The first four months of 2022 have been quite the trip for the investing community.
Last year, the benchmark S&P 500 endured no worse than a 5% correction. But in 2022, the S&P 500 and iconic Dow Jones Industrial Average have both fallen into correction territory with declines of at least 10%. Things are even more challenging for the growth-focused Nasdaq Composite, which has shed as much as 23% of its value since November.
Although the velocity of downside moves in the stock market can be scary, history provides plenty of evidence that buying high-quality companies during these downturns is a smart move. No matter how steep the correction or bear market, a bull market rally eventually puts all downtrends in the rearview mirror.
Image source: Getty Images.
Best of all, with most online brokerages ditching minimum deposit requirements and trading fees, any amount of money -- even $300 -- can be the perfect amount to invest during a market sell-off.
If you have $300 at the ready, which won't be needed for bills or emergencies, the following three companies represent some of the smartest stocks you can buy in May.
The first exceptionally smart stock to gobble up with $300 is social media platform Pinterest (PINS 1.30%). Shares of the company have lost three-quarters of their value in less than 15 months.
The two prevailing concerns with Pinterest have been the company's declining monthly active users (MAUs) over the trailing 12 months, as well as Apple's iOS privacy changes, which allow app users to decide if they want their data tracked. The latter can adversely impact companies reliant on ad revenue, such as Pinterest.
NYSE: PINS
Key Data Points
While both of these worries have played key roles in weighing down Pinterest's valuation, I don't foresee either having any effect on the company's long-term growth trajectory or strategy.
Although MAUs have fallen on a year-over-year basis, they actually grew by 2 million during the first quarter of 2022 (433 million) from where Pinterest finished 2021 (431 million). What's more, looking at Pinterest's MAUs with a wider lens shows that user growth remains in an uptrend over a five-year period. We've simply witnessed user growth return to historic norms after the unsustainable pandemic-related boost.
The considerably more-important factor here is that Pinterest is successfully monetizing its MAUs. Despite 45 million fewer MAUs in the latest quarter from the prior-year period, global average revenue per user (ARPU) jumped 28%, with European ARPU up an even more robust 40%. Pinterest's user base is large enough that advertisers are willingly paying a premium to get their message in front of potential shoppers.
There's also no reason to get worked up over Apple's iOS privacy changes. Whereas other social media platforms have to rely on likes and other data-tracking measures to help advertisers target users, the entire premise of Pinterest's platform is based on users sharing the things, places, and services that interest them. In other words, Pinterest has the data that advertisers and merchants want on a silver platter.
Pinterest is profitable on a recurring basis and fully capable of a sustained 20% growth rate. That makes its monstrous pullback the ideal time to buy.
Image source: Getty Images.
AGNC Investment
A second smart stock that's begging to be bought with $300 in May is mortgage real estate investment trust (REIT) AGNC Investment (AGNC +1.31%). AGNC is a monthly dividend payer yielding nearly 13% that's averaged a double-digit yield in 12 of the past 13 years.
Without getting overly complicated, mortgage REITs like AGNC seek to borrow money at the lowest short-term rate possible, and use this capital to purchase higher-yielding long-term assets, such as mortgage-backed securities (MBSs) -- thus they're called "mortgage REITs." The wider the gap (known as net interest margin) between the average yield on assets owned minus the average borrowing rate, typically the more profitable the mortgage REIT is.
NASDAQ: AGNC
Key Data Points
During the first quarter, things couldn't have gone worse for AGNC and the mortgage REIT industry. Mortgage REITs usually enjoy low-rate environments and steep interest-rate yield curves (i.e., when the gap between short- and long-term U.S. Treasury yields is high). But over the past couple of months, the Federal Reserve has signaled its intent to be aggressive with interest-rate hikes to control inflation. Furthermore, the interest-rate yield curve flattened. Both scenarios have weighed on AGNC's tangible net book value (TNBV) and net interest margin.
However, this is an industry where buying when things look their worst is often a smart move. For instance, even though interest rates are climbing, which will adversely affect short-term lending rates, sustained higher rates should also lift the average yield on the MBSs that AGNC is purchasing. Over multiple years, this should have a positive impact on the company's net interest margin and profitability.
Something else to consider is that AGNC almost exclusively acquires agency securities; $66.9 billion of the company's $68.6 billion investment portfolio consisted of agency assets at the end of March. An agency asset is backed by the federal government in the event of default. This added protection allows the company to deploy leverage in order to boost its income potential.
Despite a sizable recent decline in TNBV, shares of AGNC Investment are still valued at a 15% discount to TNBV. Since most mortgage REITs trade near their book values, AGNC stands out as quite the bargain.
Image source: Starbucks.
Starbucks
A third and final stock that would make for a really smart buy with $300 in May is brand-name coffee chain Starbucks (SBUX +0.63%). Shares have pulled back 40% since hitting an all-time intraday high less than 10 months ago.
Starbucks looks to be facing a myriad of issues. The most front-and-center at the moment is the combination of historically high inflation and the unionization efforts at select stores throughout the United States. Both factors point to higher ingredient and labor costs in the near term. To boot, the pandemic is still wreaking havoc on some of the company's China-based locations, which remain closed or have reduced foot traffic.
NASDAQ: SBUX
Key Data Points
While there's no denying these are tangible headwinds, they aren't capable of knocking Starbucks off course. For example, its loyal customer base and innovation have made it relatively easy for the company to pass along price hikes to consumers. Even if coffee prices continue to climb, it remains fully capable of growing its total sales by around 10% annually.
Speaking of loyal customers, Starbucks had 26.4 million active Rewards members as of Jan. 2, 2022. While Rewards members are just happy to get a free drink or food item from time to time, they're doing an incredible service for the company. Rewards members often spend more per ticket, and are more likely to store their payment information on their phone or complete a mobile order. In other words, they're helping to make Starbucks more efficient from an in-store and drive-thru operating perspective.
Starbucks' innovation continues to generate increased spending as well. With drive-thru spending up significantly since the pandemic began, the company chose to redesign its ordering boards to promote drink and food pairings, as well as allow its baristas to chat with drivers and passengers via video. Offering healthier food options is another way Starbucks has attracted the afternoon lunch crowd.
The point being that while Starbucks is looking down and out for the moment, history shows it rarely stays that way for long. With founder Howard Schultz back for another stint as CEO, its prospects appear bright.
