LLooking for hot stocks to buy during market turmoil? Many investors got excited about the stock splits announced by Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG). A number of other companies joined them in announcing a share split. Of course, a split doesn’t change a stock’s fundamental value, but many investors are still happy about it.
While a stock split isn’t much of a game-changer for investors, that doesn’t mean these companies aren’t a fantastic buy right now. Three Fool.com contributors think Amazon (NASDAQ: AMZN), Shopify (NYSE: SHOP)and Catering equipment (NYSE: HR) are worthy of your attention, split or not. Here’s why.
Amazon is a winner in two growing global markets
Anders Bylund (Amazon): E-commerce and cloud computing giant Amazon.com has announced a 20-to-1 stock split, which is expected to take effect on May 25. The stock price will drop from around $3,100 to $155 per share, and the value of your Amazon investment will not change at all. The upcoming stock split has no effect on my Amazon investment thesis, other than the fact that Amazon’s board of directors clearly expects stock prices to continue to rise. Stock splits are purely mathematical exercises, much like cutting a pizza into a large number of smaller slices. It always adds to the same delicious tomato pie.
That being said, the pizza from Amazon sure does look delicious. I consider this stock an obvious buy today, with or without a stock split.
Business is booming. Amazon’s 2021 revenue was $470 billion, barely a hair’s breadth from half a trillion dollars. If Amazon were a country, its economic weight would be comparable to that of large economies like those of Sweden or Thailand. The company’s sales rose 27.6% last year, faster than any country’s gross national product growth over the same period.
At the same time, Amazon’s stock stagnated. Stock prices are down 8% year-over-year and 18% below all-time highs from last summer. So you get a world-class company with a unique combination of massive scale and unbridled growth, but without the nosebleed-inducing price premiums that typically come with high-octane growth stocks.
Like I said, Amazon is a fantastic long-term buy before the stock split, and it would have been just as great without this administrative exercise.
Very early in a 100 year mission
Nicholas Rossolillo (Shopify): Shopify is an e-commerce giant, but it doesn’t sell anything directly to consumers. Rather, it specializes in software and related services to help budding entrepreneurs and small businesses build their brands for the digital age.
This e-commerce technologist has been an epic investment since its initial public offering (IPO) in 2015, wiping out market returns with a 2,160% run in just seven years (which includes a recent 60% decline from highs historical). Lately, Shopify has been in the news due to a 10-to-1 stock split proposal (shareholders will vote on this proposal on June 7). The action aims to modernize Shopify’s governance structure. Among other items related to the stock split, co-founder and CEO Tobi Lütke will be awarded a “founder’s share” which will concentrate 40% of all voting rights with Lütke.
Giving one person so much control over a company might make some investors uncomfortable. If this kind of organizational structure isn’t for you, give Shopify a pass. However, Lütke has been a fantastic visionary leader so far, and not just because of the incredible stock market returns since the company went public in 2015. At that time, Lütke wrote a letter broadly outlining the mission of Shopify’s 100 years of “making commerce better for everyone.” Since then, hundreds of thousands of merchants around the world have chosen to use Shopify services to help them manage their online and digitally enhanced business journeys.
Shopify isn’t done yet. It’s always building new infrastructure to help its user base thrive (like the Shopify Fulfillment Network, for example). It’s no longer a tech start-up. Shopify generated $454 million in free cash flow in 2021. That means it generates plenty of cash that it can use to invest in products that align with the best interests of its small business users. In other words, Shopify has a steam head that propels it forward. I believe Shopify will remain a strong growth company for many years to come under Tobi Lütke’s leadership, and as a sign of approval, I plan to continue to build my position in Shopify.
RH is a little-discussed Buffett stock whose brand can withstand a downturn
Billy Duberstein (Restoration Material): There are a lot of fears about a possible recession next year, which may or may not happen. Nobody knows. The current environment reminds me a lot of late 2018, when the Fed hiked rates amid the US-China trade war. The market took a dive and everyone thought it was the end of the world. It turns out that this period was a great buying opportunity.
Currently, the market is concerned that rising oil and food prices will crush consumer discretionary spending. One of the best such stocks on the market, luxury furniture and design house RH (formerly Restoration Hardware), has rapidly lost more than half of its value over the past six months and now trades at a multiple below the market of only 13.5 times that of this year. income estimates.
Why is RH so convincing? Management, led by visionary CEO Gary Friedman, is transforming RH from a mass brand into a true luxury brand – essentially selling more expensive products to fewer people, but at higher prices and higher margins. higher. The strategy has worked, with revenues growing strongly over the past two years and operating margins doubling from teens to mid-twenties in that short period. Friedman sees this trend continuing overtime, believing that RH can achieve the operating margins of over 30% seen by the world’s leading luxury brands. Affluent people tend to spend in good and bad economic times, so luxury brands also typically command higher multiples.
I emphasize the words overtime. 2022 will be a tough year for RH as the pandemic-era housing boom wanes, consumers retreat from discretionary purchases due to inflation, and input costs rise. In March, management only guided growth of 5-7% in 2022, down from 32% last year, citing a slowdown in demand that occurred alongside the invasion of Ukraine by Russia.
At Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has owned HR stocks since 2019, and one of Warren Buffett’s favorite investment styles is to invest in big companies when they run into temporary problems.
Although the economy may be slowing, the HR brand is on the rise. Management is now looking to expand the HR brand beyond furniture to hotels, restaurants, chartered luxury planes and yachts, and even luxury homes. If this brand extension proves successful, the addressable HR market will grow by leaps and bounds.
While the short term is admittedly uncertain, the long term picture for HR looks bright. This is generally a recipe for crushing returns in the long-term market, making RH a must buy today ahead of its stock split.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Anders Bylund owns Alphabet (A shares) and Amazon. Billy Duberstein owns Alphabet (C shares), Amazon and Berkshire Hathaway (B shares). Its clients may hold shares in the companies mentioned. Nicholas Rossolillo owns Alphabet (C shares), Berkshire Hathaway (B shares) and Shopify. Its clients may hold shares of the companies mentioned. The Motley Fool owns and recommends Alphabet (A shares), Amazon, Berkshire Hathaway (B shares), RH and Shopify. The Motley Fool recommends Alphabet (C shares) and recommends the following options: $1,140 Long Calls January 2023 on Shopify, $200 Long Calls January 2023 on Berkshire Hathaway (B Shares), Short Calls $1,160 in January 2023 on Shopify, short calls of $200 in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.