I subscribe to the New York Times. While it doesn’t have a massive amount of investment and finance coverage, it does have a small business section that covers actual small businesses, of which I am one. As I was reading a story last week, it got me thinking about small business stocks to buy.
Much like the Global X Autonomous & Electric Vehicle ETF (NASDAQ:DRIV) thematic ETF that invests in stocks benefiting from the move to electric vehicles from internal combustion-powered vehicles, I would be interested in a small business-focused thematic ETF that invests in companies that benefit from small business.
The tough part of developing an ETF methodology for selecting such stocks is identifying the right stocks. While it’s great to have a small business focus, if a business is to get really big, it needs to move beyond the small business customer and add other target customers along the way.
That said, these three companies tend to focus on small businesses. All three are excellent stocks to buy to cash in on the entrepreneurial boom in America.
Sherwin-Williams (SHW)
My wife owns a small construction company that buys a lot of paint, much of it from the local Sherwin-Williams (NYSE:SHW) store. Whenever I’ve happened to be with her when she’s picking up a paint order, there always seem to be other small business people doing the same.
From small fries to big builders, millions of people worldwide buy the company’s paints, coatings, and other products.
In October 2021, I selected SHW and nine other companies whose stocks investors should buy for the next 15 years. As I said back then, the company benefited from the rise in housing prices, which has forced homeowners to keep their houses looking fresh and up to date.
At the time, 29 analysts covered SHW, giving it an Overweight rating and a $312.50 target price. Today, 30 analysts cover SHW, rating it Overweight and giving it a $346.46 target price, about 10% higher than where it currently trades.
While the stock has gone sideways over the past 30 months, it is up significantly from its October 2022 low of around $200.
It’s not cheap at 3.54x sales but not ridiculously overpriced if you’re willing to hold for 3-5 years.
Block (SQ)
Between its Cash App and Square businesses, Block (NYSE:SQ) has small businesses covered.
In the company’s Q4 2023, shareholder, CEO and co-founder Jack Dorsey wrote that because it sees many of its Cash App customers buying from Square sellers, it wanted to spend 2024 connecting these two ecosystems.
“We believe there’s an opportunity to offer Square sellers the ability to customize profiles in Cash App, that allows for better discovery and ordering for customers—ultimately connecting them to new local businesses through our commerce offerings,” stated the shareholder letter.
As part of this focus, it consciously chose to pull back from global expansion, focus on the U.S. market, and generate more engagement with Cash App rather than just growing the number of active customers.
Despite the belief that Jack Dorsey and the rest of the company are fixated on Bitcoin (BTC:USD), Dorsey pointed out in his Q1 2024 shareholder letter in early May that only 3% of the company’s resources are Bitcoin-related projects.
However, I recommend you read the letter. It makes a compelling argument about why the company cares about Bitcoin’s future.
As for the company’s multi-billion acquisition of Afterpay, the buy now pay later business has struck a chord with younger U.S. consumers, leading to 55% growth of its small and medium-sized (SMB) business network in 2023.
Between Square, Cash App, Afterpay, and Bitcoin, Block is bound to keep growing with SMBs.
Airbnb (ABNB)
While Airbnb (NASDAQ:ABNB) has no doubt seen its fair share of large corporate hosts benefit from its global network of vacation rentals, the company remains dedicated to small businesses, whether we’re talking about the millions of hosts worldwide or the direct economic impact of hosts utilizing products and services from small business people.
For example, an Airbnb blog post in November 2020 pointed out that its ecosystem of hosts and guests generates billions for the economy.
“Between host earnings and guest spending, Airbnb’s community generated $117 billion in estimated direct economic impact across 30 countries alone in 2019.* This represents important economic activity for small businesses in the communities hosts call home,” Airbnb wrote.
There are more than five million Airbnb hosts, providing travelers with more than 7.7 million listings worldwide. The average host earns $13,800 annually, which means many are listing their vacation rentals for extra income. It’s a useful side gig.
Since Airbnb’s founding in 2007, hosts have collectively earned more than $250 billion.
According to a November 2023 post from the company, over 30% of surveyed hosts said they were small business owners beyond their vacation rental businesses.
Despite protests of professionals entering the Airbnb business—a 2023 report said that professional property managers only accounted for 1% of Airbnb hosts but 28% of total revenue—it is still very much a business for small businesses.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
