For the investing community, the first four months of 2022 have been a journey.
Last year, the S&P 500 suffered no worse than a 5% drop. In 2022, the S&P 500 and revered Dow Jones Industrial Avg. have both dropped into correction territory with decreases of at least 10%. Things are only getting more difficult for the Nasdaq Composite, which has dropped as much as 23% of its price since November.
Despite the fact that stock market downturns can be frightening, historical data suggest that purchasing high-quality firms during these situations is a smart move. Regardless of how severe the drop or bear market is, eventually, everything seems to be forgotten in favor of a bull market rally.
Best of all, with a lot of online brokerages eliminating minimum deposit restrictions and trading costs, any amount of cash — even $300 — might be the perfect amount to put into a market sell-off.
If you have $300 set aside, which will not be required for expenses or emergencies, the following two firms are among the greatest stocks to buy in May.
The first extremely clever stock to take with $300 is social media site Pinterest (PINS -6.49%). In less than 15 months, the company’s shares have lost three-quarters of their worth.
The two most prevalent worries about Pinterest are the company’s decreasing monthly active users (MAUs) over the previous year, as well as Apple’s iOS changes to its privacy policy, which allow app users to opt out of data collection. Companies that rely on ad revenue, such as Pinterest, may be negatively affected.
Both of these factors have played a significant role in lowering Pinterest’s stock value, but I don’t anticipate either to have any long-term influence on the company’s growth path or strategy.
Although MAUs have decreased on a year-over-year basis, they rose by 2 million in Q1 of 2022 (433 million) from where Pinterest ended in 2021 (431 million). Furthermore, when we look at Pinterest’s MAUs over a longer time period, we see that user growth is still in an upswing. We’ve simply seen user growth return to normal after the unnatural pandemic-related rise.
The key distinction here is that Pinterest has successfully monetized its MAUs. Despite a 45 million drop in MAUs in the most recent quarter from the prior year, worldwide average revenue per user (ARPU) increased 28%, with European ARPU up by an even more significant 40%. Advertisers are prepared to pay a premium to reach out to prospective customers because of Pinterest’s huge user base.
There’s also no need to worry about Apple’s recent privacy adjustments. While other social media sites have to depend on likes and other data-tracking systems to help advertisers locate people, the whole concept of Pinterest’s platform is based on its users sharing the things, locations, and services that they’re into. To put it another way, Pinterest has all of the information that advertisers and businesses desire on a silver platter.
Pinterest is a money-maker on a recurring basis and can maintain a 20% growth rate for lengthy periods of time. That makes the platform’s recent market collapse the ideal moment to buy.
AGNC Investment
AGNC Investment is a second great stock that’s ready to be purchased for $300 in May. AGNC is a monthly dividend payer that pays out over 13% on average and has returned double-digits every year for the past 13 years.
Mortgage REITs, such as AGNC, aim to borrow money at the cheapest short-term rate feasible and use this capital to acquire long-term higher-yielding assets like mortgage-backed securities – thus they are known as “mortgage REITs.” The greater the gap between the avg. yield on assets owned and the avg. borrowing rate, the more profitable a mortgage REIT is.
Things could not have gone much worse for AGNC in the first quarter. Mortgage REITs typically operate in low-rate environments with a large interest-rate yield curve. However, during the last few months, the Federal Reserve has indicated its intention to be aggressive with interest rate increases to combat inflation. Furthermore, the curve of the interest rate yield has flattened. Both situations have had an impact on AGNC’s net interest margin and tangible net book value.
However, in the mortgage-backed securities business, buying when things appear their worst is frequently a good idea. Even though interest rates are rising, which will damage short-term borrowing rates, sustained higher rates will improve the average yield on MBSs that AGNC purchases. This should have a beneficial impact on AGNC’s net interest margin and profitability over several years.
Another thing to consider is that the company almost exclusively purchases agency securities; at the end of March, $66.9 billion of AGNC’s $68.6 billion investment portfolio was made up of agency assets. In the case of default, an agency asset is protected by the federal government. This increased security allows the firm to use leverage to increase its income potential.
Despite a significant recent drop in TNBV, AGNC Investment is still valued at a discount of 15% to TNBV. Because most mortgage REITs trade near their book values, AGNC stands out as a real bargain.
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