Three Stocks I Unhesitantly Invest in at Current Levels
When a stock experiences a significant rise, you might hesitate before purchasing it. You might fear that the company will soon run out of steam, resulting in minimal gains or even losses. The current momentum might not indicate that the stock has reached its peak and should be avoided. Many reputable companies go through phases of substantial growth that persist for some time, and even after this growth slows down, these stocks still offer potential for further increases over an extended period.
Some of the current market's high performers fall into this category, offering enticing long-term opportunities. You can find them across various industries, but today, three from the consumer goods sector, specifically travel and retail, appear particularly attractive investments. I'm referring to Carnival (CCL -2.26%), Amazon (AMZN -1.45%), and Costco (COST -1.72%). They have achieved gains of 21%, 31%, and 34% respectively, this year. Let's delve into these stocks that I would buy without any reservations.
1. Carnival
Carnival faced tough times during the initial stages of the pandemic, causing cruising operations to temporarily halt. This led to the world's largest cruise operator accumulating a considerable amount of debt to keep operations afloat. Profit switched to a loss, and the share price plummeted.
However, Carnival has navigated smoother waters recently. The company has proved itself to be a compelling recovery and growth story. Carnival implemented various initiatives to turn things around, such as cutting fuel costs and encouraging increased onboard spending by travelers. Simultaneously, the company focused on reducing debt, specifically in variable-rate borrowings.
These measures have yielded positive results. In the latest quarter, Carnival reported record revenue and operating income. Moreover, the company's advance booked position surpassed last year's record levels at higher prices, highlighting the strength of demand for Carnival's cruises.
Today, even after its double-digit gain this year, the stock price still presents a bargain at 20x trailing 12-month earnings, compared to levels above 40x prior to the pandemic.
2. Amazon
Amazon excels in two lucrative markets: e-commerce and cloud services. Moreover, the company is gaining ground in the rapidly expanding field of artificial intelligence (AI). Amazon's e-commerce sector is profiting from its AI investments, becoming more efficient and enhancing customer service. This should result in reduced costs and increased customer loyalty.
Amazon Web Services (AWS), the company's cloud business, is benefiting from AI in a second way – through the sale of AI-related products and services to customers initiating AI projects. AWS caters to all AI requirements, from budget-friendly chips to Nvidia's high-end graphics processing units (GPUs).
AWS has already produced impressive results, with its annual revenue run rate reaching $110 billion in the recent quarter. Additionally, Amazon has consistently demonstrated revenue and profit growth into the billions. All of this makes the stock appear reasonably priced at 38x forward earnings estimates.
3. Costco
Many people assume that Costco makes the majority of its profits through selling groceries and a range of general merchandise to its clients. However, the truth is that the company earns most of its profit before customers even enter the warehouse, mainly through membership fees. As membership fees incur minimal costs, they are high-margin sources of revenue.
This income enables Costco to maintain remarkably low prices on merchandise, ensuring customer loyalty and encouraging new members. Statistics illustrate this success, with Costco's renewal rates consistently exceeding 90%.
Costco, due to its low prices, tends to perform well even during challenging economic conditions, as people search for bargains – making it an attractive long-term investment. The company has rewarded investors with substantial special dividends five times, with the most recent, last year, reaching an all-time high of $15 per share.
Costco shares may appear expensive at 49x forward earnings estimates, but its robust business model, track record of results, and loyal customer base justify the price.
- Considering Carnival's impressive recovery and growth, investing in their stocks could be a strategic move in terms of finance, as the stock price still presents a potential for further gains despite its double-digit increase this year.
- Amazon's strong performance in e-commerce, cloud services, and AI, coupled with its consistently high revenue and profit growth, makes its stock an attractive option for investors, even though it is priced at 38x forward earnings estimates.
