The market is back up 8% this year after it tumbled in the wake of the banking crisis, demonstrating investor enthusiasm and resiliency. Yet, many stocks are still down sharply over the past year and making incremental progress -- and that could provide a good opportunity for investors to catch them on their way back up.
Amazon (AMZN +1.36%) and Walt Disney (DIS 1.72%) are two heavyweights still down but now climbing again in 2023. They both operate outstanding businesses with huge potential. Which one is the better buy right now?
The case for Amazon stock
The case for Amazon stock is fairly obvious. Over its close to 30 years of existence, it has grown to become one of the biggest companies in the world, dominating in several industries. But the key to why it's a great stock is its future possibilities. That's along the same lines as why it has done so well in the past: its innovation-focused culture, willingness to take risks, and investments in cutting-edge technology.
Amazon Web Services (AWS) is a classic example. When first developed in 2006, by a team including current CEO Andy Jassy, it was a departure from Amazon's core e-commerce business. It's now one of the dominant cloud-computing services available and a profit-generating machine. AWS growth has been slowing down, with a 29% year-over-year sales increase in 2022 after 38% in 2021, and specifically down to 20% in the 2022 fourth quarter.
But Jassy laid out a vision for where it's going and how Amazon expects it to expand long-term. He assured shareholders in his 2022 shareholder letter that the new customer pipeline is robust as are active migrations. He also said it's at times like this that many companies reevaluate their spending, which is likely to result in more customers switching to AWS.
NASDAQ: AMZN
Key Data Points
Amazon itself has been examining all of its processes from every angle and optimizing its own costs, and it's restructuring its fulfillment network to be faster, cheaper, and more agile.
There are still possible drawbacks to owning Amazon stock today. It's been demonstrating all of this progress, and still has plenty of untapped potential, but the short-term outlook is still bleak, and management will be the first to admit it. It guided for an underwhelming 6% sales growth in the 2023 first quarter, which will be reported next week, barely keeping up with inflation, and as low as zero operating income.
It will take time to recover, a phase during which your money could be working better elsewhere. Still, investors are upbeat about Amazon's trajectory, and Amazon stock is up 22% so far this year.
The case for Disney stock
Disney is experiencing its own troubles as it scales its relatively new streaming business and brings back parts of its business, namely parks and film sales, that were negatively affected by the pandemic.
So far, it's looking good. Parks have been demonstrating strong momentum, with a 27% year-over-year sales increase in fiscal Q1 2023 (ended Dec. 31, 2022) and an even higher increase in operating income. Demand has been robust, and management has been able to raise many prices and charge for value-added services as guests are eager to enjoy the Disney park experience.
Disney has all sorts of new rides and experiences being rolled out and in the pipeline to keep the experiences fresh. That's a part of the magic Disney formula: constantly releasing new content and related products and services centered around its ever-expanding world of themes, characters, and franchises.
NYSE: DIS
Key Data Points
That's the basis of its film production and streaming networks as well. It has an unmatched content library fueled by popular films and series, and it continues to add new material, frequently based on previous hits. Marvel Studios is an excellent example as it produces films, series, and other products that get spun into all sorts of content and merchandise.
It's also the main reason behind the success of Disney+, which has reached more than 160 million subscribers. Along with that successful launch, Disney+ has been piling on expenses, leading to an operating loss for the media segment in Q1. Newly returned CEO Bob Iger has already restructured these segments and is committed to nudging streaming toward profitability.
Like Amazon, Disney is facing near-term pressure, but it has the assets, tools, and potential to operate a growing and profitable business long-term. The stock is up 14% so far this year.
Two great options, two dependable stocks
These are two industry leaders with reliable growth prospects, and I frequently recommend both of them as long-term stock picks. If I had to choose one over the other, I would say Amazon right now, because it has more avenues toward growth and is doing a great job of fixing its problems.
