If you have $50,000 -- or more -- sitting around in a savings or checking account, you are losing purchasing power to high inflation. Consumer prices are growing at 8.6% year over year right now, much faster than any interest rate you can get in a bank account. Unless you need this cash within a couple of years, you should be invested in stocks in order to best combat inflationary pressures on your spending power.
Electronic Arts (EA 0.02%) and InterActiveCorp (IAC 1.42%) are two stocks to buy with $50,000 right now. Here's why.
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1. InterActiveCorp
InterActiveCorp (IAC) is a small conglomerate of various internet and consumer brands. Throughout the last few decades, it has incubated and spun out many well-known public companies like Match Group, Vimeo, and Expedia. Since 1995, IAC shares (including spinoffs) have grown at a 13% compound annual growth rate (CAGR) compared to the S&P 500's 10% CAGR. This might not seem like much, but over 25+ years, that means $1 invested in 1995 would be worth $25 today, while an investor in the S&P 500 would only have $12.
With founder Barry Diller as chairman and CEO Joey Levin at the helm, I believe this market outperformance can continue into the future. At a market cap of $7.1 billion, investors are severely discounting IAC's operating businesses. If we leave out its stakes in MGM Resorts, Angi, Turo, Vivian Health, and the cash on its balance sheet, the stock has an enterprise value of $2.86 billion. Using a pro-forma analysis of IAC's largest subsidiary, Dotdash Meredith, the segment did $2.3 billion in revenue over the last 12 months and is projected to generate $450 million in earnings next year. That gives the stock a forward earnings multiple of 6 when only looking at Dotdash Meredith, and this excludes large operating segments like Ask & Search ($115 million in trailing 12-month adjusted earnings before interest, taxes, depreciation, and amortization) and Care.com ($340 million in trailing 12-month revenue) from the calculation.
From my seat, this combination of undervaluation and track record of strong returns makes IAC an easy buy right now. Plus, with $1.9 billion in cash, IAC is in a prime position to buy up more stakes or whole businesses during this market downturn, with many stocks trading at a discount.
2. Electronic Arts
Electronic Arts is one of the largest video game publishers in the world. Investors should think of the business in two main segments: sports and non-sports games. Since the dawn of mainstream video game consoles, EA Sports has been a leader in sports simulation games. Currently, it has two monster franchises in FIFA Soccer and Madden NFL, along with other smaller titles in hockey, golf, and Formula One. In the non-sports category, EA publishes a variety of franchises, the most important being Battlefield, Apex Legends, and The Sims.
Through acquisitions and organic growth, EA has ridden the long-term tailwind of the video game industry over the past decade. In its fiscal year 2022, which ended in March, the company generated $7.5 billion in net bookings (the revenue equivalent for video games) and $1.9 billion in operating cash flow. Video games have gotten extremely profitable over the last decade for two reasons. First is the rise of in-game digital purchases like FIFA's Ultimate Team mode, where players can pay for upgraded players and different skills. Second is the transition from physical game discs to digital downloads for game purchases. Both are margin-accretive for publishers like EA and are trends that will, in all likelihood, continue this decade.
At a market cap of $34 billion, EA trades at a price-to-operating-cash-flow (P/OCF) of 18, or right around the market's average earnings multiple. With long-term tailwinds in gaming, durable sports franchises, and fast-growing games like Apex Legends, EA stock looks ready to put up solid returns for shareholders this decade.
