If you have $500 to invest right now, then I recommend you invest it in the stock market. That may be shocking to read, considering as of this writing, the S&P 500 is down 28% since this year began — and still falling fast. But as scary as it is, the stock market has fallen over 10% 37 other times in the last 70 years. And it comes back every time, meaning that buying during a correction can produce outsized long-term gains.
Where exactly to invest $500, however, depends. Here’s a few scenarios that may apply to you.
Image source: Getty Images.
First-time investors
This stock market crash has many people strolling Wall Street for the first time. But losing on your first investment can scare you from future investments. When picking winning stocks, it’s important to consider that Motley Fool co-founder David Gardner encourages investors to try picking market-beating stocks just 60% of the time. Hey, nobody’s perfect. But buying just one stock requires 100% accuracy, and will leave many first-time investors disillusioned upon failing.
But $500 isn’t much portfolio-building firepower. Fortunately, many brokers now offer fractional shares — allowing the investment of a dollar amount rather than buying whole shares. This allows new investors with limited capital to begin their investing journeys with a portfolio diversified in at least a couple top starter stocks.
In this current coronavirus market correction, might I suggest some starter stocks relatively insulated from health crises and with lots of cash on the balance sheet. Both social-media empire Facebook(NASDAQ:FB) and law enforcement technology company Axon Enterprise (NASDAQ:AAXN) fit that description.
Facebook, has certain advantages during a time like the COVID-19 pandemic. It’s relatively easy for its employees to work from home, as many are already doing. Furthermore, its primary products (Facebook, Instagram, Whatsapp) are digital social platforms not in danger of coronavirus contamination, so the doors won’t close like a retail business.
Facebook’s stock has dropped with the market, bringing it down to relatively low valuation multiples. And beyond the company’s core advertising revenue, it has future opportunities for growth in virtual reality, the monetization of Whatsapp, and payment processing. And its pristine balance sheet allows it to pursue these ventures even in a recession. The company ended 2019 with $55 billion in cash and no long-term debt.
Axon keeps chugging along
Likewise, Axon Enterprise is relatively unaffected by the COVID-19 pandemic. In a recent statement the company said it’s still manufacturing and shipping its physical products — non-lethal weapons and body cameras — on schedule. It also has subscription software products and is now generating $161 million in annual recurring revenue. And because its customer base is comprised of law enforcement agencies, a fairly non-cyclical customer, it’s less likely to see revenue suddenly fall off a cliff.
Turning to its balance sheet, Axon has $350 million in cash, cash equivalents, and short-term investments. And its long-term liabilities are only $11 million. That’s a lot of equity for a company with only a $3.2 billion market capitalization. This cash-rich position, like Facebook, gives it the opportunity to continuing developing new products and services in 2020 — including the $100 million it’s investing this year in new officer-dispatch services.
Start a new position
Diversification is a good thing in a portfolio. If you’re still building out your portfolio, a market crash like this can be good timing. For me personally, I used this market correction to initiate a position in Pinterest(NYSE:PINS).
My Pinterest investment thesis is fairly simple. It now has 335 million users, which was good for 26% annual growth in 2019. That gives Pinterest a massive audience, yet still a fraction of Facebook’s more than 2 billion users. Improving average revenue per user (ARPU) fueled its 46% annual revenue gain. And the company stands to grow ARPU even further by teaching companies how to better use Pinterest to make their products more “shoppable” on the platform.
Pinterest isn’t for everyone, I’ll admit. The company reported a $1.4 billion net loss in 2019, due to high research & development and sales & marketing costs. However, that spending is coming down significantly — the company “only” had a $36 million net loss in the fourth quarter. But thanks to its IPO, the company is still flush with $1.7 billion in cash and no debt.
The bottom line is if a company has been on your watch-list for a while, now could be a good time to buy. Nobody knows where the bottom is, so waiting for a better price might be fruitless.
Add to a winner
My longest holding, and most predictable, is Texas Roadhouse(NASDAQ:TXRH). Its consistent results have meant I’ve never fretted over my investment. Consider some stats over the last five years.
Metric
2015
2016
2017
2018
2019
Comparable-sales growth
7.2%
3.5%
4.5%
5.4%
4.7%
Total unit growth*
7%
7%
6%
6%
5%
Net income growth
11%
19%
14%
20%
10%
Data from Texas Roadhouse SEC filings. Chart by author. *Total unit growth accounts for both franchised and company-owned restaurants, including Texas Roadhouse and Bubba’s 33 chains
Granted, our world is currently facing an incredible economic challenge. For example, Booking Holdings owns OpenTable — an online reservation company. As of this writing, OpenTable is showing a 56% decline in dine-in restaurant traffic. And traffic is still falling as quarantines, closings, and social distancing all increase. Texas Roadhouse has handled challenging times before, but restaurant traffic approaching zero is a scenario no one ever expected just two months ago.
To be sure, 2020 isn’t going to be fun for restaurant stocks. Since Texas Roadhouse is a U.S. chain, this year completely depends on how quickly the U.S. can stop the spread of the coronavirus and diners return to normal routines. That’s outside the company’s control. But if you’re an optimist, at some point normalcy will return, and Texas Roadhouse is one of the top restaurant companies to own.
I haven’t added to my Texas Roadhouse position, although it’s something I’m considering when the Motley Fool’s trading rules allow. However, it’s moments like this that one appreciates the notion of letting winners run. Although I’ve seen my portfolio’s value sink as Texas Roadhouse’s stock crashed, my position is still up because I’ve never sold and had a dividend reinvestment plan in place over the time I’ve held.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
