Regardless of whether you're new to investing or have experienced your fair share of bear market declines, this has proved to be an exceptionally challenging year. We've witnessed the widely followed S&P 500 deliver its worst first-half return in 52 years, and have seen all three major U.S. indexes plunge into a bear market.
Although there are no guarantees when investing, history has shown time and again that buying and holding high-quality businesses over long periods is a winning formula. Each of the three major U.S. stock indexes has eventually recouped their losses following sizable declines; and I have little doubt the same will prove true of the current bear market downturn at some point in the future.
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But the best thing about investing during a bear market is that you don't need a boatload of money to make a difference and build wealth. Since most online brokerages have ditched commission fees and minimum deposit requirements, any amount of money -- even $20 -- can be the ideal amount to invest.
What follows are three of the smartest stocks you can buy with $20 right now.
AT&T
The first genius stock you can buy with just $20 is telecom company AT&T (T -1.21%). This is an investment that will be particularly attractive to value and income investors.
Throughout much of the past decade, AT&T was a forgotten stock. Historically low interest rates encouraged investors to put their money to work in faster-growing companies. But with three core catalysts now in its sails, AT&T has the look of an amazing value.
To start with, it should benefit from the ongoing upgrade of wireless infrastructure to support 5G download speeds. Upgrading its infrastructure won't be cheap or happen overnight. However, it's been about a decade since download speeds were meaningfully improved. This will encourage a device replacement cycle for consumers and businesses that could last years. The key point being that data consumption should climb, which would be a boon for the company's wireless operating margins. During the third quarter, AT&T's wireless revenue growth was its highest (5.6%) in more than a decade.
Secondly, AT&T has been pulling levers to reduce its operating expenses. According to the company's latest report, it's on track to deliver $6 billion in cost-savings in 2022. Paring costs is a smart move with the winds of recession blowing and interest rates rising.
And third, AT&T vastly improved its balance sheet this year. In April, the company spun off content arm WarnerMedia, which was merged with Discovery to create Warner Bros. Discovery. As part of the closing of this deal, AT&T received $40.4 billion from a combination of cash and select debt lots retained by Warner Bros. Discovery. This financial flexibility means AT&T should have no issue doling out its inflation-fighting 5.8% yield.
Valued at less than 8 times Wall Street's forward-year forecast earnings, AT&T is an exciting stock to own, once more.
Exelixis
Another smart stock you can buy with $20 right now is cancer-drug developer Exelixis (EXEL 1.55%). This is a stock that should appeal to both growth and value investors.
Arguably the best thing about healthcare stocks is the defensive nature of the sector. No matter how well or poorly the U.S. economy or stock market perform, people will still get sick and require treatment. Since we can't control what ailment(s) we develop, biotech stocks like Exelixis will always have their products/services in demand.
The key driver for Exelixis has, and will continue to be, cancer drug Cabometyx. Cabometyx is approved to treat first-and-second-line renal cell carcinoma (RCC), as well as previously treated advanced hepatocellular carcinoma. The company's lead drug is already generating more than $1 billion in annual sales from these indications -- but this could be just the start.
Exelixis is testing its lead drug in dozens of additional clinical trials as both a monotherapy and combination treatment. One of these studies already led to a first-line RCC approval in combination with cancer immunotherapies developed by Bristol Myers Squibb. Even if a majority of its ongoing trials fail, just a handful of wins and label expansions is all this company needs to reach $2 billion or more in peak annual sales for Cabometyx.
Equally important is the fact that the sizable cash flow derived from selling Cabometyx has allowed Exelixis to aggressively reinvest in its future. Aside from kick-starting its internal research engine, which is led by next-generation oral tyrosine kinase inhibitor XL092, Exelixis is leaning on its abundant operating cash flow and balance sheet to fund a number of collaborative efforts. Just this month, the company has announced developmental collaborations or licensing agreements with Catalent, Cybrexa Therapeutics, and Sairopa.
Lastly, Exelixis is sitting on close to $2.1 billion in cash, cash equivalents, restricted cash equivalents and investments. This is a company with the financial means to reinvest in its future or possibly even make acquisitions. With a sustained double-digit growth rate and a forward price-to-earnings ratio of 16, Exelixis is a screaming bargain.
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Palantir Technologies
The third smart stock you can confidently buy with $20 right now is a company that's geared toward growth seekers: Palantir Technologies (PLTR 2.44%).
Like most growth stocks, Palantir has found itself thrown under the proverbial bus in 2022. When bear markets arise, investors are less willing to pay premium valuations. That goes double for companies that have yet to achieve recurring profitability. Long story short, Palantir's share price has plummeted more than 80% since hitting an all-time high in early 2021. But when there's pain on Wall Street, there's usually opportunity for patient investors.
As I've stated in the past, what makes Palantir such an exciting stock to buy is the uniqueness of its operating model. This is a company with two platforms (Gotham and Foundry) that effectively bring in all of its revenue. Gotham is an artificial intelligence (AI)-driven software platform that's used by federal governments for data aggregation and mission oversight/planning. Meanwhile, Foundry is the platform businesses use to make sense of their data so they can operate more efficiently. There isn't a company on the planet that can replicate what Palantir does.
For years, Gotham has been Palantir's key sales driver. Locking up multiyear contracts, predominantly with the U.S. government, generates highly predictable cash flow and has sustained a sales growth rate north of 30% most years. However, Gotham will eventually be limited over the long run by the sensitive software it provides. For example, Palantir isn't going to allow China or Russia to use its AI-based solutions.
Looking into the future, Foundry is unquestionably the company's ticket to success. The commercial segment is just getting off the ground, but still managed to nearly double its customer count (from 115 to 228) in the latest quarter from the prior-year period. This is the segment that offers the most sustainable double-digit growth opportunity, and should help Palantir turn the corner to generally accepted account principle (GAAP) profits by 2024.
Having retraced from a valuation of close to 90 times sales to a current valuation of 7 times forward-year sales, Palantir looks ripe for the picking.
