A $5,000 investment may not seem a significant amount to some, but it can generate tremendous returns in the long run. If you were to invest in the S&P 500, which averages an annual return of around 10% over the long term, that $5,000 could be worth more than $54,000 after 25 years.
One way you can set yourself up for larger returns is by investing in quality businesses that have been struggling, and whose valuations look attractive. Three stocks that may be great options to invest $5,000 into right now are Medtronic (MDT 1.77%), United Parcel Service (UPS 0.53%), and Southwest Airlines (LUV 3.10%). Their valuations are currently low, and these businesses should all do better in the years ahead.
1. Medtronic
Medical device maker Medtronic is a big name in healthcare, with customers all over the globe. Its devices help people with over 70 health conditions.
However, supply chain disruptions and the pandemic caused problems for its operations, resulting in some lackluster results in recent years. But with the healthcare industry returning to normal, Medtronic should make for a much better stock to invest in today.
NYSE: MDT
Key Data Points
The company upgraded its guidance last month, and Medtronic now projects that its organic revenue will grow 4.75% this fiscal year (ending in April) versus the 4.5% it was forecasting previously. This is by no means a fast-growing business, but it's one that can rise in value along with the industry. Medtronic offers investors a great way to gain exposure to healthcare, given its broad reach.
It also makes for a solid dividend stock, with a yield of around 3.4%. Shares of Medtronic have been rallying in recent weeks, but at less than $80, the stock is trading at a forward price-to-earnings multiple of only 16 (the S&P 500 average is 20). It's also around the levels it was at in 2020, when the markets first tumbled due to the coronavirus pandemic.
2. United Parcel Service
United Parcel Service, better known as UPS, is a great investment to hang on to for multiple reasons. If Medtronic is a great way to invest in healthcare, then UPS can give you great exposure to the world of e-commerce. As a top logistics provider, the company transports packages all over the globe.
Trading at less than 16 times future earnings, this is another good value buy for investors. And it has also been rising in recent weeks. Otherwise, it would be at a multi-year low.
NYSE: UPS
Key Data Points
The company has faced multiple headwinds this year as macroeconomic conditions have impacted demand, and labor negotiations also disrupted its normal operations. That said, a new labor agreement was put in place before the start of the holiday season. And with Black Friday online sales in the U.S. hitting a record $9.8 billion, the company could have a strong quarter to report in January. In its last earnings report, for the period that ended on Sept. 30, the company posted a 13% decline in revenue.
Whether you're investing in a top logistics company or just want to bet on the strength of the global economy, UPS can make for a good, cheap growth stock to buy. It also pays a dividend that yields 4.2%.
3. Southwest Airlines
Last December, the big news was Southwest Airlines' mass cancellations and problems that the top airline faced due to weather conditions. It fared particularly worse than its rivals.
This year, the company has promised to be better, and the early results are encouraging. During the Thanksgiving travel period, Southwest says it operated over 41,000 flights, transporting 5.1 million passengers. And even though it faced varying weather issues, it says 82% of its flights arrived within 14 minutes of their expected arrival times.
NYSE: LUV
Key Data Points
Southwest stock continues to struggle, however, and it is trading around where it was in early 2020, giving investors the ability to buy this top airline at a discounted valuation -- it's trading at only 10 times its estimated future earnings.
For the period ended Sept. 30, the company reported operating revenue of $6.5 billion, up 5% year over year. But with an increase in expenses, the company's net income of $193 million was down by more than 30%. If the busy winter travel season is a success, those numbers could look much better in a few months.
Southwest is going through ongoing labor talks of its own, which may impact profitability in the future. But the low-cost airline can be a potentially good long-term buy, given its low valuation. And like the other stocks on this list, there's an incentive to wait for the business to improve, as Southwest also pays a dividend, yielding 2.7%.
