-market indexes has eventually been erased by a bull market rally. In other words, if you buy high-quality stocks and hang onto them for an extended period of time, the likelihood of growing your initial investment is very high.
Best of all, with most online brokerages ditching commission fees and minimum-deposit requirements, any amount of money -- even $200 -- can be the perfect amount to invest during a market pullback.
If you have $200 at the ready that won't be needed to pay bills or cover emergencies, the following three no-brainer stocks are begging to be bought during the market sell-off.
The first no-brainer stock to buy with $200 as the market tumbles is e-commerce platform Etsy (ETSY -1.43%).
Etsy was one of dozens of companies that skyrocketed in value during the pandemic. With people staying in their homes and some of Etsy's merchants shifting to mask production, the company had little issue delivering jaw-dropping sales growth. In 2021, the gross merchandise sales on its marketplace platform tipped the scales at $3.8 billion, which was up 154% from 2019.
But over the past five months, Etsy has shed close to 70% of its value. Investors are clearly concerned about a potential growth slowdown, as well as how historically high inflation could impact consumer spending. While these are genuine worries, they're short term in nature and overlook Etsy's clear-cut competitive advantage.
What makes Etsy so special is the merchants that make up its marketplace. Whereas most online sales platforms aim for volume and often miss the opportunity to engage with shoppers, Etsy's merchants are typically small, offer unique products and services, and are willing to customize products to meet shoppers' needs. This ability to engage customers and personalize the shopping experience makes Etsy unique within the highly competitive online-retail space.
Furthermore, the company has done a bang-up job of attracting habitual buyers -- i.e., shoppers who spend at least $200 per trailing-12-months and make six or more annual purchases. The number of habitual buyers grew 26% last year and 224% since the end of 2019. Etsy's having no trouble reactivating previous buyers and turning casual buyers into habitual shoppers over time.
Although things could be a bit bumpy over the next couple of quarters, Etsy has sustainable double-digit growth potential written all over its operating model. With shares now trading at a reasonably low multiple of 22 times Wall Street's forecast earnings for 2023, it looks like the perfect time for opportunistic investors to pounce.
Innovative Industrial Properties
Since hitting its all-time intraday high of $288 five months ago, shares of IIP, as Innovative Industrial Properties is more commonly known, have retraced 46%. The best guess I can offer for this huge reversion is that investors are concerned about higher lending rates and how that might impact IIP's acquire-and-lease operating model. Of course, IIP wouldn't be on this list if I didn't believe this potential worry has been overblown.
As of April 13, 2022, Innovative Industrial Properties owned 108 cannabis cultivation/processing facilities spanning 8.1 million square feet of rentable space in 19 legalized states. This is a company that's had no trouble leasing these properties out for a weighted-average lease length of more than 16 years. Though IIP stopped reporting its average yield on invested capital some time ago, my expectation is it'll recoup its investments in under eight years.
It's also worth pointing out that Innovative Industrial Properties passes along inflationary increases to its tenants each year, as well as charges a property management fee that's tied to the base annual rental rate. In short, there's a modest organic growth component built into its operating model.
What's more, the U.S. federal government's inability to legalize marijuana or pass cannabis banking reforms has actually worked in IIP's favor. In 2019, the company began leaning on sale-leaseback agreements to grow its asset portfolio.
Since marijuana companies have struggled to access basic banking services from traditional financial institutions, IIP has been acquiring cultivation and processing facilities with cash. It then leases these properties back to the seller for an extended period. As long as pot remains federally illegal, IIP's sale-leaseback model can drive growth.
Following its five-month tumble, shares of Innovative Industrial Properties can be scooped up for just 21 times Wall Street's forecast earnings for 2023. Considering IIP also parses out a 4.5% yield, it looks like a screaming bargain.
Teva Pharmaceutical Industries
A third and final no-brainer stock that could wisely be bought with $200 during the market sell-off is brand-name and generic-drug company Teva Pharmaceutical Industries (TEVA 2.13%).
Unlike IIP, where we have to do some guesswork to figure out why it's falling, there's no secret as to why Teva has been taken to the woodshed by Wall Street over the past five years. The company has dealt with bribery charges, generic-drug price weakness, the loss of exclusivity for its top-selling drug (Copaxone), and more recently, a slew of state-level lawsuits over its role in the opioid crisis. The latter has been particularly damaging, given the uncertain range of monetary outcomes from individual trials.
While there's clearly some risks here, Teva's shares appear to have paid their penance. Investors can buy shares of Teva for just four times adjusted forecast earnings in 2022 and 2023.
Aside from just being jaw-dropping cheap, Teva's outlook has improved in a variety of ways. In particular, turnaround specialist CEO Kare Schultz has slashed billions of dollars in annual operating expenses and overseen a reduction in net debt from north of $34 billion to about $21.4 billion in four years' time. Though there remains work to do, Teva's financial flexibility is markedly improved.
We're also starting to see a possible light at the end of the tunnel with regard to Teva's legal troubles. Late last month, Teva reached a settlement with Florida over its role in the opioid crisis. The company also won an opioid trial in California last year. While a nationwide settlement would go a long way to removing this legal gray cloud, Schultz is slowly but surely checking off the boxes to move Teva forward.
Once these legal issues are put in the rearview mirror, there's no reason Teva can't return to a more aggressive earnings multiple of eight to 10 times current-year and forward-year earnings.