If you've got $2,500 that you will not need for necessities like rent or food in the next few years, then investing in the stock market can be an excellent place for the money. More specifically, Alphabet (GOOGL -3.37%) (GOOG -3.33%) and Airbnb (ABNB -1.21%) are two of my top stocks to buy right now. Each has seen its stock price fall considerably off its high, meaning investors can buy them at a bargain price.
Let's look at why Alphabet and Airbnb are excellent stocks to buy.
Airbnb is cheaper than it's ever been
Worldwide travel facilitator Airbnb is thriving as folks eagerly take vacations they delayed at the pandemic's onset. Airbnb's revenue in its most recently completed quarter in March was 70% higher than the year before. The company runs on an asset-light business model that allows it to expand and contract more efficiently than traditional hotel companies.
In response to the recent surge in consumer demand for travel, all Airbnb had to do was encourage hosts to list more properties on the platform. Airbnb invested in features that reduced friction in the process for new signups. Things like an insurance policy for damage travelers cause to the property are accessible to all hosts. Airbnb also added support for new hosts from experienced hosts.
Those investments are less costly than building a new hotel or a new tower to an existing hotel when consumer demand surges. The benefits of the model are showing up in Airbnb's cash flow from operations, which increased to $1.2 billion in the quarter that ended in March. That was up from $618 million in the same quarter the year before.
The travel demand is undoubtedly robust but nowhere near levels from before the outbreak. In 2019, worldwide spending on hotels and resorts totaled $1.5 trillion in 2020, which had fallen to $610 billion and only recovered to $950 billion in 2021. It's not likely that spending will surpass 2019 levels in 2022. More likely, travel demand could grow briskly until it caught the $1.5 trillion figure in 2019. That is, of course, barring any further disruption from COVID-19 or a major recession that curtails consumer spending.
Data by YCharts.
The icing on the cake is that Airbnb is trading at a price-to-free cash flow ratio of 21; investors have scarcely had an opportunity to buy it at a lower price than this.
Alphabet is thriving in the advertising industry
Alphabet is home to Google, the world's most dominant search engine. Since many purchasing decisions start with an internet search, that is a valuable segment to dominate. Alphabet is also benefiting from the tailwind of advertising dollars moving to digital channels, where they are bringing a greater return on investment.
Alphabet has seen its revenue climb from $90 billion in 2016 to $258 billion in 2021. Serving up ads is a profitable business. Once the capabilities are developed, the incremental costs to new revenue are not very high. Indeed, Alphabet's operating profit margin has expanded from 26.3% to 30.6% in the same time mentioned above. As you might imagine, a 30.6% operating profit margin on $258 billion in revenue is a healthy sum ($79 billion).
Data by YCharts.
Like Airbnb, investors can buy Alphabet at prices rarely observed in the last five years. Coincidentally, Alphabet is trading at a price-to-free cash flow ratio of 21.
If you are an investor with $2,500 you will not need for a couple of years, then Airbnb and Alphabet are excellent stocks to buy now. They are selling at bargain prices in contrast to their excellent long-term prospects.
