Times of market stress are harrowing to go through but often provide some of the very best opportunities to invest for the long term. After all, the market has eventually bounced back from every crisis in the past, whether the 1987 crash, the bursting of the dot-com bubble, the Great Recession of 2008-2009, or the 2018 trade-war-fueled downturn.
Even if you have just $1,000 to invest, dipping your toes into high-quality companies now could look like a genius move looking out one, five, 10 years out and beyond. The following three stocks all have excellent business models, strong leadership positions, and terrific future prospects, making them very smart buys amid the COVID-19 downturn.
I know, I know. Why pick Amazon.com (AMZN -0.86%) now when it's been one of the best-performing stocks in the market? In fact, in recent days, Amazon actually touched all-time highs. But hear me out.
First, Amazon had actually been a bit of a laggard when compared with the rest of the top tech stocks last year. In fact, during the bumper year for the markets in 2019, Amazon's 23% returns, while no slouch, lagged badly behind both the S&P 500 and the Nasdaq indexes.
So there was a little bit of a catch-up to go for Amazon in 2020, even before the outbreak. But Amazon, perhaps more than just about any business, seems bound to have its growth turbocharged by COVID-19.
Amazon is now one of the most essential services in the country, and has seen overwhelming demand. That has spurred the company to go on a hiring spree while also raising wages across its enterprise. Amazon has already hired an additional 100,000 workers and has open positions out for 75,000 more. This is during a time in which many other businesses are seeing severe slowdowns and laying people off at a record pace.
In addition, the current work-from-home environment has only made cloud computing, a category invented and led by Amazon, all the more important. Amazon Web Services is another crucial bit of infrastructure likely to surge this year as more corporations take advantage of its scalable, low-cost computing power. Schools, hospitals, and video-conferencing companies are increasingly turning to AWS to enable telemedicine, remote education, and remote work.
Meanwhile, Amazon's Twitch platform for e-sports and Prime video services are bound to see increased usage as well. In fact, Prime video may be at an advantage in the current environment as it scoops up new movie releases on the cheap as theaters remain closed across the country.
While the current extreme lockdowns could be lifted in the next few weeks, society is likely to be in for some sort of social distancing protocols until we get a vaccine. That could be another two years. Meanwhile, this environment is only likely to cement Amazon's presence in people's lives more than it already was. With increased revenue, Amazon is likely to take this opportunity to invest in the next big thing, as it has for over 20 years as a public company.
While Amazon's share price is currently over $2,300 right now, many online brokers now allow investors to buy fractional shares of certain stocks. In fact, most offered fractional share buying by the end of last year. That means even if you only have $1,000 to invest, you can still scoop up some partial shares of Amazon today.
All of that remote work, education, and telemedicine is going to require tons and tons of computing power and storage. Already riding the wave of 5G and artificial intelligence applications, certain semiconductors may actually be in a stronger position now, as data center servers and personal computing devices remain in demand through the crisis.
No matter which company leaps ahead with the fastest, smallest, and most power-efficient leading-edge chip to power all of this, its silicon will likely be built by machines made by Lam Research (LRCX -0.20%). Lam Research makes semiconductor equipment that enables highly specialized production of the most advanced chips. The semiconductor equipment industry is actually very consolidated, with many companies carving out dominant market shares in certain types of machines for certain parts of the chip manufacturing process. For Lam Research, that means etch and deposition equipment that lays down the transistor and interconnect material on tiny wafers.
Lam's strong market share in this growing niche, along with its strong culture of both innovation and terrific capital allocation has enabled its market cap to grow 15-fold over the past decade, putting lots of more popular tech stocks to shame.
But if you think you've missed the boat, don't worry. Demand for Lam's equipment is only increasing, and its newly released Sense.i technology is a breakthrough that can help chipmakers achieve 50% higher wafer output in the same amount of space. Lam believes it can take 4-8% more market share by 2023, even on top of its already-leading etch and deposition position. And that's in an industry that is still set to grow strongly over the next decade.
Lam's strong position has afforded it an incredibly high return on invested capital of over 50% for the last few years. While the current year may have some noisy results, Lam's mere 20 P/E ratio is a very fair price to pay for a such a highly profitable company with strong long-term growth prospects. Don't hesitate to scoop up some Lam shares today.
Finally, if you want to buy bargains in the market but aren't sure where to turn, why not invest your money with Warren Buffett and let him do it for you?
That's what you get when you invest with Berkshire Hathaway (BRK.A 0.34%) (BRK.B 0.34%), Buffett's conglomerate. What's more, Berkshire's stock has been hammered in the downturn as it unfortunately owned many stocks and companies that have been slammed by the COVID-19 outbreak. That very real concern has caused Berkshire shares to fall even below where insider executive Ajit Jain made a large insider purchase back in 2018, making Berkshire's stock look like a bargain today.
Still, Berkshire has a lot of things going for it. The first is its roughly $125 billion cash pile as of December 2019, which it can use to help its own internal businesses along and scoop up bargains that may arise in this environment. Second, Berkshire's large, highly profitable insurance businesses are constantly raking in new premiums regardless of the economic environment, causing that investible cash pile to grow consistently.
Buffett is the quintessential risk-off investor, unafraid to either buy bargains or sell securities when the thesis changes. For instance, Buffett has actually been selling some of his long-held airline stocks amid the crisis, while also scooping up some value stocks last year that have held up very well in 2020 even during COVID-19. That discerning eye is bound to find a few bargains today that could pay off handsomely for Berkshire shareholders in the future. Therefore, investors shouldn't hesitate to allocate some of your investment dollars to Buffett and his team during this fearful period. Your future self is likely to thank you.