If I had an extra $1,000 in my savings account, I would not hesitate in allocating it to equities. With the flexibility to purchase fractional shares, there are many stocks to buy with $1,000 that can deliver healthy returns in the medium to long term.
Consider that the S&P 500 index bottomed out at 666 in March 2009. Currently, it trades at 3,694. In just over a decade, the index delivered returns of more than 450%.
It would not be difficult to find dozens of stocks that have delivered returns of over 1,000% for the same period. Therefore, even a small investment can be of significant value over time.
A historical analysis of equity markets shows that from 1825 to 2019, the average total annual return was 8.25%. More than 70% of the time, the index has returned positive returns for a given year.
That’s why it’s important to have some exposure to equity markets. Even for very risk-averse investors, it makes sense to invest 5% or 10% of liquid assets in equities. For starters, investing in few fundamentally strong stocks will provide an initial sense of confidence. This column will discuss four reliable stocks to buy with $1,000.
These stocks have been value creators and are likely to create value even in the next decade. Let’s take a look into these stocks to buy with $1,000.
Stocks to Buy With $1,000: Costco (COST)
Price: $375.67
Year-to-date return: 27.7%
COST stock would be among the top stocks to buy with $1,000. I believe that the investment is low risk with a clear cash flow visibility. With a beta of 0.67 and an annual dividend of $2.80, income investors will like COST stock. In the last year, the stock has delivered 26% returns.
From a business perspective, I like the fact the Costco has 105.5 million membership cardholders. The company generates $3.5 billion in membership fee on an annual basis. Importantly, with a 91% renewal rate in the United States and Canada, the fee income is stable. This ensures healthy cash flows and dividend income protection.
I also like the fact that Costco is expanding in China. By 2024, retail sales in China are expected to increase to $6 trillion. China has a population of 1.3 billion as compared to a population of 330 million in the U.S. Therefore, there is a big addressable market and as membership revenue grows in China, dividends will increase.
For the first quarter of 2021, Costco reported 82% growth in e-commerce sales. The pandemic has triggered strong online sales growth and Costco Wholesale has ensured that it does not remain a laggard.
Overall, COST stock is worth holding for dividends and stock upside as China triggers earnings growth. The company has a sound balance sheet and e-commerce sales growth will ensure that the company does not lose market share.
Apple (AAPL)
Price: $122.93
Year-to-date return: 67.4%
AAPL stock delivered 978% in returns over the last decade. The company is an innovator and I would not be surprised if AAPL stock continues to outperform the markets.
From a fundamental perspective, Apple is possibly among the safest stocks. The company has $190 billion in cash and equivalents. In addition, the company generated $80 billion in operating cash flows for the last financial year.
With strong cash flows, Apple is well positioned to invest in innovation. In addition, the company can aggressively pursue inorganic growth. Income investors will also like AAPL stock. The stock offers a current dividend of 82 cents per share. However, given the cash flows, I expect strong dividend growth in the coming years.
Apple is also more diversified than it was few years before. The company’s wearable, home and accessories segment has been delivering strong growth. The services segment outlook is also promising. The company also has impending growth potential in Asia Pacific (excluding China and Japan).
Overall, I expect the company’s earnings growth to remain strong in the coming years. AAPL stock is therefore an accumulate on declines.
JD.com (JD)
Price: $79.99
Year-to-date return: 127.8%
If I am looking at global portfolio diversification, JD stock would be among the top names for stocks to buy with $1,000. Analyst estimates suggest that the company’s annual earnings growth is likely at 51% for the next five years. This, in itself, is a big reason to be bullish on JD stock.
The core e-commerce segment will remain the key growth driver in the coming years. However, Alibaba (NYSE:BABA) has made significant inroads in the cloud business. In the next quarter, the segment is likely to deliver positive EBITDA for Alibaba. With JD also making inroads in the cloud business, the segment can potentially accelerate long-term growth.
In terms of fundamentals, JD.com reported free cash flow of 30.2 billion yuan for the trailing 12 months ended in the third quarter. Robust cash flows ensure a healthy balance sheet and ample headroom for aggressive growth. Currently, JD stock does not pay dividends. Given the cash flow and growth outlook, potential dividends in the future can trigger further upside.
From a valuation perspective, JD.com trades at a market capitalization of $132 billion. Last month, it was reported that the company’s logistics unit is planning an IPO with a potential segment valuation at $40 billion. Recently, JD Health also raised $3.5 billion in a Hong Kong IPO. So, a sum-of-the-parts valuation will show that JD stock is inexpensive.
Walmart (WMT)
Price: $146.88
Year-to-date return: 23.6%
Over the years, WMT stock has created value for shareholders through stock upside, dividends and share repurchase. I expect the company’s business stability to sustain and cash flow is likely to remain robust.
In the near term, the festive season is likely to provide an earnings boost for Walmart and strong numbers for the first quarter of 2021 can take the stock higher. In the long term, I am bullish on the company’s growth from international markets.
With growing presence in Africa, Central America, China and India, the company is positioned to deliver sustained top-line and earnings growth. I also like the fact that Walmart is boosting its omni-channel capabilities. For the third quarter, the company’s e-commerce sales in the U.S. increased by 79% on a year-on-year basis. I expect e-commerce sales, as a percentage of total sales, to continue increasing.
For the first nine months of the financial year, Walmart generated $16.4 billion in free cash flows. With annual FCF visibility of $22 billion, the company has headroom for aggressive share repurchase and sustained growth in dividends.
With equity market valuation looking expensive in the near term, Walmart is a good addition to a defensive portfolio. The stock has a low beta of 0.4. Overall, WMT stock is a core portfolio stock that is likely to create value in the coming years.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
