While there's no such thing as a risk-free stock, some are much less risky than others. Businesses that generate lots of recurring cash flow, have strong balance sheets, and visible growth prospects are more likely to produce positive returns than ones without these features.
Five lower-risk stocks with high upside potential are CrowdStrike Holdings (CRWD +0.24%), NextEra Energy (NEE +2.05%), Brookfield Infrastructure (BIPC +0.00%)(BIPC +0.00%), Paycom Software (PAYC +1.16%), and Public Storage (PSA 0.17%). That makes them great for beginners with $500 or less to invest.
NASDAQ: CRWD
Key Data Points
Cashing in on cybersecurity
CrowdStrike Holdings is a cloud-based cybersecurity provider. It sells subscriptions to its security software platform that generate recurring revenue. The company recorded $478.8 million of revenue during its fiscal second quarter, up 61% year over year. That pushed its total annual recurring revenue (ARR) to $1.9 billion.
While CrowdStrike isn't profitable on the basis of generally accepted accounting principles (GAAP), it's generating free cash flow, which totaled $157.5 million in the period. That pushed its cash position to $2.15 billion against $740 million of long-term debt.
The company has lots of growth ahead. CrowdStrike wants to raise its ARR to $5 billion by 2026 and sees a $126 billion total addressable market opportunity for cloud-based cybersecurity services.
Leading the decarbonization megatrend
NextEra Energy is a leading utility focused on clean energy. It produces recurring cash flow by generating renewable energy and distributing power to customers. The company expects its earnings per share to rise by as much as 10% per year through 2025; that's fast for a utility. It should support 10% annual dividend increases through 2024.
NextEra sees an enormous growth opportunity beyond that time frame as it helps lead the decarbonization of the U.S. economy. Meanwhile, it has one of the strongest financial profiles in the utility sector to help fund its expansion.
NYSE: NEE
Key Data Points
A stable business
Brookfield Infrastructure owns a diversified portfolio of crucial infrastructure assets in the utility, energy midstream, transportation, and data sectors. These assets generate steady cash flow backed by long-term contracts and government-regulated rate structures.
Brookfield Infrastructure believes it can increase its stable cash flows to support 5% to 9% annual dividend growth, driven by inflation-related rate increases, expansion projects, and acquisitions. The company has a strong financial profile to help fund this growth and should have plenty of expansion opportunities, given the global need for more infrastructure.
Lots of room to run
Paycom Software developed a cloud-based human resources management platform. This software generates recurring subscription-based revenue. Paycom's revenue surged 31% in the second quarter to $317 million.
The company generates lots of cash, enabling it to invest in expanding the business and repurchasing its stock. Paycom also has a strong balance sheet, ending the second quarter with $279 million in cash and $29 million of total debt.
The company has lots of room to continue growing, estimating that it currently controls only about 5% of a large and expanding total addressable market.
NYSE: PAYC
Key Data Points
A rock-solid real estate stock
Public Storage is a real estate investment trust (REIT) focused on owning, operating, and managing self-storage properties. These facilities generate relatively stable rental income, enabling it to pay a consistent dividend. While tenants are only on month-to-month leases, the average one stays more than three years.
Meanwhile, the company's rental income has risen rapidly in recent years, driven by higher rates, acquisitions, and development projects. The REIT currently has $1 billion of development projects underway. It also has over $1 billion in cash and a top-tier balance sheet to continue making acquisitions.
Add that to the durable and increasing demand for self-storage space, and Public Storage should continue growing for years to come.
Financially strong businesses with ample growth prospects
CrowdStrike, NextEra Energy, Brookfield Infrastructure, Paycom Software, and Public Storage all generate recurring revenue and cash flow. That gives them the funds to expand their businesses and maintain strong financial profiles.
These features make them low-risk, high-upside investments, which are ideal for those who only have a few hundred dollars of capital to put to work.
