Although there are some indications that we've left the bear market behind, we'll know for sure when the market exceeds its previous high. That came very close to happening toward the end of July, but an interest rate hike and some dismal retail earnings reports sent the S&P 500 back down again. It's now up 14% in 2023.
The good news is that so long as prices remain lower, there are more deals to be had. When looking for great stocks to buy, tracking what billionaires are buying can provide some inspiration. While each billionaire's fund has its own goals and strategy, they know how to pick winners.
Recently, David Tepper's Appaloosa Management and George Soros' Soros Fund Management have been buying Amazon (AMZN 3.43%) stock, and Appaloosa and James Simons' Renaissance Technologies have been buying Uber Technologies (UBER -0.38%) stock. Both of these stocks are climbing back up this year after a difficult 2022.
Let's assess what these billionaire fund managers see in these stocks.
1. Amazon: Cutting costs and entering new areas
It's not hard to understand why Amazon could be an incredible investment, but some time periods look better than others to buy in. That depends on valuation and what Amazon is doing to solidify its place at the top of the e-commerce mountain.
Right now, the e-commerce giant is making strong progress on cutting costs and boosting profits, an issue that has been a thorn in its side. It cut 27,000 jobs over the past year, and it's using artificial intelligence (AI) to make fulfillment cheaper and speedier. It restructured its distribution network for more effective delivery planning, and it's only paring down infrastructure it doesn't need, so these changes aren't affecting its ability to perform well.
Revenue continues to increase despite the retail environment, coming in above expectations in the 2023 second quarter, with an 11% year-over-year increase to $134.4 billion. Operating income more than doubled from last year's $3.3 billion to $7.7 billion, and the company swung back to profits with $6.7 billion in net income after a $2 billion net loss last year.
Amazon is a lot more than e-commerce, which is part of why it's looking so good. Amazon Web Services (AWS) continues to be a standout business, and while its growth is decelerating, it still saw a 12% increase in the second quarter and produced $5.4 billion in operating income.
Amazon is also making progress in its healthcare bid, which it bolstered with the acquisition of One Medical this past February. This week, it announced a major partnership with California insurance company Blue Shield to fulfill home medication orders. Healthcare could be Amazon's next AWS, and there are more businesses in the pipeline.
The stock is up 59% in 2023, but it's still about flat from a year ago. At their current price, the shares trade at 2.6 times trailing-12-month sales, which could be cheap for a company with as much potential as Amazon. It's easy to see why fund managers are scooping up shares.
2. Uber: Turning a corner on profitability
Uber has been around since 2009 and a public company since 2019. While revenue has soared, profits have been elusive, and the stock price has reflected that -- until now.
In the 2023 second quarter, Uber finally posted the long-awaited magic number that demonstrates it can be profitable at scale. This is likely the reason it's all of a sudden a hot stock for billionaires and regular investors alike. The shares are up 81% so far this year.
Revenue increased 14% year over year to $9.2 billion in the quarter, which was below analysts' expectations. But investors were willing to overlook some lumpiness there. It's the bottom line that investors have been focusing on. Uber has posted positive net income in the past, but it's been due to unrealized gains from investments. It has never posted positive operating income until this quarter.
Even in this report, net income of $394 million included a pre-tax gain of $386 million. These aren't Earth-shattering numbers, and it's not clear if profits are sustainable at this point. Margins are still very narrow. But with revenue and bookings expected to grow, it's likely that they will become sustainable soon.
Another update getting investors excited is Uber's experimentation with autonomous vehicles. These are already live in some testing locations, and they could be a boon for Uber's profits as well, since they remove Uber's biggest expense: drivers. The stock could potentially explode when autonomous vehicles become the norm.
At the current price, Uber stock trades at 2.6 times trailing-12-month sales. That's reasonable for a stock with Uber's potential, and it could soar as revenue keeps increasing and profitability improves.
