When a stock has soared, you may think twice before buying it. You might worry the player will soon run out of fuel -- and you'll either record a small gain, or worse, lose on this investment. But recent momentum doesn't necessarily indicate that a stock has delivered its best and now should be avoided. Many quality companies go through periods of significant gains that last a while, and then even after this momentum slows, these stocks still offer investors potential for additional increases over the long term.
Some of today's top performers fall into this category, presenting you with fantastic long-term prospects. You'll find them across industries, but today three in the consumer goods space, spanning the areas of travel and retail, represent particularly interesting investments. I'm talking about Carnival (NYSE: CCL)(NYSE: CUK), Amazon(NASDAQ: AMZN), and Costco(NASDAQ: COST). They've climbed 21%, 31%, and 34%, respectively, this year. Let's check out these stocks I'd buy now with no hesitation.
Image source: Getty Images.
1. Carnival
Carnival had it rough during the early days of the pandemic as cruising operations temporarily shut down. This resulted in the world's biggest cruise operator building up a wall of debt to -- excuse the pun -- stay afloat. Profit shifted to a loss, and the stock price sank.
But in recent times, Carnival has sailed into smoother waters. In fact, the company is proving itself to be an excellent recovery and growth story. Carnival made a broad range of efforts to turn things around, from cutting fuel costs to taking steps to increase travelers' onboard spending -- and at the same time, the company worked on paying down debt, with a special focus on variable rate borrowings.
Efforts have paid off. In the recent quarter, Carnival reported record revenue and operating income. And the company's advanced booked position leaped ahead of last year's record levels -- this is at higher prices, showing the strength of demand for Carnival's cruises.
Today, even after its double-digit gain this year, the stock trades for a bargain 20x trailing 12-month earnings, compared to levels above 40x prior to the pandemic.
2. Amazon
Amazon is a leader in two high-growth markets: e-commerce and cloud computing. And today the company also is emerging as a leader in the hot area of artificial intelligence (AI). Amazon's e-commerce business is benefiting from the company's investment in AI as it uses these tools to become more efficient and better serve customers -- this should reduce cost to serve and keep customers coming back.
And Amazon Web Services (AWS), the company's cloud business, is helping Amazon benefit from AI in a second way -- through the sales of products and services to customers launching AI programs. AWS sells everything AI customers may need, from chips to a fully managed service for the training of models. The cloud provider also offers a range of prices, from its own bargain chips to Nvidia's premium graphics processing units (GPUs).
AWS already is delivering results, with its annual revenue run rate reaching $110 billion in the recent quarter. And Amazon has proven itself over time, delivering revenue and profit growth into the billions. All of this makes the stock look reasonably priced at 38x forward earnings estimates.
3. Costco
Some people may think Costco makes most of its profit by selling groceries and a range of general merchandise to its customers. But the company actually generates most of its profit before customers even set foot inside the warehouse. This is through membership fees -- and these are high margin because it doesn't cost much for the company to sign customers up or renew their memberships.
This income allows Costco to maintain dirt cheap prices on merchandise -- and this, in turn, keeps current customers loyal and encourages others to sign up. Numbers illustrate this success, with Costco's renewal rates steadily coming in at greater than 90%.
Costco, thanks to its low prices, tends to perform well even during difficult economic environments -- as people look for deals -- making it a great stock to own over time. The company also has rewarded investors with hefty special dividends five times, with the latest, last year, at the highest level ever at $15 per share.
Costco shares may not be cheap at 49x forward earnings estimates, but the company's solid business model that's delivered results and the loyalty of its members make it worth the price.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $22,469!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,271!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $411,970!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of November 4, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Nvidia. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
