Wall Street, a tempestuous arena, guarantees investors fleeting volatility. Over this decade, the revered triumvirate of the Dow Jones Industrial Average, the ubiquitous S&P 500, and the tech-driven Nasdaq Composite have oscillated between bearish and bullish terrains annually.
Nevertheless, the virtuous cycle of patience bodes well for stakeholders. Throughout financial annals, each market dip and bearish spell has inevitably ushered in a new age of bull markets, rendering this a propitious moment for astute investors with a long-term outlook to channel their fiscal resources.
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An additional boon is the dissolution of barriers by myriad online brokers, once curtailing retail investors. Notably, many online brokerages have jettisoned deposit prerequisites and eschewed levies on common stock transactions executed on major U.S. exchanges. Consequently, any sum, even a modest $200, proves to be the ideal seed capital in the present landscape.
If your coffers boast $200 earmarked for investments, which won’t be diverted for bill payments or emergencies, the following three stocks emerge as compelling prospects.
AT&T: Navigating the Telecom Terrain
The first gem awaiting opportunistic investors with a $200 bounty is the stalwart telecom giant AT&T (NYSE: T).
AT&T’s recent lackluster stock performance can be attributed to three primary factors:
- Escalating interest rates typically spell trouble for highly leveraged telecom entities, heightening the expense associated with future agreements and/or debt restructuring.
- As a mature enterprise with a modest growth trajectory, AT&T pales in comparison to high-flying tech stocks.
- In a July exposé, The Wall Street Journal unearthed potential hefty replacement costs for legacy telecom players pertaining to still-operational lead-sheathed cables.
While these concerns hold merit, several of these headwinds are likely blown out of proportion.
AT&T’s liability linked to lead-lined cables, if any, would be adjudicated in the plodding U.S. judicial system. Notwithstanding AT&T’s assertion of manageable lead levels, any potential obligation, if materializes, lies years down the road.
Moreover, the impact of rising interest rates appears less ominous than perceived. Post the divestiture of WarnerMedia in April 2022, consequently merged with Discovery to birth Warner Bros. Discovery, AT&T has whittled down its net debt by $40 billion to $128.9 billion, as of December 31, 2023. Although room for improvement exists, AT&T’s financial maneuverability has undergone a marked enhancement over the past two years.
Buoyed by the 5G wave, AT&T revels in an upsurge in organic growth, fuelled by upgraded networks enabling expedited download speeds and spurring higher-margin data consumption among wireless subscribers. Furthermore, AT&T has enticed a continual flow of at least 1 million net broadband clients annually for six successive years, with the allure of 5G speeds showcasing the latest bait to amass users and turbocharge service bundling.
A forward price-to-earnings (P/E) ratio of 7.5, coupled with a generous 6.5% dividend yield, presents a delectable risk-reward equilibrium for patient backers.
York Water: A Refreshing Dip into Utility Stocks
Another no-brainer pick beckoning retail investors with $200 is the Pennsylvania-based water utility monolith York Water (NASDAQ: YORW).
York’s stock has weathered a 30% slump over nearly three years, fueled by the Federal Reserve’s stringent monetary policy, propelling alternate income avenues into the limelight. Escalating Treasury bond yields have thrust traditional utility equities into a comparative shadow. Nonetheless, this landscape is unlikely to persist indefinitely.
Earlier this year, Federal Reserve Chair Jerome Powell steered the consensus anticipation of three rate reductions in 2024. Deftly easing financial conditions tend to exert a downward drag on Treasury rates, thereby rendering high-dividend utility equities more enticing.
Posited as a new zenith of dividend constancy among publicly traded corporations, York Water’s revenue stream has yielded an uninterrupted dividend since its inception in 1816. This 208-year cascade of unbroken dividend disbursals surpasses the endurance of any American public firm by approximately six decades, attesting to York’s unwavering cash flow over the years.
A cornerstone of York’s operational prowess is its regulatory footing. Delving into “regulated” territory necessitates consent from the Pennsylvania Public Utility Commission (PPUC) prior to fee escalations. This regulated demeanor shields York from erratic wholesale pricing fluctuations. A fare raise sanctioned by the PPUC in January 2023 galvanized total revenue to soar beyond $71 million last year, marking a substantial uptick from the $60 million count in 2022.
York’s valuation, marked at less than 21 times Wall Street’s 2025 earnings consensus, proffers an alluring value proposition. For perspective, this discount stands at 35% relative to York Water’s preceding five-year trailing P/E multiples.
Starbucks: Brewing Resilience Amid Economic Riptides
The third unequivocal contender warranting a $200 infusion is the coffee colossus Starbucks (NASDAQ: SBUX).
Starbucks shares have relinquished a quarter of their value since their zenith nearly three years ago. Alongside inflationary qualms pertaining to labor and inputs, China emerges as a trouble spot. China’s economic resurgence post the cessation of its controversial COVID-19 containment protocol in December 2022 has failed to materialize as anticipated, a thorn in Starbucks’ side given its 6,975 stores nestled among the 38,600-store cohort in China.
On the flip side, the pendulum swings towards China’s prospective revival. As China distances itself from stringent and erratic shutdowns, a gradual easing of supply chain impediments looms.
Moreover, Starbucks remains unfazed by inflation, owing to its loyal customer base and robust operational mechanisms.
A Look Into Starbucks’ Strategic Triumph
The Secret Sauce Behind Starbucks’ Success
Starbucks, the coffee behemoth, has mastered a not-so-secret recipe for operational prosperity. By deftly passing on increased costs to consumers, the company has consistently nullified rising labor expenses and product inflation.
The Rewards Member Magic
The not-so-subtle key to Starbucks’ triumph lies in its growing cohort of Rewards Members. As of December 31, the company boasted 34.3 million active Rewards Members, marking a sturdy 13% surge from the previous year. These Members not only tend to make more frequent purchases but are also inclined to streamline their transactions by availing mobile ordering services. This not only enhances customer convenience but also optimizes store operations, all for the price of a free drink or snack every now and then.
Management’s Pandemic Pivot
Credit is due to Starbucks management for a swift and savvy overhaul of its drive-thru experience and menu during the pandemic chaos. By incorporating video elements into the drive-thru ordering process to personalize customer interactions and highlighting high-margin food and drink pairings, the company has managed to elevate its appeal and drive sales.
An Investor’s Delight
Investors eyeing Starbucks have an enticing opportunity at hand. With shares trading at 19 times the projected earnings for the upcoming year, this presents a 32% markdown from the historical five-year average forward P/E ratio. Notably, this stands as the lowest forward P/E ratio for Starbucks in at least a decade, signaling a potentially lucrative entry point for savvy investors.
Considering AT&T as an Investment?
Before jumping on the AT&T bandwagon, it’s worth noting that the esteemed analyst team at Motley Fool Stock Advisor has omitted AT&T from its list of top 10 stock picks for investors to consider. The selected stocks are primed to potentially deliver substantial returns in the foreseeable future, making them worth a closer look.
*Stock Advisor returns as of March 18, 2024
Sean Williams holds positions in AT&T and Warner Bros. Discovery. The Motley Fool has positions in and recommends Starbucks and Warner Bros. Discovery. The Motley Fool maintains a disclosure policy.
The expressed perspectives and beliefs are those of the author and may not align with those of Nasdaq, Inc.
