Thanks to the advent of fractional share investing, you can take $500 and create a portfolio of numerous stocks. That’s part of the democratization of investing. Yet, for today’s list of the best stocks to buy with $500, I’ve chosen three stocks whose share prices add up to roughly $500, give or take a few bucks, allowing investors to purchase one whole share apiece.
The S&P 500 currently has 503 stocks trading under $500. That gives me a large group from which to select my three best stocks to buy with $500.
Because price and value are two different things, I’m looking for cheap stocks with high potential. Therefore, I screened for stocks with low price-to-free-cash flow (P/FCF) and price-earnings-to-growth () ratios.
Here are my three choices for the best stocks to buy with $500.
Steel Dynamics (STLD)
The first is Steel Dynamics (NASDAQ:STLD), one of the country’s largest steelmakers. According to Finviz, it has a P/FCF and PEG ratio of 5.42 and 0.19, respectively. If you invert the P/FCF ratio, you get the free cash flow yield. It’s currently 20.6%, well above 8%, the percentage I look for in value plays.
STLD hit a 52-week high of $136.46 in early March before falling considerably due to its weak outlook for the remainder of the year.
Steel Dynamics reported Q1 earnings in late April. The good news was that it earned an adjusted $4.04 a share, 20 cents better than expected. The bad news is that its earnings were 33% lower than in Q1 2022. On the top line, it missed the analyst estimate by less than 1%, generating $4.89 billion. Revenue was down 12% from last year.
Analysts believe earnings per share will fall to $6.56 in 2025 from nearly $21 in 2022. On the bright side, at that level, earnings in 2025 will be more than double what they were in 2019.
Unless America and the world stop using steel, STLD will hold its value in the long term.
Targa Resources (TRGP)
Targa Resources (NYSE:TRGP) is one of North America’s largest independent midstream infrastructure companies. It gathers, stores, transports and sells natural gas, natural gas liquids (NGLs) and crude oil.
It has a P/FCF and PEG ratio of 6.68 and 0.57, respectively. If you bought TRGP stock in March 2020 at its pandemic lows, you’ve done very well. Shares are up more than 10-fold since then. However, in 2023, shares are down 3.2%.
RBC Capital Markets named Targa one of its top global energy ideas for 2023 with a 12-month price target of $104 and an “outperform” rating. That implies upside of 46% from where it currently trades.
RBC Capital isn’t the only firm bullish on TRGP. Of the 20 analysts covering the stock, 19 rate it either “overweight” or “buy,” with a median target price of $98.50.
United Rentals (URI)
United Rentals (NYSE:URI) is the world’s largest equipment rental company. It operates more than 1,400 rental locations in North America alone. The original cost of the equipment it rents out is more than $15.7 billion. It has a P/FCF and PEG ratio of 5.47 and 0.72, respectively.
At the end of April, it reported Q1 results, including $3.29 billion in revenue and $451 million in net income. In addition, its rental revenue in the quarter increased by 26% year over year to a record $2.74 billion. As a result of its record results, the company reaffirmed its outlook for 2023, which includes $13.95 billion in sales and $6.73 billion in adjusted EBITDA at the midpoint of guidance.
“We’re pleased with the start to 2023, as evidenced by the strength of our first quarter results across growth, profitability, and returns,” said Chief Executive Officer (CEO) Matthew Flannery. “As we enter our busy season, we are encouraged by the momentum we see throughout our business and our customers’ continued optimism.”
We’ll know more when United Rentals reports its Q2 earnings this summer, but a significant recession might not be in the cards in 2023.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.