The stock market sell-off is intensifying, with the S&P 500 (^GSPC 0.61%) down 4.8% in the first three months of the year compared to an over 10% tumble in the Nasdaq Composite (^IXIC 0.93%). Even quality growth stocks like Amazon (AMZN 0.87%) and Netflix (NFLX +1.15%) are falling. Meanwhile, Energy Transfer (ET +1.02%), Dominion Energy (D +0.59%), and Nike (NKE 0.22%) provide passive income regardless of the stock market's performance.
Motley Fool contributors were asked to offer some details on why all five of these industry-leading companies are built to last and are worth buying and holding even if the stock market goes through a prolonged downturn. Here's what they had to say.
Image source: Getty Images.
1. Amazon stock is looking attractive
Demitri Kalogeropoulos (Amazon): The latest earnings update from Amazon contained plenty of good news about the business that should have investors feeling bullish on the stock. There was the additional $18 billion of revenue the company booked in Q4, for example, translating into a 10% increase year over year. That growth is increasingly coming from the Amazon Web Services (AWS) division, which expanded at a 19% rate for the quarter and the full 2024 year. AWS accounted for $108 billion of Amazon's $638 billion revenue last year, or 17% of the total.
But the even better news is around profitability, which has been soaring in recent years, thanks partly to that growth in the web services division. Amazon's operating profit margin just crossed into the double digits on the combination of growth and cost cuts. The company isn't underinvesting in its core e-commerce sales, either. Amazon delivered 65% more products to Prime members in ultra-fast same-day or overnight delivery in Q4, and its prices were recognized as among the lowest available online. Those factors should have competitors concerned, given that Amazon can clearly boost profit margins while offering low prices and reducing delivery times.
Data by YCharts.
The stock isn't cheap, even after the recent market pullback. Amazon is valued at 3.4 times sales today, up from the low of about 1.5 times sales in early 2023. Yet it's a much stronger company since then, with a good chance at pushing profit margin closer to 15% of sales over the next decade as the AWS and e-commerce businesses expand. If you're worried about a potential recession, you might want to simply watch the stock for now. But long-term-focused investors are likely to do well by holding Amazon shares through many economic cycles to come.
NASDAQ: AMZN
Key Data Points
Netflix is a long-term winner in any market
Anders Bylund (Netflix): I'm not saying that the stock market is falling apart right now, but even Warren Buffett is selling more than he's buying. The legendary Oracle of Omaha seems to be putting some cash on the sidelines, preparing to make new investments at lower prices someday soon.
It seems reasonable to prepare for a potential market dip under these circumstances -- and even better if my stock picks would fare even better in a healthy economy. Best of both worlds, you know.
That's why I'm recommending media-streaming pioneer Netflix today.
Yes, you heard me right. Netflix has a stellar history of overcoming deep market dips in the past. Remember the subprime mortgage meltdown of 2008? I checked the price changes of the current S&P 500 list in the three-year period starting on April 1, 2008. Netflix came out on top with a stellar return across that timespan.
The stock fell right along with the broader market when the Lehman Brothers firm filed for bankruptcy, of course. Netflix shares plunged as much as 50.9% lower by the end of that year, roughly in line with the S&P 500 index's max price cut of 49.4%. I'm looking at total returns here, giving the dividend-paying group of index stocks a small advantage over the dividend-free Netflix stock.
Fast-forward to the spring of 2011, and the S&P 500's total return was up to 4%. Netflix fared a bit better, posting a 563% price gain:
Data by YCharts.
It was a similar story over the last three years as the inflation panic of 2022 played out. Netflix has gained 161% in three years, while the broad market index rose by 31%. That's far from the largest jump I've seen in recent years but still a market-beating return:
Data by YCharts.
Every situation is unique, and I can't guarantee that Netflix will stomp the market in the next bear market, whenever that might come. However, the company has a robust history of superior performance under difficult market conditions, even if each crisis also includes a large price drop along the way.
At the same time, Netflix is shifting into a more mature business model. The company's former focus on maximal subscriber growth is a thing of the past, and management targets profitable growth these days. As a result, the stock should grow more stable and less volatile over time, regardless of the economic situation. New ideas include live sports coverage, ad-supported subscriptions, and video games. This little company is going places, you know.
