Perspective is everything on Wall Street. Over the past three and a half years, Wall Street's major stock indexes have fluctuated between bear and bull markets. If you're a short-term trader, making money has been exceptionally challenging.
But it's a completely different story if you have a long-term mindset. Even though all three major stock indexes are well below their record-closing highs from nearly two years ago, history shows that time eventually heals all wounds (at least for the major indexes). It means every sizable decline in the stock market represents a buying opportunity for long-term investors with cash in hand.
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One of the best aspects of putting your money to work on Wall Street is that previous barriers to entry for everyday investors have been torn down by most online brokerages. Both minimum deposit requirements and commission fees for buy-and-sell transactions on major U.S. stock exchanges have been done away with by most online brokers. This means any amount of money -- even $1,000 -- can be the perfect amount to invest.
If you have $1,000 that's ready to be put to work and are positive you won't need this cash to pay bills or cover the cost of an emergency, the following three stocks stand out as no-brainer buys right now.
Berkshire Hathaway
The first winning stock you can confidently buy with $1,000 right now is Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%), the conglomerate run by billionaire CEO Warren Buffett. Note that I'm specifically referring to the B Class shares (BRK.B), since a single A Class share (BRK.A) will set you back more than $531,000!
What Berkshire Hathaway brings to the table for long-term investors is significant outperformance. Keeping in mind that past performance is no guarantee of future results, Berkshire's Class A shares -- the Class B shares didn't come into existence until 1996 -- have averaged a 19.8% annualized gain since the mid-1960s, double the annualized total return, including dividends, of the benchmark S&P 500 over the same timeline.
Though books have been written about Warren Buffett's investment philosophy and the reasons behind his success, I'd whittle the Oracle of Omaha's outperformance down to three factors: cyclicality, dividends, and the company's capital-return program.
Having endured more than a dozen U.S. recessions as an investor, Warren Buffett is well aware that downturns are a normal, inevitable part of the investing cycle. However, Buffett also recognizes that periods of economic expansion last substantially longer than recessions. Instead of trying to time when downturns will occur, he's angled Berkshire Hathaway's acquired assets and investment portfolio to take advantage of long-winded periods of growth. This has been done by purchasing/acquiring cyclical companies that ebb and flow with the U.S. and global economy.
A second reason for Berkshire Hathaway's long-term outperformance is Buffett's penchant for owning dividend stocks. Over the next 12 months, Berkshire is expected to collect more than $6 billion in dividend income. Aside from this income padding Berkshire's bottom line, dividend stocks have an extensive history of outperforming nonpayers over long periods.
The third factor that's helped Berkshire Hathaway crush the S&P 500 is its capital-return program. Although Buffett's company doesn't pay a dividend, he and executive vice chairman Charlie Munger have overseen the repurchase of more than $71 billion worth of Berkshire Hathaway stock since July 2018. Buying back stock is boosting Berkshire's earnings per share and making an already inexpensive stock look that much more attractive.
Vertex Pharmaceuticals
A second no-brainer stock to buy with $1,000 right now is specialty biotech company Vertex Pharmaceuticals (VRTX -0.06%).
Before diving into the specifics of what makes Vertex such a great company, it's important to recognize the defensive nature of healthcare stocks. Regardless of external factors, such as the U.S. inflation rate or the health of the U.S. economy, patients taking lifesaving or game-changing drugs will continue to need their medication in any climate. For brand-name drug developers, it means exceptional cash flow consistency.
Where Vertex Pharmaceuticals has made its mark is treating people with cystic fibrosis (CF), a genetic disease characterized by thick mucus production that can obstruct a person's lungs and/or pancreas.
Though there's no cure for CF, Vertex has developed four generations of mutation-specific CF therapies aimed at improving lung function. The most recent, combination therapy Trikafta, received approval from the U.S. Food and Drug Administration a full five months ahead of its scheduled review date, and is pacing close to $8.7 billion in full-year sales in 2023.
Aside from currently developing a fifth-generation CF treatment, the excitement surrounding Vertex has to do with its potential expansion into new areas of focus. For instance, gene-editing therapy exagamglogene autotemcel (exa-cel), which was developed in cooperation with CRISPR Therapeutics, has the ability to generate in excess of $1 billion in peak annual sales as a treatment for severe sickle cell disease and transfusion-dependent beta thalassemia.
Vertex Pharmaceuticals' balance sheet is another reason for long-term investors to smile. Selling novel drugs with no current competition in the CF space is leading to boatloads of operating cash flow for the company. Even with a $3 billion share repurchase program in place, the company's cash pile grew to $11.2 billion in the June-ended quarter.
A forward price-to-earnings (P/E) ratio of 21, coupled with Vertex's sustained double-digit sales growth rate, makes it a phenomenal buy.
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Palo Alto Networks
The third no-brainer stock to buy with $1,000 right now is none other than cybersecurity stock Palo Alto Networks (PANW 0.91%).
Similar to Vertex, Palo Alto Networks benefits from the defensive dynamics of the cybersecurity industry -- namely, hackers and robots aren't going to stop trying to steal sensitive information just because Wall Street or the U.S./global economy hits a rough patch. For businesses with an online or cloud-based presence, cybersecurity solutions have practically become a necessity.
What's really put Palo Alto Networks on the map over the past five years is the company's ongoing transformation to cloud-based software-as-a-service (SaaS) solutions. From the end of fiscal 2017 to the close of fiscal 2023 (the company's fiscal year ends on July 31), subscription and support sales grew from 60% of net revenue to 77% of total sales, respectively.
Although the company continues to sell physical firewall products, focusing on SaaS solutions comes with well-defined advantages. Cloud-based SaaS solutions are more effective at recognizing and responding to threats than on-premises solutions, they should improve gross retention rates, and most importantly, SaaS solutions can increase Palo Alto Networks' operating margin over time.
Another reason Palo Alto is such a winner is its ability to land big clients. While it's great to see next-generation security billings climbing, the key performance indicator that stands out is the 43% year-over-year increase in deals totaling $20 million or more in annual recurring revenue. Bigger deals explain why Palo Alto's remaining performance obligations (i.e., its backlog) have climbed to a new high of $10.6 billion.
As I've pointed out, CEO Nikesh Arora has also done a phenomenal job of adding to Palo Alto's reach with a steady diet of bolt-on acquisitions. These buyouts give Palo Alto a way to expand its product ecosystem and cross-sell its solutions to reach new businesses.
Though Palo Alto might look pricey at 36 times forward-year earnings, it offers an earnings growth rate of nearly 27% over the coming five years, per Wall Street estimates. When factoring in the company's growth potential, Palo Alto stock is still an amazing deal.
