Over long periods, Wall Street has proved to be a bona fide moneymaker. But when examined over shorter timelines, stock market returns can be unpredictable.
Since the beginning of the decade, Wall Street's major stock indexes have navigated their way through two bear markets. Although they've rebounded in a big way from their 2022 bear market lows, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite remain firmly below their all-time highs. What this represents is an opportunity for patient investors to pounce on plain-as-day bargains.
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What's particularly advantageous about putting your money to work on Wall Street is that most online brokerages have done away with commission fees and minimum deposit requirements. For long-term-minded investors, it means any amount of money -- even $500 -- can be the perfect amount to invest.
If you have $500 that's ready to be put to work, and you're certain this isn't cash you'll need to pay bills or cover emergencies as they arise, the following three stocks stand out as no-brainer buys right now.
Teladoc Health
The first stock that represents a surefire buy if you have $500 to invest right now is telehealth leader Teladoc Health (TDOC -2.40%).
Some investors might view a stock that's down more than 90% from its all-time high as damaged goods. Teladoc did, after all, grossly overpay for its acquisition of applied health signals company Livongo Health, which resulted in $13.4 billion of goodwill impairment charges last year. But despite this valuation misstep, the company has the puzzle pieces in place to become a moneymaking investment.
To begin with, Teladoc Health has macro factors working in its favor. Demand for prescription drugs, devices, and the healthcare services Teladoc can provide don't ebb and flow with the health of the U.S. economy. If a person needed a life-saving drug yesterday, there's a good chance they'll need it tomorrow, regardless of what happens with the U.S. economy. This consistency of demand allows Teladoc to generate highly predictable operating cash flow every quarter.
More importantly, Teladoc's services are completely revolutionizing how personalized care is administered. In instances where a virtual visit makes sense, it's far more convenient for the patient and can allow physicians to keep closer tabs on their chronically ill patients. The end game here is that telemedicine is improving patient outcomes, which ultimately means less money is coming out of the pockets of health insurers. Anything that reduces costs for health insurers, while improving patient care, is going to be promoted.
Investors would also be wise not to discount the role Livongo Health can play over the long run. While Teladoc did overpay for Livongo, the latter was profitable on a recurring basis when it was acquired. As of June 30, 2023, Livongo had around 1.07 million chronic care subscribers -- and this is just scratching the surface given its potential to assist people with diabetes, hypertension, and chronic weight-management issues.
Though Teladoc is still losing money, it continues to generate positive operating cash flow and free cash flow, and has seen its adjusted gross margin tick higher. It looks like the clear leader to own in the rapidly growing telehealth space.
Dollar General
A second no-brainer stock that's begging to be bought with $500 right now is discount brick-and-mortar retailer Dollar General (DG -0.41%).
Following a 13-year uptrend for the company's stock, the wheels have completely fallen off the wagon. Shares are down 53% year to date (as of Sept. 15), with margin compression largely to blame. CEO Jeff Owen has pointed to weak customer traffic trends and increased theft (known as "shrinkage" in the retail business) for Dollar General's subdued sales growth and profit decline.
But just as Dollar General is known for providing its customers with bargains, the company's own short-term struggles now present an opportunity for long-term investors to snag a plain-as-day deal.
One core advantage for Dollar General is its locations. The company primarily focuses on rural locations in towns with fewer than 20,000 residents. These relatively smaller, no-frills stores help to keep expenses down and allow Dollar General to pass along these cost savings to their shoppers. In many of these rural towns, Dollar General can undercut most grocers on price.
Similar to Teladoc, Dollar General also has macroeconomic tailwinds working in its favor. Even though consumers have been clearly pressured by historically high inflation, many of the products Dollar General sells are household essentials, such as food, beverages, and home-cleaning supplies. These are products that are going to be purchased regardless of how well or poorly the U.S. economy is performing. In other words, the company should have a reasonably safe floor even in an uncertain economic environment.
It's equally important to note that Dollar General's problems -- a challenged consumer and increased shrinkage -- are consistent throughout the retail industry, big and small, at the moment. While the company's operating results aren't going to turn on a dime, management is making the right moves now, such as expediting the reduction of excess inventory, to get the company onto a firmer foundation by 2024.
With a forward-year price-to-earnings ratio of less than 14, Dollar General stock is cheaper than it's been in at least a decade.
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Johnson & Johnson
The third no-brainer stock to buy with $500 right now is none other than healthcare stock Johnson & Johnson (JNJ -0.46%), which is commonly referred to as "J&J."
Whereas the major stock indexes have had a rock-solid year, shares of J&J are down 9, as of Sept. 15. The culprit for its poor performance looks to be ongoing litigation uncertainty. Approximately 100,000 lawsuits have been filed against J&J that allege its now-discontinued baby powder caused cancer in users. Attempts to settle these claims in court have been denied on two separate occasions.
Though it is less than ideal to not know what the company's financial liability could be from this pending litigation, investors should understand that Johnson & Johnson can, ultimately, handle whatever the final dollar figure comes out to be. In fact, J&J is one of only two publicly traded companies to be bestowed with the highest possible credit rating (AAA) from Standard & Poor's, a division of S&P Global. This rating suggests the utmost confidence that the company can service and repay its outstanding debts.
Instead of worrying about the company's outstanding litigation, investors should focus on the four factors that make J&J such a great company: its sales mix, management team, dividend, and valuation.
For more than a decade, Johnson & Johnson has been shifting a greater percentage of its total sales toward pharmaceuticals. Even though brand-name drugs have finite periods of sales exclusivity, they offer J&J superior margins and pricing power.
Johnson & Johnson's success is also a reflection of management continuity. In the 137 years since its founding, it's had just eight CEOs. Longstanding leaders ensure that growth initiatives are seen through from start to finish.
Investors wanting near-guaranteed income need look no further than J&J. It's raised its base annual payout for 61 consecutive years, yet has a reasonably low estimated payout ratio of 51% this year, sans contributions from Kenvue, J&J's recently spun-out consumer health products segment.
Lastly, Johnson & Johnson is inexpensive. Even after stripping out the earnings benefit provided by Kenvue, shares are trading at less than 16 times forward-year earnings.
