Last year was a solid reminder of how powerful an ally optimism can be. Even though stock market corrections, bear markets, and even crashes are a normal and inevitable part of the investing cycle, all three major stocks indexes are trending higher over the long run.
However, not all of the major indexes have reached new highs. While the ageless Dow Jones Industrial Average managed to eclipse its old closing high, the broad-based S&P 500 and growth-driven Nasdaq Composite failed to do so in 2023. For investors with cash at the ready and a long-term mindset, it means bargains can still be found.
Image source: Getty Images.
Arguably the best aspect of putting your money to work on Wall Street is that most online brokerages have done away with investment barriers. Specifically, commission fees on stock trades and minimum deposit requirements are (mostly) a thing of the past. This means any amount of money -- even $1,000 -- can be the ideal amount to invest.
If you have $1,000 that's ready to be put to work, and you're absolutely certain this isn't cash you'll need to pay bills or cover emergencies as they arise, the following three stocks stand out as no-brainer buys for the new year.
Visa
The first genius stock to buy with $1,000 in 2024 is none other than leading payments processor Visa (V -0.23%).
The worst thing that can be said about Visa is that it's a cyclical business. When recessions occur, it's not uncommon for consumers and businesses to pare back their spending.
At the moment, a couple of money-based metrics and forecasting tools portend the growing likelihood of a U.S. recession in 2024. Should an economic downturn take shape, it would likely be bad news for most financial stocks.
However, Visa is the perfect example of a company that benefits from optimism and patience. Though we can never predict when recessions will occur, we do know they're historically short-lived. Only three of the 12 recessions following World War II have lasted at least 12 months, with none surpassing 18 months.
By comparison, most economic expansions are multiyear events. This allows Visa's fee collection to grow in lockstep with the U.S. (and global) economy over time.
Visa's growth runway is vast, as well. Based on Securities and Exchange Commission filings from the four major U.S. payment processors, Visa gobbled up a nearly 53% share of credit card network purchase volume in 2021.
It's also staring down a multidecade opportunity to expand its payment infrastructure into underbanked regions of the world, including the Middle East, Africa, and Southeast Asia. Whether it's derived from organic growth, bolt-on acquisitions, or some combination of the two, Visa can sustain double-digit earnings growth for as far as the eye can see.
Another reason investors shouldn't be worried about Visa is the company's operating model. Specifically, management has steered clear of lending and has remained solely focused on payment facilitation.
The advantage of this strategy is not having to directly contend with loan losses. Since Visa isn't a lender, it's not required to set capital aside to cover potential delinquencies. That's a competitive edge that allows it to bounce back from economic downturns faster than its peers.
With nearly 14% annualized earnings growth expected over the next five years, Visa's stock remains inexpensive at 23 times forward-year earnings.
Johnson & Johnson
A second no-brainer stock to buy with $1,000 right now is healthcare conglomerate Johnson & Johnson (JNJ -0.46%), commonly referred to as J&J.
The primary reason J&J performed so poorly in 2023, relative to the major stock indexes, has to do with litigation overhanging the company. Johnson & Johnson is facing approximately 100,000 lawsuits that allege its now-discontinued talcum-based baby powder causes cancer. J&J offered to settle these suits in court, but had its settlement attempts thrown out on two occasions.
Wall Street isn't a big fan of uncertainty, and there's always the possibility of a final judgment topping the $8.9 billion J&J had offered via settlement.
On the other hand, Johnson & Johnson is one of the most operationally stable companies on the planet. It does business in a highly defensive sector where demand doesn't change much from one year to the next. Since we don't have the luxury of choosing when we get sick or what ailment(s) we develop, juggernauts like J&J can count on predictable cash flow every year.
Furthermore, Johnson & Johnson is one of only two publicly traded companies that hold a coveted AAA-credit rating from Standard & Poor's, whose parent is the more-familiar S&P Global. J&J has generated north of $20 billion in operating cash flow over the trailing year, and it's sitting on more than $23 billion in cash, cash equivalents, and marketable securities. If the company owes money because of litigation, it won't have any trouble paying it.
J&J's success is also a function of continuity at key leadership positions. A person needs only the fingers on both hands to count how many CEOs J&J has had since its founding in 1886. The lack of a carousel in the executive suite ensures that key strategic initiatives are being properly implemented.
Speaking of important initiatives, J&J continues to focus on developing pharmaceuticals. While brand-name drugs have finite periods of exclusivity, they provide J&J with exceptional margins and growth potential.
The cherry on top is that Johnson & Johnson's forward price-to-earnings (P/E) ratio of 14.6 is a decade low and makes it one heck of a bargain for patient investors.
Image source: Getty Images.
PayPal Holdings
The third no-brainer stock to buy with $1,000 right now for the new year is leading fintech company PayPal Holdings (PYPL 2.90%).
Shares of PayPal have tumbled roughly 80% since the midpoint of 2021 on the heels of rising competition in the digital payment space, as well as an above-average rate of inflation. Higher inflation is a concern for transaction-driven businesses like PayPal because it threatens to reduce the discretionary spending power of low-earning workers.
However, PayPal has been able to successfully navigate a challenging environment with little impact to many of its key performance indicators. For instance, total payment volume (TPV) on its digital networks continues to grow by a double-digit percentage, sans currency movements. As the U.S. and global economy expand over time, the company should enjoy sustained growth in TPV.
To add to the above, digital payment adoption is still in its early innings. The analysts at Boston Consulting Group estimate the global fintech market will sextuple to $1.5 trillion annually by the turn of the decade.
But what really makes PayPal special is its user engagement statistics. As recently as the end of 2020, the average active account was completing nearly 41 transactions over the trailing-12-month (TTM) period. But as of the company's latest quarter (ended Sept. 30), the number of transactions per average active account had grown to almost 57 over the TTM. PayPal's digital networks are primarily driven by fees, meaning higher engagement is a pathway to an increase in gross profit.
Current and prospective investors should also be excited about the hire of Alex Chriss as CEO, which became effective on Sept. 27. Chriss came from Intuit, where he was the executive vice president and general manager of the company's Small Business and Self-Employed Group. Not only is he the perfect hire to enhance PayPal's small business ambitions, but he also understands how to pull the right levers to reduce expenses and bolster the company's margins.
On top of expected cost-cutting, PayPal's board hasn't been shy about putting cash to work via buybacks. Management noted that share repurchases in 2023 were expected to reach approximately $5 billion. When coupled with cost reductions, this is a formula for higher earnings per share.
Lastly, PayPal is historically cheap. Shares can be purchased for 11 times forward-year earnings, which is its lowest forward-year multiple since becoming a publicly traded company.
