One of the best things about putting your money on Wall Street is that most online brokers have removed the barriers that used to keep retail investors on the sidelines. Minimum deposit requirements and commission fees for regular stock trades on major U.S. exchanges are largely a thing of the past.
For average investors, this means that almost any amount, even $300, can be the perfect amount to invest in the stock market.
While it may sound tempting to invest $300 in the hottest stock on Wall Street, the king of artificial intelligence (AI) Nvidia (NASDAQ: NVDA)There are three unstoppable stocks that you would be much wiser to buy right now.
Four Reasons Investors Can Safely Skip Nvidia
While Nvidia’s AI graphics processing units (GPUs) are definitely the king of computing power in high-performance data centers, there are a number of reasons to believe the company’s stock has peaked and will underperform in the years ahead.
For example, there has been no next-big-thing innovation in at least three decades that has avoided an early bubble-burst event. Without exception, investors consistently overestimate the adoption and utility of new technologies and innovations, ultimately leading to real-world results that fall short of outlandish expectations. If AI follows this path, no company will be more disadvantaged than Nvidia.
Another expected headwind for Nvidia is increased competition. While it’s well-documented that other chipmakers are ramping up production and/or launching AI GPUs for AI-accelerated data centers, investors are likely overlooking the prospect of internal competition. All four of Nvidia’s largest customers by net revenue are developing their own AI GPUs, which will undoubtedly limit future orders for the company’s hardware.
Insiders aren’t giving investors a reason to buy, either. Nvidia’s recently unveiled $50 billion buyback program, or as I call it, the “smoke and mirrors campaign,” doesn’t hide the fact that it’s been 45 months since an insider bought a single share on the open market.
Finally, Nvidia’s valuation isn’t nearly as attractive as it seems. The company’s shares are valued at an unsightly 30 times trailing-12-month (TTM) sales, and briefly hit a TTM price-to-sales ratio of 40 in June.
Forget Nvidia and consider investing $300 in the following three unstoppable stocks right now.
Visa
The first sensational stock that can be bought now for $300 and that has all the necessary tools to deliver superior returns for Nvidia in the years to come is a leading payments processor Visa (NYSE: V).
Despite the recession red flags that are emerging, Visa benefits greatly from the nonlinearity of the economic cycle. While recessions are both normal and inevitable, they have historically been short-lived. Only three of the 12 U.S. recessions since the end of World War II have lasted a full year.
By comparison, most growth periods last many years, if not a decade. Visa benefits from the spoils of long growth periods and long-term expansion in consumer and corporate spending.
At the same time, Visa is well protected from recessions thanks to its deliberate avoidance of lending. While some of its peers act as lenders And payment processors, Visa focuses exclusively on payment facilitation. Because it does not make loans, it does not have to set aside capital for the inevitable periods when the U.S. economy weakens. This gives Visa more financial flexibility than its competitors and helps it recover quickly from recessions.
Visa also has an incredible opportunity in overseas markets. Cross-border payment volume grew 14% on a constant currency basis in Visa’s most recent quarter, following a consistent theme of sustained double-digit growth in cross-border payment volume. Many of the world’s fastest-growing emerging markets are chronically underbanked, giving Visa a no-brainer opportunity to maintain double-digit annual profit growth for the remainder of this decade, if not well beyond.
Walt Disney
A second unstoppable stock that could surpass Nvidia in the yield column and is an excellent buy right now at $300 is media giant Walt Disney (NYSE: DIS).
Few companies were more directly affected by the COVID-19 pandemic than Disney. Theme park closures, combined with limited studio production and the closure of some movie theaters, severely hampered profitability. But now that the Chinese economy has reopened and studio production is ramping up, Disney is shining again.
Perhaps the best aspect of Disney’s operating model is that it cannot be duplicated. While there is no shortage of movies and shows to watch and theme parks to visit, no other company offers the history, depth of engagement, characters or storytelling ability that Disney brings to the table. This alone ensures that Walt Disney will continue to generate predictable cash flow from its various operating segments.
Another thing investors can be excited about is Disney’s progress with its direct-to-consumer (DTC) segment. After years of significant losses, Disney posted its first operating profit from its DTC segment. As an irreplaceable media company, it was able to raise subscription prices across all its tiers and turn its DTC segment profitable a full quarter ahead of schedule.
The House of Mouse is also historically cheap. Its forward price-to-earnings ratio of 18 marks a 31% discount to the average forward-year earnings multiple of the past five years. Further, Disney should be able to deliver continued double-digit earnings growth as the DTC segment and the studio begin to stretch their proverbial legs.
PubMatic
The third unstoppable stock that’s a smarter buy than Nvidia at $300 right now is a small-cap adtech company PubMatic (NASDAQ: PUBM).
PubMatic is perfectly positioned to benefit from the rise of digital advertising. While advertising is highly cyclical and companies are not shy about cutting their marketing budgets at the first sign of trouble, the aforementioned nonlinearity of economic cycles works in favor of advertising-driven companies. Long-term investors should benefit from owning stakes in companies whose advertising spend increases over time.
One of the key reasons PubMatic has been successful is the management team’s decision to design and build its own cloud-based programmatic ad platform. While it would have been easy for PubMatic to rely on a third-party provider, the decision to build its own cloud-based infrastructure should result in significantly higher operating margins as revenues scale.
As noted, PubMatic has focused on the fastest growing aspects of the advertising arena. Specifically, it is a sales platform focused on selling digital display space to advertisers in mobile, video, and connected TV (CTV). All three of these segments are poised to sustain double-digit annual ad spend growth for the foreseeable future, with CTV ad spend growing the fastest.
Finally, PubMatic has a cash-rich balance sheet, which gives the company ample financial flexibility. The company ended June with $165.6 million in cash and cash equivalents, no debt, and has repurchased approximately $100 million of its common stock. Additionally, it is on track for its 10th consecutive year of generating positive operating cash flow.
Should You Invest $1,000 in Visa Now?
Before you buy Visa stock, here are some things to consider:
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Sean Williams has positions in PubMatic and Visa. The Motley Fool has positions in and recommends Nvidia, PubMatic, Visa and Walt Disney. The Motley Fool has a disclosure policy.
Forget Nvidia: Investing $300 In These 3 Unstoppable Stocks Now Would Be A Smarter Move was originally published by The Motley Fool
