Stock market sell-offs can be scary events. They seem to come out of nowhere, and their end is seemingly nowhere in sight. That uncertainty can be unnerving.
While sell-offs can be challenging, they also often present unique opportunities to buy high-quality companies at much lower prices. That's why I always hold a decent amount of cash in my portfolio to capitalize on unexpected downdrafts. I also put together a watch list of stocks I'd like to buy during a meaningful market decline. Topping my current list areAmazon(NASDAQ: AMZN) and WM(NYSE: WM). Here's why I want to buy more of them and the price I'd jump on if the opportunity arises during the current market meltdown.
Holding out for an even better sale price
Shares of Amazon have cratered about 20% from their recent peak.That plunge comes even though the e-commerce and cloudgiantis thriving.
The company recently reported its second-quarter results. Net sales surged 10%, partly driven by a 19% sales increase from Amazon Web Services. Meanwhile, its net income more than doubled to $13.5 billion.
Amazon has also become a cash-flow machine over the past year. Its operating cash flow over the trailing 12 months has rocketed 75% to $108 billion compared to the prior-year period. Meanwhile, it has generated a whopping $53 billion in free cash flow over the last year compared to $7.9 billion in the year-ago period. After years of heavy investments, Amazon is finally turning into the cash-flow machine many have long expected it to become.
The company's robust growth should continue. It's investing heavily in generative artificial intelligence (AI), which is also benefiting its cloud business. It also continues to expand its offerings to e-commerce and Prime customers.
While I think the roughly 20% haircut in Amazon stock is already a decent pullback, I plan to wait to see if it falls farther before adding to my position. I'd pounce on the opportunity to buy more shares below $150.
Turning trash into treasure
WM stock has fallen about 10% from its recent peak. That sell-off has come even though the leading waste management company is having another solid year. The company's revenue rose 5.5% in the second quarter, while its underlying earnings jumped 10.3% due to continuing margin expansion (its margin hit 30% for the first time ever).
The company has also made excellent progress on its strategic expansion plan. It spent over $750 million in the first half of the year growing its solid waste collection business via a string of strategic acquisitions, adding several new geographies while also expanding in some of its growth markets.
WM also continues to expand into adjacent areas to its core business to drive more growth. It recently opened two upgraded recycling facilities and is building several renewable natural gas projects. Meanwhile, it agreed to acquire leading medical waste services provider Stericycle for $7.2 billion, which should be an accretive deal for shareholders.
The company's growing cash flow will give it more money to return to shareholders. While WM plans to pause share repurchases over the next 18 months while it repays debt related to the Stericycle deal, it should continue increasing its dividend.
WM operates such a stable business that it rarely goes on sale. Because of that, the recent 10% discount in its share price looks like a compelling long-term buying opportunity. However, I'd like to see an even bigger discount before I buy more shares, with my target to buy them if they fall below $185.
Waiting to see if the sell-off accelerates
Sell-offs aren't fun. However, they can be opportunities to buy great companies at better prices. That's why I've started making a watch list of stocks I'd love to buy more of if they keep falling. Amazon and WM top my list. While I think their recent declines already make them more enticing, I'm going to be patient to see if I can nab an even lower price for these high-quality stocks.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matt DiLallo has positions in Amazon and Waste Management. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.
