Over multiple decades, Wall Street is nothing short of a bona fide wealth creator. But when examined over shorter timelines, it can be highly unpredictable. For instance, all three major stock indexes have oscillated between bear and bull markets in successive years since this decade began.
Despite outsize gains for the S&P 500 and Nasdaq Composite in 2023, both indexes remain below their all-time highs set more than two years ago. While short-term traders might view this as something of a lost period for equities, long-term investors are liable to see this decline as an opportunity to put their money to work in high-quality stocks at a discount.
Image source: Getty Images.
What's truly amazing about putting your money to work on Wall Street is that most barriers to investing have been progressively torn down. Online brokers have predominantly done away with minimum deposit requirements and commission fees for stock trades on major exchanges. This means 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 invest, and you're absolutely certain this isn't cash you'll need to cover bills or other expenses, the following three stocks stand out as no-brainer buys right now.
Sirius XM Holdings
The first phenomenal stock investors can confidently add to their portfolios with just $20 is satellite-radio operator Sirius XM Holdings (SIRI +0.00%).
Most radio operators generate the bulk of their revenue from advertising. Since ad spending is highly cyclical, radio operators' results tend to ebb and flow with the health of the U.S. economy. Considering that a couple of money-based metrics and forecasting tools are calling for an economic slowdown or recession in 2024, there's clear concern that advertising-driven businesses could struggle.
NASDAQ: SIRI
Key Data Points
The good news for Sirius XM and its shareholders is that its revenue stream makes it far more resilient to downturns than its peers. Through the first nine months of 2023, Sirius XM brought in just 19% of its $6.67 billion in net sales from advertising (primarily from Pandora Media). That compared to generating close to 78% of its net sales from subscriptions. Whereas businesses are quick to trim their ad spending during economic weakness, subscribers are far less likely to cancel their service. This means less cash-flow disruption for Sirius XM when compared to traditional radio operators.
Something else unique about Sirius XM Holdings is its operating expenses. While some line items, such as royalties and programming expenses, are going to change from one quarter to the next, transmission and equipment costs are fairly fixed. Sirius XM is able to continuously add subscribers without these costs rising. Over multiple years, this should translate into juicier margins and higher operating cash flow.
Don't overlook the obvious, either: Sirius XM is a legal monopoly. While it does face competition for listeners with online and terrestrial radio operators, Sirius XM is the only licensed satellite-radio operator. This affords it exceptionally strong subscription pricing power and all but ensures its sales growth can outpace the prevailing rate of inflation.
NYSE: TEVA
Key Data Points
Teva Pharmaceutical Industries
The second no-brainer stock to scoop up with the $20 in your wallet right now is brand-name and generic-drug company Teva Pharmaceutical Industries (TEVA +3.81%).
Teva Pharmaceutical's stock has struggled mightily over the past six years because of well-defined headwinds. This includes generic-drug price weakness, the loss of exclusivity on multiple sclerosis drug Copaxone, overpaying (in hindsight) for the acquisition of Actavis, and a veritable slew of litigation, which is headlined by almost every state suing Teva over its role in the opioid crisis. Suffice it to say, there are justifiable reasons why Teva's stock has been clobbered.
At the same time, there are also reasons for long-term investors to be excited about Teva's prospects. The biggest catalyst of all is that its gray cloud of litigation has finally lifted. The company reached a $4.25 billion settlement regarding outstanding opioid litigation that it'll repay over a 13-year period. Removing the unknowns associated with formerly pending litigation should allow Teva's ultralow forward-year earnings multiple of 4 to expand.
Another catalyst is the company's steadily improving balance sheet. Shortly after completing its acquisition of Actavis, Teva was sitting on north of $35 billion in net debt. But thanks to previous CEO and turnaround specialist Kare Schultz, Teva was able to jettison some of its noncore assets and use its organic cash flow to effectively halve its net debt to approximately $17.7 billion as of Sept. 30. This improved financial flexibility should also help the drugmaker's earnings multiple expand.
Furthermore, Teva's business is evolving to place added emphasis on brand-name therapeutics. Although novel drugs have finite periods of sales exclusivity, they should lift the company's organic growth rate and operating margin.
Finally, Teva Pharmaceutical should benefit from the defensive nature of the healthcare sector. People don't have the luxury of choosing when they become ill or what ailment(s) they develop. This means demand for prescription medicines (novel and generic) should remain constant in any economic climate.
Image source: Getty Images.
PubMatic
The third no-brainer stock to buy with $20 right now is none other than adtech company PubMatic (PUBM +0.20%).
Similar to Sirius XM, PubMatic's stock has been weighed down by the possibility of a recession taking shape in the not-too-distant future. PubMatic operates a sell-side platform (SSP) in the programmatic ad industry that helps publishing companies sell their digital display space. If businesses decide to cut back on advertising because they fear a downturn is around the corner, it sends ripples throughout the industry.
One of the positives for PubMatic is that 2024 is an election year. According to GroupM, the U.S. political ad market is expected to reach $15.9 billion in sales this year, which would equal 31% increase from the 2020 election cycle. With advertising dollars increasingly shifting to digital channels, it's companies like PubMatic that should benefit.
NASDAQ: PUBM
Key Data Points
More importantly, PubMatic sits at the center of the fastest-growing niche of the digital advertising market. It's primarily focused on mobile, video, and connected TV ads, which all offer sustained double-digit growth potential and can help PubMatic increase its market share in the SSP arena.
Another reason investors can be excited about PubMatic is the company's prescient decision to design and build out its cloud-based infrastructure. Though it would have been simpler to rely on a third-party platform, this move will allow PubMatic to hang on to more of its revenue as it scales, which is good news for its operating margin.
The final piece of the puzzle for PubMatic is the company's relatively flawless balance sheet. It closed out the third quarter with more than $171 million in cash, cash equivalents, and marketable securities, plus zero debt. With nine consecutive years of positive operating cash flow, there's little concern about PubMatic's ability to weather a challenging advertising environment.
