Over long periods, the stock market is a bona fide wealth creator. But moving from point A to B doesn't happen in a straight line.
Since the start of 1950, the benchmark S&P 500 has undergone 39 separate corrections totaling at least 10%. This works out to a double-digit downturn, on average, every 1.89 years. Despite pullbacks being a natural part of the investing cycle, they still have a habit of surprising people.
The interesting thing is that every stock market correction, bear market, and crash since the inception of the S&P 500 (save for the 2022 bear market) has eventually been cleared away by a bull market. In other words, investors with time on their side can use notable pullbacks in the major indexes as a surefire buying opportunity. With the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite well below their all-time highs, bargains abound.
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Best of all, putting your money to work on Wall Street is easier than ever. Since most brokerages have done away with minimum deposit requirements and commission fees for trades on major U.S. exchanges, any amount of money -- even the $20 you have sitting in your wallet -- can be the perfect amount to invest.
If you have $20 to put to work in the stock market, and you're certain this isn't cash you're going to need to cover any bills, the following three stocks stand out as no-brainer buys right now.
Nio
The first no-brainer stock that's begging to be bought by patient investors right now is up-and-coming China-based electric-vehicle (EV) maker Nio (NIO 8.72%).
Make no mistake about it, Nio's path to success is full of speed bumps. The EV landscape is highly competitive, and Nio is attempting to build itself from the ground up. Few automakers have been successful doing so, and it typically leads to years of losses as production expands.
Nio has also been contending with years of supply chain constraints caused by the Chinese government's now-abandoned COVID-19 mitigation strategy, known as zero-COVID. It could take a few more quarters before supply chain problems become a thing of the past.
However, the other side to the above is that the proverbial training wheels on China's economy have, once again, been removed. Although it could take time for China's citizens to build up some form of immunity to the SARS-CoV-2 virus that causes COVID-19, an open Chinese economy should lead to an increase in EV demand and allow Nio to rapidly expand its production. Unsurprisingly, Nio topped 55,000 EV deliveries during the third quarter, which was a 75% improvement from the comparable quarter in 2022.
In addition to production expansion, innovation -- both traditional and out-of-the-box -- is what sets Nio apart. The company is in the process of rolling out its new NT 2.0. platform for its EVs. This platform introduces a number of improvements to existing advanced driver assistance systems. Since the rollout of NT 2.0 began, consumer demand for Nio's EVs has picked up, big time.
In terms of out of-the-box innovation, Nio introduced its battery-as-a-service subscription during the early stages of the pandemic. In exchange for a monthly fee, buyers can charge, swap, and upgrade their batteries in the future. Not only does this generate high-margin, predictable cash flow for Nio, but it importantly keeps early buyers loyal to the brand.
The last thing to consider about Nio is its location. China is the world's No. 1 auto market, and EV market share is very much up for grabs in the still-nascent industry. Look for Nio to sustain a double-digit growth rate and push toward profitability by as early as mid-decade.
Annaly Capital Management
To paraphrase investing great Warren Buffett, "Be greedy when others are fearful." There's probably not a more universally hated industry at the moment than mortgage real estate investment trusts (REITs), which is what makes Annaly Capital Management (NLY 1.02%), and its jaw-dropping 17.7% dividend yield, a no-brainer buy if you have $20 to invest.
Mortgage REITs are companies that aim to borrow money at the lowest short-term rate possible and use this capital to purchase higher-yielding long-term assets, such as mortgage-backed securities (MBS). With the Federal Reserve aggressively raising interest rates since March 2022, short-term borrowing costs have soared. When coupled with an inverted yield curve, things simply couldn't be more challenging for Annaly Capital Management and its peers.
Based on recent quarterly reports, Annaly has seen both its book value and net interest margin -- average yield on owned assets less average borrowing costs -- decline. But it's possible that all bad news for the traditionally conservative Annaly is baked in at this point.
For instance, a higher-rate environment isn't all bad news. The MBSs Annaly is adding to its portfolio should steadily increase the average yield on owned assets. Over time this is a recipe that can increase its book value and net interest margin.
Furthermore, the Federal Reserve is no longer purchasing MBSs and plans to exit the market. With less competition to purchase MBSs, Annaly can secure more lucrative MBSs that'll further lift its net interest margin over time.
Another reason Annaly Capital Management can thrive is its focus on agency securities. "Agency" assets are backed by the federal government in the unlikely event of default. While having this added protection does lower the yield Annaly receives on the MBSs it buys, it also allows the company to lever its portfolio to magnify its profit.
With Annaly Capital Management trading well below book value, the time for opportunistic income seekers to be greedy has arrived.
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Teladoc Health
The third no-brainer stock to buy with $20 right now is telemedicine company Teladoc Health (TDOC -2.40%).
Teladoc has been contending with two headwinds that have dragged its share price down 95% since February 2021. To start with, the company continues to lose money. With multiple economic datapoints and predictive tools pointing to a possible U.S. recession in the coming quarters, investors may be less forgiving with companies that are losing money.
The other concern is the, in hindsight, grossly overpriced acquisition of applied health signals company Livongo Health in November 2020. Last year featured three separate goodwill writedowns tied to the Livongo deal, totaling $13.4 billion. While it was a smart and necessary move to get these charges out of the way, it nevertheless left quite the blemish on Teladoc's bottom line.
On the other hand, the good news is that Teladoc Health has friendlier year-over-year comparisons in 2023, and investors can finally turn their attention to the company's operations.
In particular, high-margin services are delivering steady member growth. The company's Chronic Care Program (i.e., its Livongo Health segment) gained 129,000 subscribers (a 13% increase) from the prior-year period. Meanwhile, the number of paying BetterHelp users jumped 5% from September 2022. Both segments are just scratching the tip of the iceberg in terms of their potential pool of addressable patients.
Additionally, healthcare is a highly defensive sector. We don't get the liberty of choosing when we become ill or what ailment(s) we develop. Demand for prescription drugs, medical devices, and healthcare services, like the ones offered by Teladoc, tend to be consistent in any economic environment.
Lastly, don't overlook Teladoc's ability to improve every aspect of the treatment chain. In instances where virtual visits make sense, they're more convenient for patients, and they can allow physicians to keep closer tabs on patients with chronic illnesses. The end result should be improved patient outcomes and lower out-of-pocket costs for health insurers. Anything that reduces costs for health insurers is something guaranteed to grow in importance in the years to come.
