Investing on a budget can pay off in the long run, and even $500 can be a good place to start. Additionally, investors who use dollar-cost averaging (DCA) often have a budget in the $500 range when making regular purchases.
Fortunately, the market offers many affordable options for investors with this budget. This not only allows you to buy stocks in Amazon (NASDAQ:AMZN), Dutch brothers (NYSE: BROS)And Real estate income (NYSE: O) but also benefit from potentially lucrative bargains that could pay off in the long run. Let’s take a closer look at this trio of companies.
1. Amazon
Admittedly, investors may have a hard time considering Amazon to be “fairly valued.” Most investors have a hard time considering stocks with a price-to-earnings (P/E) ratio of 40 to be cheap.
Others think that’s cheap, considering the stock rarely trades below 50 times earnings. And despite a market cap of $1.75 trillion, it offers growth opportunities similar to those of much smaller companies.
Consumers know Amazon primarily from its online business. However, this is probably the least profitable part of the company. The majority of operating profits are generated by the cloud computing division Amazon Web Services (AWS).
The company does not separately list operating income from its other business units. Still, its subscription, digital advertising and third-party businesses are all reporting double-digit revenue growth, which should bode well for Amazon stock.
In the first half of the year, revenue rose 11% to $291 billion. And by keeping operating expense growth under control, net profit for the period was $24 billion, an increase of 141%.
Of course, Amazon is unlikely to achieve triple-digit earnings growth in the long term. Nevertheless, its fast-growing business units and increasing revenues should lead to share price gains over time.
2. Dutch brothers
Dutch Bros has found a niche in the fast-growing but highly competitive beverage market. Its Dutch Classics, espresso and half-and-half based drinks, have helped make drive-thru cafes popular. In addition, Dutch Bros offers tea, sodas, energy drinks and other products to attract customers.
In addition, it has some clear advantages over StarbucksThe fact that it is a drive-in means there are no overhead costs associated with maintaining indoor seating areas.
In addition, Starbucks is still far from a saturation point in the U.S., which likely means the company still has years of rapid growth ahead of it. As of June 30, Starbucks operated 912 stores in 18 states, 158 more than in the previous 12 months.
These businesses generated revenue of $600 million in the first half of 2024, up 34% from the same period in 2023. Although Dutch Bros became profitable last year, net income attributable to the company was relatively modest, amounting to $19 million in the first two quarters of 2024.
For this reason, the price-to-sales (P/S) ratio is probably a more accurate measure of valuation than the P/E ratio. Currently, Dutch Bros trades at 2.1 times sales, less than slower-growing Starbucks at 2.3 times sales. This should bode well for Dutch Bros as the company continues to expand.
3. Real estate income
Realty Income specializes in leasing single-tenant properties, typically to well-known, consumer-facing companies. As a real estate investment trust (REIT), the company pays out at least 90% of its net operating income in dividends in exchange for not paying taxes on that income.
This has resulted in a monthly dividend that has steadily increased over the past 30 years. At around $3.16 per share annually, this results in a dividend yield of over 5%.
In addition, these tenants are usually some of the better-known companies. Walmart, Planet FitnessAnd Wynn Resorts to its customers. With this business model, Realty Income has achieved an occupancy rate of almost 99% for its approximately 15,500 properties.
Despite the stock’s woes, revenue for the first half of the year was $2.6 billion, up 32 percent. Most of that increase was due to the acquisition of Spirit Realty, which was completed later that year and increased the company’s portfolio by about 15 percent.
But that also means that much of the growth was organic, helping to boost earnings from operations (FFO), a measure of a REIT’s free cash flow, to $1.7 billion, an increase of 25%.
Despite these gains, the stock trades at only about 15 times its FFO earnings. Such a valuation allows investors to buy into a growing income stream at a reasonable price.
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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. Will Healy does not own any stocks mentioned. The Motley Fool owns and recommends Amazon, Planet Fitness, Realty Income, Starbucks, and Walmart. The Motley Fool has a disclosure policy.
Got $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Now was originally published by The Motley Fool