An energy dividend stock with promising prospects
Neha Chamaria (Energy Transfer): Energy Transfer is one of the largest pipeline stocks in the U.S. that's steadily expanding its capacity. However, one number that management quoted during Energy Transfer's latest earnings conference call caught my attention: "Now, for our growth capital expenditures. Given our wealth of opportunities, we expect to spend approximately $5 billion in 2025." So after spending $3 billion on organic growth in 2024, Energy Transfer is planning to pump $5 billion into growth this year. I believe this spending could lay the foundation for Energy Transfer's next growth phase.
Energy Transfer owns over 130,000 miles of pipelines and transports commodities like natural gas, crude oil, natural gas liquids, and refined products across the nation. Of the $5 billion it expects to spend in 2025, roughly $1.6 billion will go toward its midstream business especially in the Permian Basin, and $1.4 billion toward its intrastate natural gas segment including the Hugh Brinson pipeline. This pipeline is an important project as it will significantly expand Energy Transfer's transportation capacity out of the Permian Basin and connect it to major trading hubs in Texas where data centers are booming.
In other words, Energy Transfer is trying to capitalize on the rising demand for natural gas from data centers and also struck a deal with Cloudburst earlier this year to supply gas to its data center campus. While data center demand could open up more opportunities and markets for Energy Transfer in the coming years, a majority of its ongoing capital projects are expected to come online later this year and in 2026. That should boost Energy Transfer's earnings and cash flows and support management's goal to boost the annual dividend by 3% to 5%. With the stock also yielding a hefty 6.9%, Energy Transfer stock is a great long-term buy now for 2030 and beyond.
A safe port in the storm
Keith Speights (Dominion Energy): How long will the turbulence in the stock market last? I don't know. But I do have a good feel for which stocks are likely to hold up well no matter how long it lasts: utility stocks. And I think Dominion Energy ranks as one of the best utility stocks around.
NYSE: D
Key Data Points
Dominion Energy provides electricity to around 4.1 million customers in Virginia, North Carolina, and South Carolina. The company can generate 30.3 gigawatts of power. It operates 10,600 miles of electric transmission lines and 79,700 miles of electric distribution lines. Dominion is also one of the top offshore wind and solar power providers in the U.S.
Perhaps the most important thing about Dominion is that roughly 90% of its earnings come from its state-regulated utility operations. In other words, most of the company's profits are protected from competition. That's a huge plus during times of economic uncertainty.
Even if Dominion Energy's share price dips somewhat in a market sell-off, investors will be paid handsomely to wait for better times. The company's forward dividend yield currently stands at 4.86%.
The U.S. Energy Information Administration projects U.S. power demand will hit record highs in 2025 and 2026. The soaring demand for data centers supporting artificial intelligence (AI) applications is a major growth driver. Dominion's Northern Virginia market is the home of the world's largest cluster of data centers. I look for the company to deliver solid growth over the next few years, largely thanks to the AI-fueled demand for power.
Nike stock has fallen far enough
Daniel Foelber (Nike): Nike stock is hovering around a seven-year low for mostly valid reasons. The company's sales growth has turned negative, and margins are falling -- putting Nike's direct-to-consumer (DTC) strategy in question.
In 2017, Nike invested heavily in DTC, which it calls Nike Direct. Nike Direct is divided into Nike Digital and Nike-owned stores. Nike Direct was meant to help the company better engage with customers instead of going through wholesalers. But Nike Direct is currently underperforming the wholesale business.
In the recent quarter, Nike reported 9% lower revenue year over year while Nike stores were down 2% and wholesale was down 4%, Nike Direct was down 10%, and Nike Digital fell 15% -- dragging down the broader business. High markdowns in Nike Direct and wholesale discounts didn't do any favors for Nike's margins.
NYSE: NKE
Key Data Points
Struggles at Nike Direct illustrate why DTC isn't a surefire way to boost earnings, especially if it coincides with expensive marketing efforts and promotions. To right the ship, Nike is repositioning Nike Digital to cut back on promotions, focus on its best products, get back to storytelling, and ultimately, make Nike Direct a full-price business. Nike finished the holiday season with its usual flurry of promotions. But in January and February, it reduced promotions across key regions -- which helped margins.
Nike still has a long way to go to return to meaningful growth, but management is doing a good job of recognizing mistakes and implementing better strategies so that Nike can leverage its brand's strength rather than overly focusing on producing and selling as much footwear and apparel as possible.
Nike has a reasonable valuation and a growing dividend. The stock's sell-off, paired with 23 consecutive years of dividend raises, has pushed Nike's dividend yield to a 15-year high of 2.3%.
Add it all up, and Nike is great buy for patient investors willing to give the investment thesis time to play out.
