One guarantee that Wall Street offers investors is the unpredictability of short-term directional moves in the major indexes. For more than three years, the ageless Dow Jones Industrial Average, broad-based S&P 500, and innovation-fueled Nasdaq Composite, have bounced back and forth between bull and bear markets.
Although some folks may view the three major stock indexes being well off of their all-time highs (set between November 2021 and January 2022) as disappointing, it's actually a blessing in disguise for long-term-minded investors. Given that all three major indexes have, eventually, recouped their losses following every previous correction, crash, and bear market (save for the 2022 bear market, as of now), now is as good a time as any for patient investors to pile into high-quality stocks trading at perceived discounts.
Image source: Getty Images.
What makes investing on Wall Street even grander is that most online brokerages have completely done away with commission fees associated with buy and sell orders for stocks traded on major U.S. exchanges, as well as minimum deposit requirements. It means any amount of money -- even $400 -- can be the ideal amount to put to work.
If you have $400 that's ready to invest, and you're absolutely certain you won't need this cash to pay bills or cover emergency expenses, the following three stocks stand out as no-brainer buys right now.
Bank of America
The first remarkable stock that makes for a surefire buy with $400 is money-center giant Bank of America (BAC -0.21%), which nearly hit a three-year low last week.
The two issues bank stocks are contending with are their cyclicality and rising Treasury yields. With regard to the former, select economic data points to the growing likelihood of a U.S. recession in the coming quarters. Since banks are cyclical, recessions usually lead to a rise in credit delinquencies and loan losses.
The issue with Treasury bonds is that they provide safe and relatively low-volatility income for investors. Although BofA offers a hearty 3.7% yield, investors can nab a 5% to 5.5% yield from select Treasury bonds and bills. At least in short run, this is making bank stocks less attractive for income seekers.
However, both of these headwinds ignore the big picture and overlook the longer-term catalysts fueling Bank of America's bottom line.
For example, even though a rapid uptick in interest rates has lifted Treasury yields, higher interest rates are also giving Bank of America a big boost in the profit column. No money-center bank is more interest-sensitive than BofA. A cumulative 525-basis-point increase in the federal funds rate since March 2022 has added billions in net-interest income each quarter to Bank of America's bottom line -- and the nation's central bank has shown no intention of easing rates anytime soon.
Furthermore, Bank of America is seeing its steady investments in technology pay dividends. As of the end of June 2023, nearly three quarters of all households using BofA were banking digitally (online or via mobile app), with 51% of net sales coming from digital channels. Digital banking is considerably cheaper for BofA than any form of in-person interaction. As more consumers shift to digital channels, Bank of America should see a steady improvement in its operating efficiency.
The valuation also makes a lot of sense. Shares of Bank of America can be purchased for 19% below its book value and a reasonably low 8 times forward-year earnings.
Etsy
A second no-brainer stock that's begging to be bought with $400 right now is e-commerce platform Etsy (ETSY 0.34%).
Similar to Bank of America, Etsy's recent share-price struggles can be partially tied to economic uncertainty. Consumers usually pare back their spending when U.S. economic growth slows, stalls, or reverses. Etsy's operating model is counting on its new, reactivated, and habitual buyers -- consumers who make at least six purchases on a trailing-12-month basis totaling an aggregate of at least $200 -- to spend more.
Etsy is also up against some difficult year-over-year and two-year comparisons. For instance, mask purchases were incredibly popular on Etsy during the COVID-19 pandemic, but have since waned as the worst of the pandemic looks to be in the rearview mirror.
Despite these challenges, Etsy's competitive edge, along with growth in select key performance metrics, suggest it's a budding star in the e-commerce arena.
Let's address the elephant in the room: How do you compete with Amazon? According to eMarketer, Amazon was estimated to have accounted for 39.5% of all online retail sales in the U.S. in 2022. It's a volume kingpin with an equally massive logistics network to boot.
But what Amazon, arguably, doesn't do a particularly good job of is engage its shoppers. Etsy's advantage is its merchant base, with is comprised of small businesses and self-proprietors whose entire operating model is based on unique products and customized goods and services. Amazon may have volume, but it'll never come close to the personalization at scale Etsy can offer. This means Amazon isn't going to cannibalize Etsy's small merchant moat.
While near-term sales comps have been rough for Etsy, it's important to pan out and see how far the company has come in just four years. Even with habitual buyers down by a low-double-digit percentage since March 2022, total habitual buyers have more than tripled (up 218%) since June 2019. These habitual buyers make up 43% of gross merchandise sales and are what fuel Etsy's profit potential. Over a four-year period, Etsy has done a phenomenal job of growing its business.
Lastly, Etsy's take-rate has been steadily creeping higher. The "take-rate" describes the percentage of each deal negotiated on its platform that Etsy gets to keep, including fees. A rising take-rate infers that Etsy possesses exceptional pricing power.
Image source: Walt Disney.
Walt Disney
The third no-brainer stock to buy with $400 right now is none other than media stock Walt Disney (DIS -0.04%).
Despite theme park Disneyland being dubbed "the happiest place on Earth," shareholders have been anything but happy with Walt Disney stock since March 2021. The company saw both its theme-park operations and media segment get hammered by the COVID-19 pandemic. More recently, the writer's strike, coupled with ongoing losses at the company's streaming segments, have weighed on its shares.
I'd be outright lying if I didn't acknowledge that Walt Disney has challenges it needs to contend with. But the light at the end of tunnel is a lot closer than many investors may realize.
To start with, the company has largely moved past the obstacles that held it down during the pandemic. Its theme parks have reopened, the writer's strike is now over, and Walt Disney has an extensive slate of movies set to hit theaters in the coming months and years. In other words, we're moving past the noise and getting back to Disney's bread and butter.
Walt Disney also possesses something that no other media/entertainment company can rival: its storytelling. Though there are no shortage of movies to watch or theme parks to attend, no other company has the depth of storytelling or the characters that Walt Disney brings to the table. It's an irreplaceable company, which puts serious pricing power in Disney's corner.
For instance, when Disneyland opened in 1955, an admission ticket cost $1. Since then, the price of admission has increase more than 10,000%! That's roughly 10 times the rate of inflation in the U.S. over the same timeline. People willingly pay a premium for the entertainment, engagement, imagination, and storytelling Disney can offer consumers of all ages.
Investors can be excited about Disney's streaming services, too. Given the company's strong pricing power, it should be able to raise monthly streaming costs to move Disney+ toward recurring profitability without losing too many subscribers. This is where the company's phenomenal brand power comes into play.
Finally, CEO Bob Iger has a history of making game-changing acquisitions, including Pixar, Marvel, and Lucasfilm. As long as Iger is in the CEO chair, Disney's needle is pointing higher.
