You don't need a fortune to invest in the stock market. A $500 initial investment could yield massive returns if you bet on the right company over the long term. Let's discuss why Amazon (AMZN -1.65%) and MGM Resorts (MGM -1.24%) could make great picks.
1. Amazon
Fresh off a 20-to-1 stock split that took its shares to just over $100 each, Amazon has become more accessible to smaller investors. The company's legendary economic moat in e-commerce and cloud computing makes it a stock to buy and hold forever.
Amazon's e-commerce operations benefited tremendously from the COVID-19 pandemic, which boosted interest in stay-at-home shopping. But now that the crisis is over, the company faces difficult comps against 2021. While second-quarter net sales jumped 7% year over year to $121.2 billion, operating income dropped 57% to $3.3 billion.
The company's e-commerce segment faces inflation and lower efficiency after overexpanding to meet the pandemic-related surge in demand.
That said, Amazon's economic moat remains intact. With an estimated 38% market share in U.S. e-commerce, the company enjoys a substantial network effect (meaning more customers draw more merchants and selection, and vice versa).
And the scale of its cloud computing business AWS (which controls 33% of the market) allows it to offer lower-priced solutions to its clients. These advantages could help ensure a long-term recovery.
2. MGM Resorts
Down 33% year to date, MGM's stock now trades at a substantial discount to previous highs -- despite an impressive rebound from the COVID-19 pandemic. The casino operator's Las Vegas business is firing on all cylinders, and its affordable valuation is icing on the cake.
While inflation is a problem for retail companies like Amazon, MGM is relatively shielded from this challenge. As a hospitality company, its largest cash outflows (such as building or purchasing its hotels and resorts) are fixed instead of variable. And it can use the period of high prices to raise room rates without shocking consumers.
Image source: Getty Images.
So far, the company is performing well in this difficult economy. Second-quarter net revenue jumped 44% year over year to $3.3 billion, boosted by the acquisition of The Cosmopolitan casino resort for $1.63 billion in 2021.
MGM's competitive moat comes from its dominance of the Las Vegas Strip, where it owns iconic properties like the MGM Grand, Bellagio, and Mandalay Bay. In the second quarter, revenue from this crucial market hit $2.14 billion -- 146% more than in the corresponding period of 2019, before the COVID-19 pandemic.
With a trailing price-to-earnings (P/E) multiple of just 4.4, MGM Resorts is trading at a surprisingly low valuation compared to profits over the previous 12 months. But while management hasn't provided specific guidance, the company's Las Vegas casinos are soaring, and it has the brand power to maintain its success.
Betting on quality
With the S&P 500 down a blistering 25% year to date, there is no shortage of cheap stocks in the market. However, investors should shop for value: the combination of a good price and a good business.
With strong brands and catalysts for future success, Amazon and MGM Resorts both fit the bill and would make good picks for a $500 investment.
