For nearly four years, Wall Street has been a roller coaster for investors. In order, they have contended with:
- The historic COVID-19 crash of February-March 2020 that sent the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite deeply into a bear market
- The 2021 bull market that bordered on euphoria and sent growth-stock valuations into the stratosphere.
- The 2022 bear market, which saw the growth-driven Nasdaq Composite lose a third of its value.
- The 2023 "bull market" (it's debatable whether we're in a new bull market), which has seen the S&P 500 and Nasdaq Composite meaningfully rally from their 2022 bear market lows.
But in spite of this year-to-date rally, the major indexes still sit well below their 2021 record-closing highs. Though this might be disappointing to short-term traders, it's a red carpet opportunity for long-term investors to buy stakes in great companies at a discount.
Image source: Getty Images.
What's great about putting your money to work on Wall Street is that you don't need to have Bill Gates' pocketbook to generate wealth. With most online brokerages doing away with minimum-deposit requirements and commissions for common-stock trades on major U.S. exchanges, any amount of money -- even $200 -- can be the perfect amount to invest.
If you have $200 ready to put to work, and you're absolutely certain this isn't cash you'll need to pay bills or cover emergencies, the following three stocks stand out as no-brainer buys right now.
Alphabet
The first phenomenal value that's hiding in plain sight, which you can add to your portfolio with $200 right now, is Alphabet (GOOGL 10.22%) (GOOG 9.96%). This is the parent company of widely used internet search engine Google and popular streaming platform YouTube.
The primary reason Alphabet has backed off of its record-closing high from two years ago is uncertainty about the U.S. economy. Though the unemployment rate is historically low, a couple of money-based predictive tools signal trouble ahead. That's not particularly good news for a company that generates most of its revenue from advertising.
What is great news for Alphabet is that recessions tend to be short-lived. Only 3 of 12 recessions since the end of World War II have lasted 12 months, with none surpassing 18 months.
On the other hand, periods of expansion typically endure for multiple years, if not more than a decade. This means Alphabet is going to command exceptional ad-pricing power more often than not.
For decades, Google has been Alphabet's foundation. In October, Google accounted for nearly 92% of worldwide internet search. In fact, Google hasn't held less than a 90% monthly share of global search in over eight years. As the clear go-to for merchants looking to target consumers, Alphabet should have no trouble steadily growing its operating cash flow from its core segment.
But what's even more intriguing than Google is the company's cloud infrastructure service Google Cloud. Despite what Wall Street perceived to be "disappointing" year-over-year sales growth of 22.5% in the September-ended quarter, Google Cloud has delivered three consecutive quarters of operating profit after multiple years of losses. With cloud spending still in its early stages, Alphabet's high-growth segment is perfectly positioned for success.
The final reason to pile into Alphabet is its valuation. Shares can be purchased right now for less than 14 times forward-year cash flow, which is notably lower than the 18 multiple it's averaged over the past five years.
Jazz Pharmaceuticals
A second no-brainer stock that's begging to be bought with $200 right now is specialty biotech Jazz Pharmaceuticals (JAZZ 1.89%).
The biggest concern for Jazz is the potential loss of exclusivity for its blockbuster drugs. But thanks to ongoing innovation, diversification, and acquisitions, the company has the catalysts necessary to push past this near-term skepticism.
For years, Jazz has been reaping the benefits of its sodium oxybate franchise Xyrem for various sleep disorders, including narcolepsy. But with generic versions being approved by the Food and Drug Administration (FDA), Jazz has had to rely on its innovation to secure its operating cash flow.
It responded by developing Xywav, another sleep disorder therapy, but one with 92% less sodium than Xyrem. For patients with higher cardiovascular risk factors, Xywav is an improvement. More importantly, it will allow Jazz to hang on to its cash flow for years to come.
This is a good time to mention that Jazz has done a particularly good job of growing its oxybate franchise by increasing the price of its novel therapies. Since Jazz is primarily focused on developing drugs that target orphan and rare diseases, it typically faces little or no pushback on its list prices from health insurers. That's a boon to the company's operating margin.
In terms of diversification, Jazz expects its oncology segment to reach roughly $1 billion in full-year sales in 2023, with acute lymphoblastic leukemia and lymphoblastic lymphoma drug Rylaze doing most of the heavy lifting.
Meanwhile, Jazz also completed the acquisition of cannabidiol-based drug developer GW Pharmaceuticals in May 2021. GW's lead drug, Epidiolex, has the potential to top $1 billion in peak annual sales with label expansion opportunities.
Best of all, the price is right with Jazz. Shares are currently trading for roughly 6 times next years' price-to-earnings (P/E) ratio, which is historically cheap and fully bakes in any patent-cliff concerns.
Image source: Getty Images.
Okta
The third no-brainer stock to buy with $200 right now is cybersecurity company Okta (OKTA -0.69%).
Shares of Okta have been clobbered over the past month following the hack of a support system that allowed access to sensitive user information. Hackers don't take time off from trying to steal consumer and enterprise information, and it's not uncommon to see cybersecurity stocks hit hard when hacks are successful.
At the same time, this ongoing battle against hackers represents a surefire opportunity for Okta to generate steady operating cash flow. Any business with an online or cloud-based presence needs to protect its sensitive information, which has led to an increased reliance on third-party providers like Okta.
What has made Okta special is its focus on identity verification. Its platform is cloud-native and reliant on artificial intelligence (AI). The incorporation of machine learning (ML) technology ensures that Okta's platform is "learning" over time. Though it did suffer a breach in October, AI and ML will help the platform become more efficient at proactively recognizing and responding to threats.
For the moment, Okta is merely scratching the surface of its addressable market in identity verification. In November 2022, it pegged its addressable market at $80 billion, which includes $30 billion for consumer identity. With fiscal 2024 sales expected to come in at $2.22 billion, the company has plenty of runway to sustain a double-digit growth rate.
Perhaps the most exciting aspect of Okta's growth is its acquisition of Auth0, which closed in February 2022. Despite higher-than-anticipated near-term acquisition costs, the Auth0 deal should be a big-time winner for Okta. It targets the lucrative consumer identity market, and will provide Okta with ample sales opportunities outside the United States.
To keep with the theme, Okta's valuation is also deceptively attractive. Even though its forward P/E of 45 might appear high, a consensus five-year annualized growth rate of 25% brings its price/earnings-to-growth ratio well below 2.
