In case you haven’t noticed, Wall Street is in the middle of a full-fledged bull market. But it hasn’t always been this way.
Since this decade began, the timeless ones Dow Jones Industrial Averagewidely followed S&P500and driven by growth stocks Nasdaq Composite have fluctuated between bear and bull markets in successive years through 2023. While these periods of volatility and uncertainty are inevitable, the current bull market speaks to the power of time as an ally. With every correction and bear market throughout history possibly (key word!) taking a backseat to a bull market rally means that any time could be ideal for long-term investors to put their money to work.
Additionally, online brokers have made it easier than ever for retail investors to grow their wealth on Wall Street. In recent years, they have eliminated minimum deposit requirements and commission fees for common stock trades on major US exchanges. In other words, any amount of money – even $500 – can be the perfect amount to invest.
If you have $500, have a long-term mindset and are confident that this isn’t cash you need to pay bills or cover emergency expenses, the following three stocks stand out as a no-brainer purchase right now.
Amazon
The first amazing company that is now begging to be bought for $500 is none other than e-commerce leader Amazon (NASDAQ: AMZN).
Most people know Amazon because it is the company behind the largest online marketplace in the world. By 2023, e-commerce sites are estimated to account for nearly 38% of domestic online retail sales. While this would likely expose the company to negative consequences during a U.S. recession, Amazon’s online marketplace isn’t as important to its bottom line as you might think.
The bulk of Amazon’s revenue and cash flow comes from three of its significantly faster-growing, higher-margin segments, none of which are more important than Amazon Web Services (AWS).
AWS entered 2024 with a 31% share of the global cloud infrastructure services market. Companies continue to shift a greater percentage of their information technology spending to the cloud, which bodes well for AWS. During the quarter ending in March, AWS surpassed $100 billion in annual revenue.
The other two segments of interest to Amazon are subscription services and advertising services. With Amazon attracting approximately 2.5 billion visitors to its website each month, it should come as no surprise that advertising services are growing at a sustained double-digit rate.
Meanwhile, Amazon has exceptional pricing power with its Prime subscription. Prime is a powerful tool that helps keep subscribers within the product and service ecosystem.
Because Amazon reinvests most of its operating cash flow back into its business, cash flow is a much better measure than the traditional price-to-earnings (P/E) ratio for determining whether the stock is good “value.” As of the closing bell on June 17, Amazon was trading at about 12 times estimated 2025 cash flow. That’s significantly lower than the 23 to 37 times cash flow that investors willingly paid to own Amazon stock in the 2010s, and shows what a incredible value they are. it is so now.
Innovative industrial properties
A second no-brainer stock that makes for a surefire purchase right now is Real Estate Investment Trust (REIT). Innovative industrial properties (NYSE: IIPR), or simply “IIP”. Since the introduction of a quarterly dividend seven years ago, IIP’s payout has increased by a whopping 1,167% and its yield has risen to above 7%.
Innovative Industrial Properties is just like any other REIT, with one major twist. It has the ambition to rent its properties to (drum roll) cannabis companies for a longer period of time. IIP acquires and leases medical marijuana cultivation and processing facilities, often with the goal of leasing these assets for 10 to 20 years.
Admittedly, marijuana stocks lost their buzz shortly after President Joe Biden took office. The sector had expected meaningful reforms, but these hopes had been shattered over the past two years. The good news for cannabis stocks is that the US Drug Enforcement Agency has proposed moving marijuana to a Schedule III drug, which could brighten the horizons of the entire industry.
There are a number of factors that make Innovative Industrial Properties special. It is obvious that rental income is predictable. The company’s weighted average remaining lease term for the more than 100 properties it owns is almost 15 years. Furthermore, it has been able to rework master leases or dispose of certain properties in the rare cases where tenants have been delinquent.
Another reason why investors can trust IIP is the company’s leasing structure. At the end of March, 95.2% of the operating portfolio was triple-net leased (also known as “NNN leased”). Triple-net leases require tenants to cover virtually all property costs, including maintenance, insurance and utility costs. By removing these unknown expenses from the equation, IIP’s adjusted funds from operations (AFFO) become all the more predictable.
Innovative Industrial Properties has also successfully leveraged its sale-leaseback program to expand its lease portfolio. Through this program, IIP buys properties for cash and immediately rents them back to the seller. It’s a way for cannabis companies to raise cash without having to rely on traditional financing methods. Meanwhile, it provides a steady source of AFFO expansion for IIP.
Johnson & Johnson
The third no-brainer stock that makes for a genius buy at $500 right now is the Dow component and healthcare juggernaut Johnson & Johnson (NYSE: JNJ). Johnson & Johnson, better known as ‘J&J’, has increased its basic annual dividend for 62 consecutive years and achieves a return (3.4%) that is more than twice the average return of the S&P 500.
If you’re looking for a good reason why J&J has underperformed in the current bull market, an outstanding lawsuit over its now-discontinued talc-based baby powder is the answer. The company is facing nearly 100,000 lawsuits claiming that its talc-based baby powder causes cancer. J&J has tried unsuccessfully to settle this dispute on two separate occasions.
While legal overages are never good news, Johnson & Johnson generates sufficient operating cash flow and has more than enough cash on the balance sheet to cover whatever the eventual settlement may be. After all, J&J is one of only two publicly traded companies that still has the highest possible credit rating (AAA) from Standard & Poor’s.
What has made Johnson & Johnson such a phenomenal investment for so long is its consistency. For example, the management team has purposefully shifted the company’s focus to high-margin pharmaceuticals. Aggressively reinvesting in internal drug development and collaborations ensures that J&J does not fall victim to the patent cliff.
Management has also overseen an organic and acquisitive expansion of the company’s medical technologies segment. As the world’s population ages and access to preventive care improves, demand for medical devices should increase.
As I’ve emphasized many times before, J&J’s consistency at the top has led to sustainable growth. Since its founding in 1886, the company has had only ten CEOs. Not surprisingly, adjusted corporate profits grew for 35 years in a row before being temporarily disrupted by the COVID-19 pandemic. Few companies achieve consistent profit growth, according to Johnson & Johnson.
The final piece of the puzzle is that J&J stock is cheaper than it has been in at least a decade. Shares can be picked up for roughly 13 times forward earnings, which represents a 16% discount to average forward earnings over the past five years.
Should You Invest $1,000 in Amazon Now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Amazon and Innovative Industrial Properties. The Motley Fool holds positions in and recommends Amazon and Innovative Industrial Properties. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
3 No-Brainer Stocks to Buy Right Now with $500 was originally published by The Motley Fool
