Market downturns are a common occurence that investors must live through to grow their money over the long term. Warren Buffett's career guiding Berkshire Hathaway shows that it is much easier and stress-free to buy and hold great companies than to try to time the market.
E-commerce is a $4.9 trillion market
John Ballard (Amazon): Shares of Amazon hit an all-time high of $3,773 in 2021, but the stock has fallen 43% from those highs over concerns about the health of the economy and Amazon's slowing sales growth. Sales increased just 7% year over year for the first quarter, which is well below the more than 20% rate of growth Amazon regularly reported over the last 10 years. However, with global e-commerce projected to reach $7.4 trillion by 2025 from $4.9 trillion in 2021, Amazon won't stay down forever.
One sign that Amazon is still sitting in a strong competitive position is that Prime members are spending more with Amazon than before the pandemic. Even Amazon's physical stores grew sales 16% year over year in the first quarter.
Amazon also continues to see robust growth from non-retail services. Advertising services grew 25% year over year in the first quarter and are now a $32 billion annual business, or 7% of Amazon's total business. This reflects growing demand from third-party brands wanting to put their goods in front of Amazon's large customer base of more than 200 million Prime members.
On a price-to-sales (P/S) basis, the stock is as cheap as it has been in more than five years. Several notable investment managers were adding shares last quarter, including Daniel Loeb at Third Point and Josh Tarasoff at Greenlea Lane Capital. It's not a bad idea to copy smart investors at a time like this.
No competition in entertainment
Jennifer Saibil (Walt Disney): Disney's had a tough few years. Even as many global regions are reopening, the pandemic is still not over. Aside from park closures, there have been movie theater closures, capacity restrictions, and film production delays. There's almost no part of the company's vast and broad business that hasn't been impacted.
Fortunately, its streaming business has been impacted in a very good way. In a period of just over two years, Disney+ has grown its subscriber base to nearly 138 million, with total subscribers for all of the streaming networks at over 205 million. That's nearing industry leader Netflix's close to 220 million.
Investors were delighted with the addition of 7.9 million Disney+ subscribers in the 2022 fiscal second quarter (ended April 2), and the company is following through on its plans to add subscribers globally. It's on track to reach its goal of 230 million to 260 million subscribers by 2024 as it continues launching in new regions.
It also saw progress on many other fronts in the second quarter. Revenue increased 23% year over year, topping $19 billion. The parks and experiences segment more than doubled revenue as people are coming back, so much so that per-capita spending at domestic parks increased 40% as compared with 2019. The company is investing in new rides to attract visitors and stay at the top of its game.
It's also investing in new content for streaming as well as strategically allocating resources to make the most of its various channels, including television, theater production, and streaming channels. Its unmatched library and creative team provide it with leverage to generate lots of high-quality content fill these channels for many years.
Disney stock is down more than 30% this year, giving investors a great opportunity to buy shares of this blue chip stock at an excellent price.
Apple has built a large and loyal customer base
Parkev Tatevosian (Apple): Apple is one company I expect will be around for a long time. The company has demonstrated an ability to create innovative products and services that attract and retain consumers long-term. What's more, the decades of trust it has built allow it to sell products at premium prices that generate healthy profit margins. The broad market sell-off has dropped Apple's share price 20% off its high, allowing long-term investors to buy this excellent business at a lower price.
Indeed, Apple is responsible for many superb products, including the iPod, iPhone, iPad, Apple Watch, and AirPods. When planning to hold an investment for the long term, this demonstration of repeated success in creating products and services that consumers pay premium prices to buy is a desirable characteristic.
Apple's revenue reached $365 billion in 2021, up from $171 billion in 2013, which shows how strong customer demand has been. From that growth, Apple boosted operating income from $49 billion to $109 billion in that same time. That was an operating profit margin of 29.8% in 2021. Apple's products are typically priced higher than competitors', but consumers are willing to pay the premium. The brand loyalty Apple has built will work in favor of long-term investors over the years as competitors attempt to infringe on Apple's business.
The sell-off has Apple's stock trading at a price-to-free-cash-flow of 23 and a price-to-earnings of 24; each is down meaningfully from the highs earlier in the year. Investors looking for a beaten-down stock they can buy and hold forever can add Apple to their portfolios.