Though volatility never officially goes away, this has been a year unlike any other for Wall Street and investors. We’ve witnessed a good decade’s worth of volatility crammed into the past five months as the CBOE Volatility Index hit a record high and remains at levels that are well above its historic average.
But if there’s good news here, it’s that the panic and fear often associated with volatility offer opportunity to patient investors. Long-term investors seeking to buy game-changing businesses can often do so at discounted prices during periods of heightened volatility. And the best part about investing in the stock market is that you don’t need to have vast amounts of wealth to get started.
Lower initial deposits and the ability to purchase fractional shares with some brokerages means that if you have, say, $200 in spare cash that won’t be needed to pay bills or cover emergencies, you have more than enough to kick-start your financial independence. If you have $200 that can be put toward investments right now, here are three of the smartest stocks to buy.
One high-octane company investors should be particularly excited about over the long run is social-media platform Pinterest (NYSE:PINS).
You’d think that getting things right on social media would be pretty easy, but it’s a lot tougher than you’d think to keep a company’s user base growing and engaged. Although all social platforms are looking up at Facebook, Pinterest has done an excellent job of making a name for itself and continuing to grow its user base.
Between the end of 2018 and March 2020, Pinterest added a little over 100 million monthly active users (MAU), pushing its MAU count to 367 million. What’s notable is that more than 90% of these new MAUs live in overseas markets.
The downside of this ratio is that U.S. MAUs generate much higher average revenue per user (ARPU), which means little immediate bottom-line help by adding these international eyeballs. However, the long-term benefits of these overseas MAUs can’t be overlooked. We’re talking about significant growth in ad pricing power and the potential to perhaps triple or quadruple ARPU this decade from international markets.
The other intriguing growth driver for Pinterest beyond advertising is the company’s pivot into e-commerce. Since users are already coming to Pinterest to share their interests, hobbies, and ideas, it only makes sense to connect these folks with small businesses that specialize in these interests, hobbies, and ideas. Though Pinterest’s marketplace is still nascent, it shouldn’t have any issues engaging its MAUs with its e-commerce platform being integrated into boards, pins, and traditional search.
Pinterest is the type of company that could easily double its sales every four or five years, if not sooner.
Another smart stock to buy with $200 is drug developer Alexion Pharmaceuticals (NASDAQ:ALXN).
One thing that sets Alexion apart from other drugmakers is its focus on ultra-rare indications. Though there’s risk in developing therapies that treat only a small pool of patients, there can be great reward in instances where a treatment is successful. In Alexion’s case, it has virtually no competition in a number of its targeted indications and is able to charge a premium price for its rare-disease medicines.
I know what some of you are probably thinking: “What about drug-price reform?” This is a topic that’s been all bark and no bite for over a decade. There are far too many things going on at the federal level and way too much partisan bickering for drug-price reforms to pass muster in Congress. Plus, Alexion has validation for its list prices, given its targeting of ultra-rare indications.
Investors will also appreciate what Alexion has done to protect its future cash flow. For more than a decade, Alexion has ridden its top-selling drug Soliris’ coattails to big gains. Today, Soliris is capable of $4 billion in annual sales. But there’s been some concern that it could be the target of generics in the not-so-distant future. Enter Ultomiris, Alexion’s innovative new treatment that requires injections every eight weeks, as opposed to every two weeks with Soliris. Ultomiris should eventually replace Soliris in many/all of its indications, preserving the company’s cash flow for perhaps another decade.
At less than nine times Wall Street’s per-share profit forecast for 2021 and with the potential to generate more than $2 billion in operating cash flow on an annual basis, Alexion is begging to be bought.
Warren Buffett may not have had a banner decade in the 2010s, but I know better than to ever bet against this long-term maven. That’s why Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), and more specifically the B-Class shares (BRK.B), look like a smart buy.
As a reminder, Berkshire Hathaway has run circles around the benchmark S&P 500 over the past 55 years. While the S&P 500 returned almost 19,800%, inclusive of dividends, since 1965, Buffett’s company delivered per-share gains of 2,744,062%. For context, this would mean a $100 investment 55 years ago would be worth more than $2.7 million by the end of 2019. Buffett has an absolute knack for picking out businesses with clear-cut competitive advantages, and these long-term results demonstrate it.
Another important consideration with Berkshire Hathaway is that it has significant cyclical tie-ins with the U.S. economy. A large portion of the company’s investment portfolio is tied to businesses (Apple), industries (bank stocks), or sectors (consumer staples) that perform their best when the U.S. economy is expanding. Buffett is a firm believer in never betting against America, which is a smart strategy to take, considering that economic expansions last much longer than contractions or recessions.
There’s also a value proposition to be had here. Berkshire Hathaway stock can currently be purchased for 28% above its book value, which is close to an eight-year low. With $137 billion in cash as of March 2020 that could be deployed and Warren Buffett holding the reins, Berkshire Hathaway gives investors plenty of reasons to be bullish.