Inflation is hot these days – too hot. Last year, for the first time in a decade, inflation began to eat away at our buying power, and not in a small way! And it’s only escalated since. The average American is now finding that their money doesn’t go as far as it used to.
Throughout much of the 2010s, wage growth outpaced inflation in the U.S. economy. That is, U.S. average hourly earnings growth was consistently bigger than U.S. Consumer Price Index growth. This created a “normal” economic environment wherein Americans’ buying power was expanding.
But in 2020, this relationship has been flipped on its head.
In April 2021, U.S. CPI growth outpaced U.S. hourly earnings growth for the first time since 2012. Since then, inflation has kept going up, and up, and up. Wages haven’t kept pace.
In other words, while our wages were declining (due to unemployment), the price of goods and services was increasing at an unprecedented rate. The end result is that Americans’ buying power has been squeezed like never before.
Today, the inflation rate in the U.S. economy is above 8%. Wage growth is just 5.2%. That means American buying power is being eroded at a 2.5% annualized clip – the largest rate on record.
In other words, Americans’ buying power is falling today at one of the fastest paces on record.
And our portfolios are being eroded even further. So what can we do about it?
In short, that means that as consumers, as workers, and as investors, we’re all going to have to learn how to do more with less.
What better way to do that in the stock market than by taking just $500, and buying the best stocks the market has to offer for that $500?
That’s exactly what you should be doing right now. Going out and finding the best stocks to buy with just $500. That’s the quintessence of doing more with less.
Fortunately for you, there are lots of great stocks to buy for $500 or less. In fact, with just $500, you could buy a portfolio of some of the best stocks in the market, with such huge upside potential that it could turn that $500 into $10,000 or more!
So… what’re you waiting for?
Let’s check out the best stocks to buy in the market today for $500.
Best Stocks to Buy With $500: Upstart (UPST)
Upstart (UPST) is a cloud-based AI lending platform that’s attempting to revolutionize the entire world of credit by replacing the manual, human-driven process with an automated, AI-driven one.
At the core of this mission, Upstart has developed an AI algorithm to price credit risk. In essence, the company has developed a new way to judge a person’s creditworthiness – their “FICO” score, if you will – using AI data analysis.
If Upstart can automate the credit underwriting and approval process with AI software, it can cut out a lot of “middleman costs” from the credit process and make lending cheaper and faster for everyone. That’s a large value prop.
And the big driving factor there is Upstart’s AI system.
That system has been continuously upgraded, trained, and refined for over eight years. The models target fee optimization, income fraud, acquisition targeting, loan stacking, prepayment prediction, identity fraud and time-delimited default prediction. They incorporate more than 1,500 variables and draw conclusions from an ever-growing transaction database informed by 21.6 million repayment events.
Upstart was once one of the hottest stocks in the market. It’s now one of the coldest. The company’s recent earnings report underscored that AI models are unproven in a slowing economy with rising interest rates. Investors worry those models will break. Consequently, the stock has collapsed.
Today the company is worth just $3.4 billion.
For those with either good or decent credit profiles, historical data seems to prove beyond any reasonable doubt that Upstart’s AI models are better at pricing risk than legacy versions.
And for folks with poor credit, Upstart’s AI models appear to be just as good as legacy methods. It that data continues to hold true, then Upstart’s approach could turn into the foundation of modern credit underwriting. The stock is incredibly cheap at just 2.6X forward sales for 40%-plus revenue growth. The company is highly profitable, emphasizing this ultra-rare combination of growth and profitability.
Upstart is an innovative and disruptive company with a lot of potential. The only problem? The company is “too new” for an old-school Wall Street. We believe investors are massively misunderstanding the company’s models. This misunderstanding should be resolved with a few good quarters. If positive resolution does arrive, Upstart stock will fly higher!
Unity Software (U)
Unity Software (U) is the world’s leading platform for creating and operating interactive, real-time 3D (RT3D) content. And the long-term bull thesis here is pretty simple. Basically, the world is shifting from 2D to 3D content creation and consumption. We used to interact with digital media through 2D screens. Now, we are increasingly interacting with digital media with immersive 3D experiences.
