With the economy beset by supply chain issues, high inflation, and geopolitical conflict, many investors are worried about a market crash. The S&P 500 has already fallen 14% from its high, but things could get worse if the macroeconomic situation continues to deteriorate. At some point, rising prices will cause a pullback in spending and an uptick in unemployment.
That information may seem unsettling. But downturns have historically been great buying opportunities, and several FAANG stocks look especially attractive right now. Industry leaders like Amazon (AMZN 2.61%) and Apple (AAPL 0.96%) are well-positioned to generate market-beating returns for shareholders, whether or not the market crashes in the near term.
Here's why both stocks look like smart buys.
Image source: Getty Images.
1. Amazon
Amazon once again ranked as the world's second-most-valuable brand in 2022, according to Brand Finance. The secret behind that success is its dominance in e-commerce and cloud computing. In fact, Amazon accounted for over 41% of digital sales in the U.S. last year, and it captured 33% of cloud services spending in the first quarter of this year.
The company has also become a key player in a third high-growth industry: digital advertising. Last year, Alphabet and Meta Platforms still ranked first and second, respectively, but Amazon took third place with 11.6% market share in U.S. digital ad spending. More importantly, eMarketer believes that figure will rise to 14.6% by 2023.
Amazon's first-quarter financial results were somewhat disappointing, at least on the surface. Revenue rose just 7% to $116.4 billion, as inflation and supply chain issues put pressure on the top line. The company also posted its first quarterly loss since 2015, due in large part to unrealized losses from its stake in Rivian.
However, there were also a few bright spots. Advertising services revenue rose 25%, and Amazon's cloud computing business (Amazon Web Services) saw growth and profitability accelerate -- sales surged 37% to $18.4 billion, and the operating margin on those sales expanded 450 basis points to 35.3%. That's significantly higher than the mid-single-digit operating margin typically seen in its retail business.
Going forward, Amazon may struggle in the near-term as consumers grapple with rising prices, but those temporary headwinds won't change the long-term importance of e-commerce, cloud computing, or digital advertising. Amazon is at the center of several critical industries, and its brand authority should be a powerful growth driver. Better yet, the company should become increasingly profitable as Amazon Web Services becomes a bigger piece of the business.
To that end, with shares trading at 2.7 times sales -- their cheapest valuation in the last five years -- now is a good time to buy this growth stock.
NASDAQ: AAPL
Key Data Points
2. Apple
In 2022, Brand Finance once again named Apple the world's most valuable brand, and you don't have to look very hard to understand why. The electronics giant has won the loyalty of consumers thanks to its lineup of trendy devices and its capacity for innovation.
Through the first three months of the year, Apple captured 18% market share in smartphone shipments, second only to Samsung, and its latest model -- the iPhone 13 -- boasts a customer satisfaction score of 99%, according to 451 Research. Additionally, Apple has seen strong demand for its M1-powered Macs and iPads. The last seven quarters have been the best seven quarters ever for Mac sales, and it holds an industry-leading 54% market share in digital tablets
Financially, Apple has consistently churned out impressive numbers. In the latest quarter, revenue rose 9% to $97.2 billion and earnings climbed 9% to $1.52 per diluted share. Better yet, services revenue jumped 17% to $19.8 billion, primarily due to advertising, cloud services, and App Store sales. That means Apple is more effectively monetizing its installed base of devices. That's particularly important, because the gross margin on services revenue was 72.6% in the quarter, nearly double the 36.4% gross margin on its hardware. That means the company should become more profitable as services become a bigger part of its top line.
Despite a $2.6 trillion market cap, Apple still has room to grow. Its reputation for quality should keep the iPhone, iPad, and Mac at the forefront of their respective industries, and no market crash will change that. Additionally, Apple's capacity for innovation could lead to another game-changing device in the near future. According to Mac Rumors, the company may launch an augmented reality product as early as this year.
Investors should note that Apple stock currently trades at seven times sales, near the high end of its historical range. For that reason, it makes sense to build a position slowly through dollar-cost averaging.
