We may not like to admit it as investors, but Wall Street is a two-sided coin, and moves lower are just as normal as bull markets.
Since the beginning of 2022, the iconic Dow Jones Industrial Average, broad-based S&P 500, and technology-driven Nasdaq Composite all fell into bear markets. While all three indexes have bounced off their lows, they remain well below their record highs.
Though bear markets can be trying on investors and test their resolve, they're also fantastic buying opportunities, based on decades worth of data. Despite never knowing ahead of time when a bear market will occur, how long it'll last, or where the ultimate bottom will be, we do know that every previous bear market was eventually fully recouped (and some) by a bull market. It effectively means every sizable decline in the major indexes is a buying opportunity for patient investors.
Image source: Getty Images.
The best thing about these buying opportunities is you don't need a mountain of cash to successfully build wealth on Wall Street. Most online brokerages have done away with minimum deposit requirements and commission fees, which means any amount of money -- even $100 -- can be the perfect amount to put to work right now.
If you have $100 ready to invest, and this cash won't be needed to cover any other expenses (e.g., bills and emergencies), the following three stocks stand out as no-brainer buys right now.
Amazon
The first exceptionally smart stock to buy with $100 is e-commerce kingpin Amazon (AMZN 0.30%).
The biggest headwind Amazon is currently contending with is the growing likelihood that the U.S. will fall into a recession at some point within the next year. Three recession-forecasting tools all suggest a recession is forthcoming, which would bode poorly for Amazon's world-leading online marketplace.
But here's the interesting thing about Amazon that far too many investors may be overlooking: Even though online retail sales accounts for a significant percentage of Amazon's total sales, it's a relatively small percentage of cash flow and operating income. Three of Amazon's ancillary segments are responsible for most of its cash-flow generation, and they're all continuing to grow by a sustained double-digit rate.
Amazon Web Services (AWS) is easily the company's most valuable operating segment from the standpoint of cash flow and future profits. AWS accounts for close to a third of the world's cloud infrastructure spending, according to a report by Canalys, which is an enviable position to be in with enterprise cloud spending still in its infancy. Despite AWS generating around a sixth of Amazon's annual sales, it's consistently producing more than half of the company's operating income.
The second key ancillary division is advertising services. The company's leading online marketplace draws well over 2 billion monthly visitors. Merchants wanting to target their products or message(s) are wisely advertising with Amazon. Excluding currency fluctuations, advertising services saw year-over-year sales growth of 21% to 30% over the past four quarters.
The third segment of importance is subscription services. Amazon announced nearly two years ago that it had surpassed 200 million Prime members globally, but it hasn't updated this figure since. Considering that the company holds the exclusive rights to Thursday Night Football and garners more than 2 billion visits each month, it's a fair assumption this figure has increased. Subscription services are bringing in close to $37 billion in annual run-rate sales.
While Amazon isn't cheap based on the traditional price-to-earnings ratio, it's cheaper than it's ever been as a publicly traded company relative to Wall Street's future cash flow forecast.
PubMatic
Don't think for a moment you have to buy a brand-name business to build wealth on Wall Street. Small-cap adtech stock PubMatic (PUBM 1.01%) is another no-brainer buy if you have $100 to invest right now.
Similar to Amazon, there's no secret to what's weighing down shares of cloud-based programmatic ad company PubMatic. Whenever there's even the slightest hint that an economic slowdown is on the horizon, it's common to see advertisers pare back their spending. Likewise, it's not abnormal for advertising stocks to be driven lower by emotional investors during these periods of economic uncertainty.
However, PubMatic isn't your run-of-the-mill ad company. It's a sell-side platform (SSP) at the center of the fastest-growing niche within the ad industry.
In simple terms, an SSP is a programmatic ad company that works with publishers to sell their digital display space. Thanks to a lot of consolidation in the SSP space, along with solid execution from PubMatic (which I'll touch on in a moment), the company's share of the sell-side space has grown to between 4% and 4.5%.
While billboard and print advertising will always exist, ad dollars have been shifting to digital channels for years. PubMatic caters to mobile, video, connected TV (CTV), and over-the-top programmatic ads. Prior to the recent industry downturn, PubMatic's organic growth rate had regularly hit 25% to 50%, which is well above the industry average. Omnichannel video, which includes CTV, is a big reason for PubMatic's outperformance.
In addition to outpacing the digital ad industry on the growth front, PubMatic's operating margin is ideally positioned to benefit as revenue scales. Instead of going the cheap/easy route and relying on a third party for its cloud-based platform, the company chose to build out its own. This once-costly and time-consuming decision will pay off over the long run, with the company able to hang on to more of its revenue as it scales.
And did I mention that PubMatic is swimming with cash? After generating more than $87 million in cash from operating activities in 2022, the company ended the year with $174.4 million in cash, cash equivalents, and marketable securities with no debt. Having a rock-solid balance sheet is allowing PubMatic to execute an up to $75 million share buyback.
Image source: Getty Images.
Enterprise Products Partners
The third no-brainer stock to buy with $100 right now is energy stock Enterprise Products Partners (EPD -0.90%).
For some of you, the idea of putting your money to work in a company involved in the oil and gas industry might sound scary. Just three years ago, the price of West Texas Intermediate crude oil futures plummeted to negative $40 per barrel as demand for energy commodities fell off a cliff during initial COVID-19 lockdowns. While it's possible that a U.S. recession could send oil and gas prices lower, Enterprise Products Partners largely avoids this spot price volatility.
The reason Enterprise is such a smart buy is because it's a midstream operator. Midstream companies are energy middlemen responsible for moving and storing oil, gas, natural gas liquids (NGLs), and refined products. Enterprise operates over 50,000 miles of transmission pipelines, nearly 30 natural gas processing facilities, and can store up to 260 million barrels of oil, NGLs, and refined products.
The key to Enterprise Products Partners' success is the way it structures its contracts with drilling companies. Last year, approximately three-quarters of its gross operating margin derived from fixed-fee contracts. The beauty of fixed-fee contracts is that they remove inflation and spot-price volatility from the equation. No matter how volatile crude and natural gas spot prices are, Enterprise can forecast its annual cash flow with confidence.
Being able to accurately forecast the company's cash flow is extremely important. Having a solid understanding of how much cash it'll bring in allows management to set aside capital for maintenance, new projects, acquisitions, and the company's distribution, which has grown in each of the past 24 years.
Another positive for Enterprise is the globally broken energy supply chain. Three years of capital underinvestment by global energy majors, coupled with Russia's invasion of Ukraine, makes it unlikely that the oil and gas supply can quickly be increased. A market where energy commodity supply remains tight is usually one where oil and gas prices have a high floor. If oil prices remain elevated, there's a good chance Enterprise Products Partners will land new contracts.
Among ultra-high-yield dividend stocks, you'd struggle to find a safer yield than the 7.7% Enterprise Products Partners is currently doling out.
