Even as major stock market indexes soar to new heights, savvy investors can still uncover amazing deals by looking at high-quality, undervalued companies poised for long-term success. The past several years have seen volatility reign on Wall Street, with the iconic Dow Jones Industrial Average, S&P 500, and tech-driven Nasdaq indexes swinging between bear and bull markets year after year. However, 2024 has the bulls in firm control so far, propelling these indexes to fresh all-time highs.
But just because the overall market levels seem lofty, that doesn’t mean there aren’t still bargains to be had among individual stocks, especially for the patient retail investor. Online brokerages have made investing more accessible than ever by eliminating minimum deposit requirements and cutting trading commissions on major exchanges. This democratization of investing means that even a modest sum like $300 can be deployed to build a portfolio of great stocks.
Among the most attractive opportunities for investors with $300 to put to work, three stocks stand out as incredible bargain buys right now: Bank of America, Alibaba, and Johnson & Johnson. Let’s take a closer look at why these industry titans represent such compelling values for long-term investors.
Bank of America’s Interest Rate Sensitivity Drives Profits Higher
For investors seeking a high-quality financial stock at a reasonable valuation, Bank of America (NYSE: BAC) looks like a screaming buy right now. As one of the “big four” money center banks in the U.S., Bank of America is often viewed as a cyclical play that rises and falls with the broader economy. Concerns about a potential recession have weighed on bank stocks recently, as downturns typically bring higher loan losses and lower profits for lenders.
However, as experienced investors know, economic cycles are a two-way street that ultimately favors the patient. Virtually all U.S. recessions since World War II resolved within 18 months, while most periods of economic expansion lasted multiple years. This dynamic allows well-run banks like Bank of America to steadily grow their loan portfolios and profits over long stretches of time.
What really sets Bank of America apart right now is its sensitivity to rising interest rates. Over the past two years, the Federal Reserve has jacked up its benchmark federal funds rate at the fastest pace in four decades to fight stubborn inflation. When rates rise, banks collect more interest income on their outstanding variable-rate loans and see bottom-line profits expand.
No major U.S. bank stands to benefit more from higher rates than Bank of America. Rising rates have already added billions of dollars per quarter to BofA’s net interest income over the past year. With further rate hikes potentially still to come in 2024, that lucrative profit stream should keep flowing for the foreseeable future.
The bank’s digital transformation initiatives are also paying off handsomely. While BofA may not be the first name you think of in financial technology, three-quarters of its consumer households now bank digitally, with nearly half of all loans originated online or via mobile app. Digital transactions are far cheaper for the bank than in-person interactions, boosting operating efficiency.
Despite BofA’s interest rate advantages and digital progress, its stock remains incredibly cheap at just 10 times projected 2025 earnings and barely above its book value as of late 2023. Bank stocks trading near book value have historically made for great long-term investments, and BofA stands out as a bargain in this category.
Alibaba’s Rock-Bottom Valuation Creates Long-Term Opportunity
For investors willing to take on a bit more risk in pursuit of massive upside, Chinese e-commerce and cloud computing juggernaut Alibaba (NYSE: BABA) looks exceptionally undervalued right now. China’s regulatory crackdown on big tech over the past few years has weighed heavily on Alibaba’s stock, and recent disappointing economic data from the world’s second-largest economy exacerbated those concerns.
However, China’s strict zero-COVID policies from 2020 to 2022, including extended lockdowns that crippled consumer spending, played a major role in the recent economic weakness. With those draconian mitigation measures now history, most analysts expect China’s growth trajectory to reaccelerate in the coming years, especially as the country’s rapidly expanding middle class drives robust consumer spending growth.
Alibaba stands to be one of the prime beneficiaries of that spending boom. The company’s Taobao and Tmall e-commerce platforms accounted for over 50% of all online retail sales in China as of 2023, solidifying Alibaba’s dominance of the Chinese e-commerce market. Meanwhile, Alibaba Cloud has become the clear leader in the quickly growing cloud infrastructure services space, capturing over a third of enterprise cloud spending in the nation.
Cloud computing carries much higher profit margins than traditional e-commerce, so Alibaba Cloud is likely to become an increasingly important cash flow driver throughout the remainder of the decade. Even better, Alibaba is currently valued at well under 5 times forward earnings when backing out its massive $92 billion cash hoard at year-end 2023.
With an unassailable competitive position at the forefront of two booming industries in the world’s top growth market, Alibaba’s beaten-down stock looks like a bargain simply too good to pass up for patient investors willing to weather potential regulatory and geopolitical risks.
Johnson & Johnson Combines Value With Resiliency
On the opposite end of the risk spectrum, healthcare titan Johnson & Johnson (NYSE: JNJ) represents a superbly safe value investment at current prices. J&J is one of only two public companies to earn Standard & Poor’s coveted AAA credit rating, highlighting the predictability of its cash flows and its robust balance sheet. That financial strength should allow it to resolve the lingering litigation surrounding allegations that its discontinued talc-based baby powder caused cancer.
What really separates Johnson & Johnson from the pack is its world-class pharmaceutical segment. While the company still generates meaningful revenue from medical devices and consumer health products, its strategic shift towards higher-margin branded drugs has steadily boosted operating income for decades. Novel drug therapies command premium pricing power, insulating J&J’s cash flows from the cyclical ups and downs that impact other industries.
J&J’s unique decentralized management structure also plays a key role. Whereas most companies cycle through CEOs every five to eight years or so, Johnson & Johnson’s top executives have historically stuck around for a decade or longer, providing consistency and strategic continuity to propel reliable growth for shareholders.
Despite its strengths, J&J currently trades for just 14.6 times forward earnings projections, representing a nearly 10% discount to the stock’s average valuation over the past five years. The rock-solid healthcare leader has increased its dividend payout for a mind-boggling 61 consecutive years, offering investors a steadily growing income stream along with strong value.
For retail investors with $300 to invest, these three high-quality industry leaders appear to offer outstanding return potential over the long run through a combination of generous dividends, continued earnings growth, and valuation multiple expansion as Wall Street recognizes their mispricing. While patience will be required, each of these stocks has all the attributes to richly reward buy-and-hold investors who act now.
