Key Points
- Buying and holding great companies over long stretches of time is how fortunes are made in the stock market.
- This dynamic stock trio offers the perfect blend of growth, value, and innovation to satiate any investor.
Patience pays off handsomely when investing in the stock market. Despite navigating our way through the quickest decline of at least 30% in the S&P 500‘s history during the first quarter of 2020, the broad-based index has since doubled in value. Buying great companies and allowing your investment thesis to play out over time has long been a moneymaking strategy.
The best part of this strategy is that you don’t need a boatload of cash to begin building wealth on Wall Street. With most online brokerages ditching commission fees and minimum deposit requirements, any amount of cash — even $100 — can begin or further your march toward financial freedom.
If you have $100 ready to invest, which won’t be needed for bills or emergencies, these are some of the smartest stocks you can buy right now.
Redfin (RDFN)
First up is technology-driven real estate company Redfin (NASDAQ:RDFN), which has been nearly halved since hitting an all-time high earlier this year.
The big worry with Redfin is that things may not get better than they are now for the housing industry. Historically low mortgage rates and an accommodative central bank that’s been weighing down long-term yields with bond purchases have helped create a buying frenzy within the housing space. In other words, forward-year comparisons could be tough for traditional real estate companies. Thankfully, there’s nothing traditional about Redfin.
One of the biggest differentiating factors between Redfin and traditional real estate companies is the commission/listing fee structure. Whereas most real estate firms charge anywhere from 2.5% to 3% to the party they represent, Redfin charges either 1% or 1.5%, depending on how much previous business has been done with the company. In August, the median sales price of existing-home sales was $356,700, according to data from the National Association of Realtors. If sellers chose Redfin, they could be pocketing more than $7,100 in savings, based on this median figure and a two-percentage-point listing fee difference.
Redfin is also having no issue luring new business with its personalized services. For example, Redfin catered to buyers and sellers with virtual and 3D tours during the pandemic. On a broader basis, it’s been expanding its RedfinNow service to additional cities. RedfinNow is the service that purchases homes from sellers with cash, thereby removing the hassle and haggling that typically accompany the home-selling process.
With Redfin’s share of existing homes sales nearly tripling to 1.18% since the end of 2015, the arrow is most definitely pointing higher.
Yamana Gold (AUY)
Though it’s off the radar for most investors, the gold industry is home to no shortage of value stocks. One of the smartest buys among this sea of lustrous value is Yamana Gold (NYSE:AUY).
The macroeconomic outlook for physical gold is the first thing that should excite investors. Despite gold heading lower on a year-to-date basis after a stellar 2020, the tailwinds for the lustrous yellow metal remain in place. Historically low lending rates, a rapidly growing U.S. money supply, and the prospect for higher inflation all point to investors purchasing gold as a store of value. A higher price for physical gold would boost Yamana’s operating cash flow without any extra effort from the company.
But make no mistake about it, there’s plenty to like about Yamana’s operations. It delivered record output from the flagship Canadian Malartic mine in the June-ended quarter, and should see higher output from El Penon and Minera Florida as plant capacity is increased over time.
Between growth at the company’s existing projects and the advancement of a handful of projects, Yamana offers sustainable annual output of 1 million gold equivalent ounces (GEO), beginning in 2022. More than likely, all-in sustaining costs for this production will come in at $1,000 per GEO, or less. This means a cash margin of well over $700 per GEO.
Higher gold prices over the past couple of years have also allowed the company to clean up its balance sheet. Around the midpoint of the previous decade, Yamana was lugging around approximately $1.7 billion in net debt. Most of this debt was the result of aggressive expansion and acquisition activity. But in the wake of higher spot gold prices, Yamana has whittled its net debt down to $516 million. With greater financial flexibility, Yamana Gold has been able to triple its annual dividend over the past two years. The company’s current yield of 3.1% is more than double the S&P 500’s yield.
And, as noted, Yamana is really inexpensive. Shares of the company can be purchased for 11 times Wall Street’s forward-year earnings forecast and a little over 4 times projected annual operating cash flow between 2021 and 2025. It’s an absolute gem sitting in plain sight.
Petco Health and Wellness (WOOF)Â
A third smart stock with “paw-tential” written all over it is pet-focused products and services retailer Petco Health and Wellness (NASDAQ:WOOF).
While there is no shortage of double-digit growth trends investors can chase, there may not be a more recession-resistant industry in the U.S. than the pet industry. Data from the American Pet Products Association (APPA) shows that it’s been over a quarter of a century since year-over-year spending on companion animals has declined. What’s more, the percentage of U.S. households that own a pet has grown from 56% in 1988 to 70%, as of the APPA’s latest survey. To sum things up, more people than ever have a pet, and owners are willing to spend freely to ensure the happiness and well-being of their adopted family member(s).
Aside from reaping the rewards of new pet ownership tied to the pandemic, Petco has three key initiatives designed to boost its operating margins and improve customer loyalty over time.
To start with, Petco is executing on its plans to open a number of new in-store veterinary clinics. These affordable clinics are designed to keep pets healthy and provide added incentive to funnel repeat traffic into Petco’s stores. Having a clear focus on health and wellness is at the heart of Petco’s long-term growth strategy.
Second, Petco will be spending aggressively to beef up its digital business. The pandemic demonstrated how important it is to have an easily navigable website, whether for direct-to-consumer sales, curbside pickup, or simply to book in-store appointments for services, such as grooming or veterinary care. The company’s online business is a jumping-off point for add-on sales and cross-selling opportunities.
Lastly, Petco is pushing high-margin subscription services, such as full-service pet insurance (Petco Insurance) and its Petco Vital Care membership, which provides preferred access to its health and wellness services.
If Petco continues to execute on this trio of growth initiatives, the sky could be the limit.
