Big declines in the stock market like the one we witnessed in the fourth quarter of 2018 can surface some promising opportunities. Of course, investing amid a market sell-off can be stressful, because it's impossible to know where the bottom is. Stocks could very well keep trending lower over the next three to six months or even longer. But some opportunistic buying amid uncertain times like these can be rewarding over the long haul, whether you buy in at the bottom of a sell-off or not.
This is why I was on the offense in December, looking for a few new stocks to add to my portfolio. More specifically, I was on the hunt for some oversold enduring market leaders. Sure enough, I found two names I should have bought years ago: Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX).
Here's a quick overview of why I'm betting on each of these stocks for 2019 and beyond.
When I bought Amazon stock on Dec. 21, shares had fallen 31% since Oct. 1 -- much worse than the S&P 500's 17% decline over the same time frame.
On the surface, Amazon may look like it's priced for perfection. The company has a price-to-earnings ratio of 86. But a closer look reveals a compelling valuation. Amazon's top line is growing fast, with third-quarter revenue up 29% year over year -- and earnings per share are soaring. Amazon's third-quarter EPS was $5.75, up from $0.51 in the year-ago quarter.
Investors shouldn't expect Amazon's EPS to keep rising this rapidly. But a tripling of Amazon's EPS over the next five years is possible, thanks to the company's fast-growing and lucrative cloud-computing business -- AWS -- and its ongoing e-commerce expansion.
Netflix's valuation is a similar story. The stock appears expensive on the surface but looks attractive after investors consider the company's strong growth prospects.
Netflix has a price-to-earnings ratio of about 96. Backing up this steep premium, however, is uncanny revenue and earnings-per-share growth. The streaming TV company's revenue and earnings per share for the trailing 9-month period ending Sept. 30 were up 38% and 185% year over year, respectively. Subscribers, too, are rising rapidly. Netflix added about 6.1 million paying members in Q3 and expects to add 7.6 million in its fourth quarter of 2018.
Though management expects earnings per share to come under pressure in the near term as Netflix ramps up spending on content that requires more up-front investment, this investment is aimed at building long-term value.
"We recognize we are making huge cash investments in content, and we want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past," Netflix explained in its third-quarter shareholder letter. "These investments we see as very likely to help us to keep our revenue and operating profits growing for a very long time ahead."
I added Netflix to my portfolio on Dec. 21 as well. At the time, shares were down 35% since Oct. 1.
With 2019 now underway, both stocks continue to look like attractive bets for investors willing to hold for the long haul. But investors should expect a bumpy ride.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks owns shares of Amazon and Netflix. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.