This shift is still in its early stages. It is starting with gaming, where gamers are going from playing games on consoles to putting on headsets and playing in 3D virtual environments. But it is extending into many more industries, as well, such as construction, architecture, engineering, production, advertising, and even self-driving, where companies are using 3D content to simulate real-world experiences.
We believe that the growth of 3D content usage in the industry will be enormous throughout the 2020s.
All of that 3D content needs to be created and operated by a RT3D engine. Unity operates the world’s leading end-to-end RT3D content engine. Through its Create platform, Unity gives companies the best tools to develop RT3D content. Through its Operate platform, Unity gives companies the best tools to operate and monetize that content.
This is a high-quality “picks-and-shovels” play on the growth of RT3D content in the world.
Analysts believe this will be a 30%+ revenue growth company into 2030. We concur with that outlook. On top of that, this is a hyper-scalable software business with 80% gross margins, a huge competitive moat via its highly complex software platform, and low capital intensity at scale which should create huge cash flows. The long-term growth visibility and profit potential of this business are both tremendous.
This is basically the next-gen version of Adobe – the Adobe of extended reality (XR), if you will.
That’s a favorable comparison, because look at what Adobe stock has done over the past decade in developing tools for 2D content creation. The stock has turned every $10,000 investment into more than $100,000. We suspect Unity stock could do the same in the 2020s, as the company develops tools for 3D content creation.
Teladoc (TDOC) is the world’s leading virtual healthcare company.
It offers various medical services, like its Get Care Now. The unit offers general medical advice. Specifically, it offers 24/7 non-emergency care for illnesses like the common cold, the flu, sinus infections, allergies, and more.
And these interactions are with board-certified and state-licensed doctors, not some random person just doing their best — it’s a true medical professional.
The company also offers mental health care, dermatology, specialist and expert advice, and wellness care (like nutrition, tobacco cessation, neck and back care, etc.).
In other words, Teladoc is an all-encompassing telehealth portal, fusing technology and the medical field to maximize the synergies within.
Before COVID-19 emerged, Teladoc was considered a steady growth stock. Throughout the pandemic, however, the company rose to superstardom. Everyone touted its platform as the future of healthcare. From those pandemic peaks, growth has slowed meaningfully, and the stock has taken a nosedive.
Teladoc is now worth about $5.9 billion.
Despite this drawdown, telemedicine is the future. It’s cheaper and more convenient than physical healthcare. And with advancements in artificial intelligence, it will continue to narrow the performance gap with the physical space. Long-term, this is a big growth industry, and Teladoc has established a large enough consumer user base and has struck enough sticky enterprise partnerships to quasi cement itself as the unrivaled leader in telemedicine. As this industry grows over the next several years, so should Teladoc.
The current slowdown in its business operations is totally expected given tough comps and waning demand in the wake of COVID-19. Demand trends should normalize in 2023 and after, and Teladoc should return to a 20%-plus revenue growth trajectory.
Relative to that growth, Teladoc stock is dirt-cheap now, trading at just 2.2X 2022 estimated sales and 2.5X trailing sales.
For context, Teladoc stock has averaged a trailing sales multiple of ~12X over the past three years. Its lowest sales multiple ever (before today) was 4X. This stock is dirt-cheap by historical standards.
Further, the business is very attractive, with 70% gross margins and lots of recurring revenues. While Teladoc was dramatically overvalued at its peak in 2021 – when COVID-19 trends were artificially inflating demand – TDOC stock is now dramatically undervalued here in 2022, as investors are over-extrapolating a near-term and natural slowdown. By 2023, growth trends will normalize, and the stock will settle at a happy medium between its current and elevated 2021 levels.
Datadog (DDOG) is a leading observability software provider that we see as a “unicorn” in this market. That is, it’s a rare combination of a very promising tech company in the early stages of long-term compounded growth, and a high-quality tech company with already big profit margins and sizable profits.
