Many investors are likely reluctant to buy stocks again after the market's dismal performance in 2022. However, ignoring stocks altogether is usually the wrong move when so many high-quality stocks are still on sale. So today, I'll examine three promising stocks -- Amazon (AMZN -1.14%), Costco (COST -0.55%), and Rent the Runway (RENT -9.03%) -- and explain why they could be "no-brainer" buys for long-term investors who can tune out the near-term noise.
1. Amazon
Amazon became a top growth stock during the coronavirus pandemic for two simple reasons: Consumers purchased more products online as brick-and-mortar stores closed down, and the usage of Amazon Web Services' (AWS) cloud-based services soared as companies dealt with the increased usage of digital media and applications throughout the crisis. That's why its revenue rose 38% in 2020 and 22% in 2021.
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But when Amazon posts its next earnings report on Feb. 2, analysts expect its revenue to have risen a mere 9% in 2022 as it turns unprofitable. That deceleration is expected due to a post-pandemic slowdown in online sales, inflationary headwinds for discretionary purchases, and softer demand for cloud-based services as the macroeconomic environment worsened.
It might seem odd to recommend buying Amazon when it faces so many headwinds, but it's already tumbled nearly 50% from its all-time high and looks historically cheap at less than 2 times next year's sales. If you believe Amazon will recover from this cyclical slump, continue to lock in more Prime subscribers, and remain the world's top e-commerce and cloud company (as well as one of its fastest-growing advertising platforms), then it's a great time to get greedy with its shares.
2. Costco
Costco remained a popular safe-haven investment during the pandemic as consumers flocked to its warehouse stores to stock up on groceries and household essentials. It locked in those shoppers with its sticky membership plans, which had a global renewal rate of 90.4% last quarter, and it continued to open new stores as other, weaker retailers retreated.
Costco generates most of its profits from its high-margin membership fees, so it can afford to sell its products at low prices to attract more shoppers. Those low prices also enabled it to continue growing in a post-pandemic market, even as inflation rattled many other traditional retailers.
Costco's revenue rose 17% in fiscal 2021 (which ended in August 2021) and grew 14% in fiscal 2022. Inflation has been curbing its sales of big-ticket items like consumer electronics and appliances, but it's offsetting that pressure with robust sales of food and sundries. Analysts expect its revenue and earnings to rise 7% and 10%, respectively, in fiscal 2023. Costco's stock isn't cheap at 35 times this year's earnings, but its evergreen business model supports that premium valuation.
3. Rent the Runway
Rent the Runway lets customers rent high-end designer apparel on an a la carte basis or through three tiers of monthly subscriptions. It went public at $21 per share in October 2021, but it now trades at about $4. It initially impressed investors with its "closet in the cloud" strategy for disrupting traditional clothing rental companies and capitalizing on the mainstream appeal of high-end designer apparel, but it lost its luster as inflationary headwinds rattled the apparel market.
Yet its actual numbers aren't too bad. Its revenue declined 39% in fiscal 2020 (which ended in January 2021) as the pandemic crushed the market's demand for high-end clothing rentals, but rose 29% in fiscal 2021 as the market stabilized. Analysts expect its revenue to have increased another 47% in 2022 as the elevated post-pandemic demand for high-end apparel rentals offsets its slowing growth in total subscribers. Based on those expectations, it trades at less than 1 times next year's projected sales.
For now, the main concerns about the company are its persistent lack of profits, the impact of inflation on its logistics expenses, and its dwindling liquidity. But if it can resolve those issues -- as it's been trying to do by laying off nearly a quarter of its workforce and reining in its spending -- it might just generate big multibagger gains in the near future.
