There are still some negative headlines these days, mostly about the possibility of a recession. But with inflation showing some signs of cooling down, and the stock market in bull market territory, there is certainly some optimism as well. Regardless of your perspective, seeking out quality investments is always a good idea, no matter what's going on in the economy.
If you're looking for stocks that are no-brainer buys right now, then consider Amazon (AMZN 0.58%), Apple (AAPL 0.02%), and Costco (COST 0.34%) as top businesses to add to your portfolio. Here's why they are wonderful holdings during a time like now.
Amazon has multiple growth engines
With its exposure to multiple fast-growing sectors, Amazon still has lots of potential, even though it's already so massive. Online shopping is the biggest aspect of the overall business, and Amazon has a commanding lead in the U.S. But with e-commerce penetration at less than one-fifth of total retail sales in the U.S., there is undoubtedly lots of room for expansion.
I'm sure investors are familiar with Amazon Web Services, the leading cloud infrastructure and platform services provider. This segment generated revenue of $21.4 billion in the latest quarter, up 16% year over year, and posted an operating margin of 24%. The cloud market will continue growing rapidly in the decade ahead.
Amazon also has its hands in digital advertising, which increased sales 23% in the most recent quarter. The digital ads segment continues to gain share and pick away at the dominance of Alphabet and Meta Platforms.
As of this writing, Amazon shares are down 32% from their all-time high. This discount provides investors with an attractive valuation, with the stock trading at a price-to-sales ratio of 2.5, well below its trailing five-year average. Paying that price for this high-quality business is an easy decision.
Apple's loyal customers are an asset
Anytime a company has such a fanatical customer base the way Apple does, investors are smart to take a closer look. A seamless, beautiful, and superior product and service offering has resulted in incredible profitability for Apple. Its gross margin has averaged 40% over the past five years. And free cash flow (FCF) totaled a whopping $111 billion in fiscal 2022, equaling 28% of revenue. This affords Apple the ability to repurchase an insane amount of its stock each quarter, boosting earnings per share.
Apple reported having more than 2 billion installed and active devices worldwide, and the business has done a great job of better monetizing this penetration. The company's Services segment, which houses offerings like Pay, TV+, Music, App Store, and iCloud, generates additional high-margin sales.
With the constant upgrades of existing hardware, plus the introduction of new products, like its recently announced mixed-reality headset and maybe even an automobile in the future, Apple is poised to continue expanding its reach and finding ways to keep users engaged in its vast ecosystem. This can support even more revenue, profit, and FCF going forward.
Costco's value proposition is unmatched
Last on this list is none other than warehouse retailer Costco. Like Amazon and Apple, this business is a favorite among consumers. That's because Costco, with its 852 stores globally, is known for having some of the lowest prices around for a wide product assortment that ranges from groceries and gas to electronics and jewelry. The typical markup on items at Costco is far below what you'd see at other big box retailers. Customers certainly find value in this, especially at a time of elevated, albeit decreasing, levels of inflation.
A key feature of Costco's business is that it's a membership-based model. Customers must pay an annual fee of $60 for a basic plan that gives them the ability to be shoppers. The renewal rate during the latest fiscal quarter (ended May 7) was an outstanding 92.6% in the U.S. and Canada. This drives stickiness and repeat purchase behavior, something any retailer would want.
Costco's CFO Richard Galanti mentioned on a previous earnings call that the company would raise the prices on its membership soon. The last time this happened was in June 2017. Because memberships are such an important income driver for the overall business, investors have been waiting for this to happen, as it could provide a significant boost to Costco's bottom line.