It’s an excellent buy amid the current market selloff.
The story here is simple…
Every company is fully embracing their digital transformations. That means they are all adopting multiple digital tools and services to modernize their business. That’s great – but it’s also a lot to manage. And to effectively optimize the utility of those services, businesses need to make sure they’re healthy.
Insert observability software.
Observability software allows companies to make the most out of their digital transformations by providing tools and analytics that help companies observe and monitor the health of their enterprise software stack.
Observability tools are relatively niche today, but companies who use them see a significant boost in productivity. We believe that as companies fully embrace their multi-faceted digital transformations and adopt multiple enterprise software tools, observability software will become an enterprise ubiquity.
The growth potential in this industry is enormous – and Datadog is the unrivaled leader in this space, with market-leading software and a ton of customers who are increasing their spend on the platform every year because it works so well.
Long-term, we see Datadog as a 30% compounded revenue grower with huge room for margin expansion (this is an 80% gross margin business, with only 10% operating margins due to low scale – as the business scales up, we see operating margins running above 30%). To that end, we believe Datadog has a tremendous long-term earnings growth trajectory ahead of it.
Behind that trajectory, we believe the stock will soar. Today represents a compelling entry point into this long-term winner, as the stock is well off its recent highs. Specifically, we think Datadog stock will benefit from an exceptionally favorable IT spending backdrop in 2022 and beyond, as well as from a shift in focus among enterprises toward building out observability capabilities as they adopt more digital transformation tools.
The company is also cash-rich, high-margin, and profitable, with an analyst price target that is about 50% above its current price.
We have high conviction on this stock long-term. Near-term, we also like this stock’s defensive attributes and its technical picture. We think starting to accumulate a position here makes sense, and we would advise to keep buying in increments if the stock continues to lag.
A little over four years ago, I went public with a very bold claim that shocked a lot of folks. I said that Shopify (SHOP) stock — which, at the time, was this tiny e-commerce stock that not many investors knew about — was the single most exciting stock in the market. Of course, I promptly urged folks to buy the stock.
Four years hence, Shopify stock had surged 1,170%. That means that if you invested $10,000 into Shopify stock back when I called it the most exciting stock in the market in 2017, you would’ve turned that into over $127,000 by October 2021.
To be clear, I’m not telling you this to bag. Rather, I’m telling you this to let you know that right now, I’m about to make another big call on Shopify stock.
You don’t need follow markets closely to know that there’s a lot of macroeconomic fear out there today.
We have a war in Europe. We have inflation running at multi-decade highs. We have a Fed that’s aggressively tightening monetary policy. We have a flat yield curve that looks determined to invert.
There’s a lot of fear out there. Like there was a lot of fear in 1989, 2000, and 2008. And, just as it did back then, all of this fear is creating a divergence.
That is, across the market, companies are seeing their stock prices fall sharply while their revenues keep growing.
The best example of this may be Shopify stock.
Shopify stock has collapsed over the past few months. Yet, it’s revenues keep marching higher at a very healthy pace. The result? An enormous divergence between the company’s stock price and fundamental growth trend.
History says what comes next could be an enormous “snapback” rally in Shopify stock.
We think that’s exactly what will happen.
With Shopify, you have one of the highest-quality growth stories in the market, powered by multiple secular growth drivers such as the shift to e-commerce, the democratization of shopping, and the integration of AR into online shopping. The company has basically no sizable competitors, and it has established a highly defensible network effect which constitutes an enormous competitive moat. The addressable market is huge. The growth runway is long. And the business model is both highly scalable and high-margin.
This is a winning company – and this winning company is growing at lightspeed.
Yet, the stock has been crushed because of macroeconomic fears related to rate hikes and the war in Europe. But the big, scary Fed rate hike has already happened, and the Russo-Ukrainian crisis is starting look like it could get resolved diplomatically within next few months.
If those two headwinds do get removed, Shopify stock could be due for a huge snapback rally here.
Senior Investment Analyst