Your eyes are not deceiving you: It’s been a difficult year for investors of all walks.
Since the year began, the iconic Dow Jones Industrial Average and benchmark S&P 500 have both entered correction territory with declines in excess of 10%. Meanwhile, the peak-to-trough drop in the growth-stock-driven Nasdaq Composite since its November high totaled 31%. That places the Nasdaq squarely in a bear market.
Although bear market drops can challenge investors’ resolve and tug on their emotions, history is quite clear that sizable pullbacks are a fantastic opportunity to put your money to work and buy high-quality companies at a discount. After all, every correction and bear market throughout history has eventually been erased by a bull market rally.
Best of all, you don’t need a mountain of cash to take advantage of market pullbacks. With most online brokerages doing away with minimum-deposit requirements and commission fees, any amount of money — even $20 — can be the perfect amount to invest.
What follows are three of the smartest stocks you can buy right now with $20 during a Nasdaq bear market.
To begin with, buying shares of artificial intelligence-driven data-mining company Palantir Technologies (NYSE: PLTR) looks like a genius way to put $20 to work.
To say that Palantir has been clobbered since hitting its all-time high of $45 in January 2021 would be an understatement. Then again, with shares of the company valued at a nosebleed multiple to sales last year, a reversion made sense. Following a more than 80% retracement in Palantir’s shares, the price is now right for patient investors.
The beauty of Palantir’s operating model is that it’s not easily replicable at scale. In other words, this is a company that’s liable to secure contracts and hang on to them for long periods. Its Gotham platform caters to federal governments and helps with mission planning and data aggregation. Meanwhile, Foundry is Palantir’s enterprise-focused platform that helps businesses streamline their operations by making sense of large quantities of data.
For years, government contracts have been the fuel behind Palantir’s blazing-hot sales growth. But there’s a tangible ceiling for Gotham given that management won’t allow certain government entities to use its solutions. This leaves Foundry as Palantir’s golden ticket to riches. To date, we’ve witnessed only a small sampling of what Foundry can do for corporate America.
With Palantir profitable on a recurring basis and fully capable of sustained sales growth of nearly 30%, it looks like a smart buy.
Without getting overly complicated, mortgage REITs are companies that aim to borrow money at low short-term lending rates and use this capital to purchase higher-yielding long-term assets, such as mortgage-backed securities (MBSs). The wider the difference (known as net interest margin) between the average yield on the assets they own minus the average borrowing rate, often the more profitable the mortgage REIT.
At the moment, AGNC is climbing uphill. A flattened Treasury yield curve has tightened the company’s net interest margin, while a shift in Federal Reserve monetary policy has weighed on its book value. But history has shown these headwinds to be temporary. The U.S. economy spends far more time expanding than contracting, and that typically produces a steeper yield curve. In short, AGNC’s net interest margin should climb over time as the company recognizes higher yields from the MBSs it’s buying.
What’s more, $66.9 billion of AGNC’s $68.6 billion investment portfolio, as of March 31, is of the agency asset variety. An agency asset is backed by the federal government in the event of default. Purchasing these assets provides protection to AGNC’s portfolio and, more importantly, allows the company to deploy leverage to pump up its profits.
AGNC Investment is valued at close to a 10% discount to its tangible net book value and has a 12% yield. In fact, the company has averaged a double-digit yield in 12 of the past 13 years.
A third smart stock to buy with $20 during the Nasdaq bear market is China-based electric vehicle (EV) manufacturer Nio (NYSE: NIO).
Similar to Palantir, Nio was sporting an astronomical price-to-sales valuation in early 2021, which has since come crashing back to earth. However, with Nio maturing and innovating, it’s not hard to envision the company becoming a standout in China’s EV industry. As a reminder, China is the world’s top auto market.
One of the most impressive aspects of this company has been its production ramp-up. In less than a two-year stretch, Nio went from producing fewer than 4,000 EVs per quarter to north of 25,000. It would likely be on track for a 150,000 annual EV run-rate, if not for COVID-19 supply chain disruptions and semiconductor chip shortages.
But it’s the company’s innovation that makes it a superstar. For example, Nio recently introduced what’ll be its flagship electric sedans, the ET7 and ET5. With the top available battery upgrade, these EVs can go 621 miles on a single charge. That’s a significantly better range than Tesla‘s flagship Model 3 and Model S sedans.
Nio’s innovation can also be seen in its battery-as-a-service (BaaS) subscription, which was introduced in the summer of 2020. With enrollment in BaaS, buyers receive a discount on the purchase price of their vehicle and can charge, swap, and upgrade their batteries. Meanwhile, BaaS nets Nio high-margin monthly revenue, and it secures the loyalty of early buyers.
With Nio potentially hitting recurring profitability next year, now is an ideal time for opportunistic investors to pounce.