The Top Stocks to Buy With $500 Right Now

These two top stocks to buy now both trade cheaply and offer significant long-term growth potential in addition to attractive passive income.

Daniel Da Costa ❯

Daniel joined the Motley Fool Canada team in 2019 with years of experience in banking and investing. Growing up the son of a proprietary stock trader and educator, Daniel’s always found joy in helping Canadians to improve their financial situations. With the Motley Fool, Daniel sees an even more rewarding way to impact Canadians positively. A student and great admirer of Warren Buffett, he’s always looking for investments offering growth at a reasonable price. Outside of finance, Daniel enjoys spending his time with family, sailing, and watching Formula One.

Published October 6, 2023 9:45 pm EDT

With interest rates continuing to rise in 2023, investors have been given the buying opportunity they’ve been waiting years for. And with the TSX down over 6% in the last month, even some of the top stocks are becoming ultra-cheap, making now an excellent time to buy.

Because the broader market has been selling off, there are stocks in almost every industry trading at a discount. This presents an ideal opportunity for investors, as individual preferences and portfolio balances differ. What might be an attractive addition to my portfolio might not be the same for yours.

Without question, though, some of the best stocks to buy with $500 right now are top Canadian REITs.

Real estate is a popular investment for many Canadians. The problem is that, in many cases, it takes a tonne of capital to buy a property. With REITs, you can gain exposure even with as little as $500. And because REITs trade on the stock exchange and there is a tonne of liquidity, you can consistently add to your position over time.

The fact that REITs offer you exposure to the real estate sector isn’t the only reason they are such excellent investments.

They also provide natural diversification with exposure to thousands of rental units, often diversified across many provinces or countries.

Not to mention, they’re also managed by a professional team. Therefore, unlike a rental property, you don’t have to worry about doing any work or maintenance, another reason why they’re some of the top stocks to buy.

Finally, REITs have also become considerably cheap as the market has sold off over the last year and a half. On top of that, residential REITs are highly defensive.

So if you have $500 you’re looking to invest today, here are two top residential REITs to consider adding to your portfolio.

The largest residential REIT in Canada

In the current environment, there’s no question that Canadian Apartment Properties REIT (TSX:CAR.UN) is one of the top stocks to buy now.

CAPREIT is the largest residential REIT in Canada, with a market cap of $7.5 billion. This massive size gives it plenty of natural diversification, which is one of the main reasons why CAPREIT is known for its consistent revenue growth and ability to generate attractive adjusted funds from operations (AFFO).

While the economy continues to face significant headwinds this year, CAPREIT’s AFFO per unit is expected to increase by 6.8% and another 7.4% next year.

Its distribution is currently just 72.5% of its expected AFFO this year and 77.5% of its AFFO in 2022, showing how safe the 3.2% yield is.

So considering how reliable it is and the fact it’s undervalued, currently trading at a forward price to AFFO ratio of 21.8, which is well off its five-year average of 26.1 times, CAPREIT is certainly one of the top stocks to buy now.

A top stock to buy for dividend investors

In addition to CAPREIT, another top stock to buy now in the real estate sector is Morguard North American Residential REIT (TSX:MRG.UN).

Although Morguard is nowhere near the size of CAPREIT, with a market cap of just over $550 million, its portfolio is diversified all over the States, with assets in nine states besides Ontario and Alberta.

This diversification is crucial to help lower the risk for investors. And so far this year, despite a worsening economy, just like CAPREIT, Morguard is showing why it’s such a reliable investment.

In the second quarter of this year, Morguard generated roughly $83 million, an increase of 21% year over year, and its AFFO per unit was also up an impressive 23% year over year.

For the full year, analysts expect Morguard will see 17.6% revenue growth and $1.33 in AFFO per unit.

That gives it a forward price to AFFO ratio of 10.5 times today, well below its five-year average of 15.9 times. And with its annual distribution at just $0.72, the REIT’s payout ratio is just 54%. Not to mention it also offers a current yield of more than 4.8%.

Therefore, given how cheap Morguard is, how defensive it is and the attractive yield it offers, it’s one of the top stocks passive income investors can buy now.